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, 1999

                                       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
                                 (781) 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.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the  registrant  based on the  closing  price of such stock on The Nasdaq  Stock
Market on March 20, 2000, was approximately  $417,280,000.  For purposes of this
disclosure  only,  the  registrant  has assumed  that its  directors,  executive
officers,  and beneficial owners of 10% or more of the registrant's common stock
are affiliates of the registrant.

     The  registrant  had  30,661,000  shares of Common  Stock,  $.01 par value,
outstanding as of March 20, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  proxy  statement  for the 2000 annual
meeting  of  stockholders  of Elcom  International,  Inc.  are  incorporated  by
reference into Part III of this report.



<PAGE>

                                     PART I
Item 1. Business

Overview

         Elcom  International,   Inc.  (the  "Company")  develops  and  licenses
Internet-based   remotely-hosted  automated  procurement  software  and  digital
marketplace  technology  which  enables  the conduct of  interactive  electronic
commerce for businesses.  In addition, the Company operates  Starbuyer.com,  its
business-to-business  digital  marketplace,  and through its  business  products
remarketing   subsidiary,   uses   versions  of  its   technology   as  well  as
Internet-based  technology  to  support  the  sale  and  marketing  of  business
products,  primarily  business and PC products to commercial  customers which is
the source of  substantially  all of the  Company's  sales.  Over the last seven
years,  elcom.com,  inc.  ("elcom.com"),   the  Company's  eBusiness  technology
subsidiary, has developed its PECOS(R) (Personal Electronic Catalog and Ordering
System)   technology,   which  is  licensed  to  companies  to  enable  them  to
communicate, market, sell and buy various goods and services electronically over
the  Internet  or through  private  networks  and  digital  marketplace(s).  The
Company's  PECOS  technology  can support large  numbers of end-user  customers,
products,  suppliers and  transactions  and its  transaction  server  middleware
provides  a  scaleable   foundation  for  robust  system  performance  and  high
transaction capacity.

elcom.com, inc.

         The  eBusiness  subsidiary  of the  Company,  elcom.com,  develops  and
licenses stand-alone,  Internet and intranet-based remotely-hosted applications,
primarily PECOS Internet Procurement Manager  ("PECOS.ipm"),  which can automate
virtually  all stages of the  procurement  cycle,  from  product  selection  via
electronic catalog to EDI/electronic funds transfer-based  financial settlement.
In   March   1999,    elcom.com   commenced   operating    Starbuyer.com,    its
business-to-business  ("B2B") Internet on-line market as a "proof of concept" to
allow elcom.com to begin licensing  technology for creating digital marketplaces
for various  organizations and industries.  As elcom.com is one of the suppliers
in its own Starbuyer.com digital marketplace, it markets products and recognizes
revenues as it sells over 250,000 products supplied by distribution  fulfillment
partners, to businesses in a "24x7" environment.  elcom.com commenced a branding
and  marketing  campaign  in the fourth  quarter of 1999 and intends to become a
leading Internet-based supplier of commodity-type products to businesses through
its Starbuyer.com digital marketplace.  In the United Kingdom (U.K.),  elcom.com
uses  PECOS.web,  a  specific  version  of  PECOS  developed  for the  U.K.,  in
preparation  for the  creation  of a U.K.  digital  marketplace,  intended to be
launched in Q3 2000. As of December 31, 1999,  elcom.com  employed 195 full time
personnel.

         In  early  1999,   in   preparation   for  the   introduction   of  its
remotely-hosted   version,   elcom.com   introduced  PECOS  Procurement  Manager
("PECOS.PM").  PECOS.PM is an automated  procurement  system  designed to reduce
internal product acquisition costs by eliminating the inefficiencies  associated
with traditional  paper-based internal purchasing  processes.  PECOS.PM helps to
automate the internal processes required to identify, select and order products,
check pricing,  automate the internal approval and routing process, place orders
electronically,  track  orders  through  the  fulfillment  process,  and provide
automated  financial  settlement.  By collecting  data and targeting  electronic
purchases from strategic  suppliers,  customers may be able to negotiate  larger
discounts from those suppliers. As a prototype for the remotely-hosted  version,
PECOS.PM was installed within a company's  intranet  (internal  company networks
that are based on Internet  Protocol) and designated  PECOS.EPM,  the Enterprise
version. In September 1999,  PECOS.ipm,  elcom.com's  remotely-hosted  automated
procurement   system,   went  "live"  with  CBS  Corporation  in  New  York.  To
management's  knowledge,  this became the first "live" remotely-hosted system of
its type in the world.  Since going  "live" in September  1999,  the Company has
signed seven  PECOS.ipm  licenses  through  March 10, 2000.  Because of the many
advantages of remote-hosting,  the Company intends to focus substantially all of
its marketing and sales efforts on PECOS.ipm.

         As  acceptance  of the  Internet  as an  electronic  medium to purchase
products  on-line  continues to  accelerate  and as  intranets  are used more by
companies to  disseminate  information  internally,  the Company  believes  that
companies are seeking to streamline their  procurement and purchasing  processes
to achieve

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<PAGE>


internal cost savings while concurrently increasing productivity.  Companies are
looking to "employee facing"  browser-based  applications to provide empowerment
on the desktop to allow  employees  to automate  the  purchasing  processes  for
commodity-type products with virtually no paperwork involved.  Companies can now
deploy  applications  connecting  personnel  that  link  them  to the  company's
suppliers information,  their vendors and their other providers through a single
"one-stop-shop" Internet-based system, such as the Company's PECOS.ipm system.

         PECOS.ipm has several important differentiating points, including being
remotely-hosted  by  elcom.com,  ability to  function  as a  stand-alone  system
without a back-end  enterprise  resource  planning system ("ERP") in place,  and
having a relatively  low cost. In addition,  remotely-hosted  allows a client to
implement  PECOS.ipm  very  rapidly  with  minimal,  if any,  impact on their IT
personnel  or   resources.   The  Company   believes   that  as   Internet-based
applications, especially remotely-hosted ones, become more prevalent and because
of the substantial  potential  savings from  streamlining the manual  purchasing
process   and   strategic   supplier   management,   demand   will   expand  for
remotely-hosted  Internet-based automated procurement systems. As the Company is
targeting a very large market segment for  PECOS.ipm,  and because it is hosting
PECOS.ipm itself with hardware and software  infrastructure already in place, it
can price its remote-hosting service very competitively.

         elcom.com's business strategy is to leverage its seven years experience
in electronic commerce,  expand the functionality of its PECOS.ipm  eProcurement
system and aggressively  market PECOS.ipm to the tens of thousands of businesses
which do not have ERP  systems  in place.  Concurrently,  elcom.com  intends  to
expand  its  customer  base as it  continues  to market  and sell  products  via
Starbuyer.com,  the  Company's  Internet  B2B  digital  marketplace  while  also
creating  digital  marketplace(s)  in other vertical and geographic  markets and
licensing digital marketplace  technology to other companies.  In pursuit of its
strategy,  elcom.com is expanding its direct sale force in the U.S. and U.K. and
has  developed  and  will  continue  to  develop  relationships  with  strategic
partners, including worldwide commercial organizations, suppliers and electronic
catalog content and credit card providers.

Business-to-Business Electronic Commerce Overview

         B2B   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  which  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 networks such as those operated by
AT&T, MCI WORLDCOM,  Inc., Sprint Communications  Company,  L.P., and others, or
over a public  network such as the Internet.  The Company  believes  interest in
conducting  business through  Internet-based  commerce is growing rapidly as the
marketplace  becomes more aware of emerging  Internet  technology,  particularly
XML-oriented  Internet-based  applications,  and of the  advantages  that can be
offered to  businesses  and  consumers  in the form of low cost  communications,
reduced transaction time and widespread user access.

         Forrester  Research,  Goldman Sachs and  International  Data Corp., all
leading analysts in the B2B electronic  commerce sector,  have published reports
which indicate that B2B electronic commerce is expected to grow from $43 billion
in 1998 to over  $1.3  trillion  over  the next  five  years,  accounting  for a
substantial  majority of the dollar value of  electronic  commerce in the United
States.

B2B Digital Marketplace

         Starbuyer.com,  elcom.com's B2B digital marketplace, became operational
during 1999 and  generated  over $56.1  million in revenues  for the fiscal year
ended  December  31,  1999.  A password  to access the  system is  required  for
security  purposes.  During 1999, many of Elcom Services Group's  commodity-type
business  product  customers  who wished to take  advantage  of  Starbuyer.com's
value-added  capabilities,  including  automated approval routing,  transitioned
their  business to elcom.com,  which operates  using an  Internet-based  digital
marketplace  model. The Company  continues to service its

                                       3
<PAGE>

traditional  customers  which  require a full range of services,  through  Elcom
Services Group. elcom.com outsources much of its support-oriented infrastructure
requirements to Elcom Services Group.

         The Company  uses its  proprietary  automated  sourcing  technology  to
source and buy the  majority of its  products  automatically.  In the U.S.,  the
Company is linked  electronically  with Ingram Micro and Tech Data,  the world's
largest PC product distributors. In addition, elcom.com links with S.P. Richards
and  Digital  River  (effective   February  2000),  who  serve  as  distribution
fulfillment  partners for  office-oriented  products  and for  software  titles,
respectively,  for  elcom.com  in the  U.S.  The  Company's  automated  sourcing
technology allows it to have multi-billion dollar on-line "virtual"  inventories
available  to its  customers  and to offer  one of the  broadest  selections  of
business products in the industry. In addition,  elcom.com offers other business
products and services through business  partners like Automatic Data Processing,
Inc., providing payroll,  human resources and benefits  administration  services
and Barnesandnoble.com,  who is the Company's provider of book-related products.
The Company  intends to add other business  services via links to other business
partners via their portals.

Elcom Services Group

         Elcom Services Group, Inc.(R) ("ESG"), a wholly owned subsidiary of the
Company,  markets and sells  business-related  products to commercial customers.
Further,   leveraging  its  existing   distribution  and  available  IT  systems
capabilities,  the  Company  intends  to  position  ESG  to  provide  logistics,
distribution,  and fulfillment outsourcing services to companies. ESG uses PECOS
Commerce  Manager  ("PECOS.cm"),  the  original  PECOS  technology  providing an
electronic  linkage to automate  the sales  order  process,  and more  recently,
PECOS.web,  an  Internet-based  ordering and information  system.  ESG commenced
operations  in December  1993 as the original  proof of concept of the Company's
technology,  and experienced rapid growth through 1997. The Company achieved its
growth by offering its PECOS.cm and  PECOS.web  technology  to its ESG customers
and by various  marketing  efforts,  including the expansion of its direct sales
force nationwide, and by the acquisition of six PC remarketers.

         In  addition  to  PECOS.cm  and  PECOS.web,  ESG  intends  to offer its
customers a single catalog version of PECOS.ipm,  the Company's  remotely-hosted
automated procurement system, thereby providing its corporate customers with the
ability to  reengineer  their  internal  procurement  practices for products and
services  purchased  from ESG.  Although  there can be no  assurances  as to the
ultimate  timing or success  thereof,  management  believes that by offering the
single catalog version of PECOS.ipm to existing and prospective  customers,  ESG
sales force can be empowered with a significant  competitive tool to help expand
sales   and   enhance   penetration   of   existing   customers   by   providing
service-oriented value-added solutions.

         On July 31, 1999,  the Company  completed  the sale of the  substantial
majority of its United Kingdom remarketer group operations,  which accounted for
approximately  75% of U.K.  revenues in both 1998 and the first seven  months of
1999.  Generally,   the  Company  sold  its  U.K.  field-based  operation,   its
professional services organization, its distribution business and certain of its
inventory and fixed assets. The Company retained its U.K.  telemarketing  group,
which it intends to  transition  to a B2B  Internet-based  digital  marketplace,
similar to that  conducted  by  elcom.com  in the United  States  ("U.S.").  The
Company also plans to use the U.K.  telemarketing group to market PECOS.ipm.  in
the  U.K.  On  October  1,  1999,  the  ownership  of the  U.K  operations  were
transferred from ESG to elcom.com to help facilitate this strategy.

         The Company  introduced  a strategy for ESG in early 1999 to reduce its
revenues  and related  inventory  exposure  by  declining  to do  business  with
customers  that do not pay the  Company on time as per  agreements,  or demanded
pricing  which the  Company  would not provide  due to many  factors,  including
decreases in marketing development funding from various manufacturers.  This has
resulted in a significant decrease in revenues in 1999 compared to 1998 and will
affect  subsequent  quarterly  comparisons,  but has effectively  eliminated the
majority of the  Company's  marginal  customers.  As of December 31,  1999,  ESG
employed 184 full time personnel.

         ESG offers  thousands of products  manufactured  by leading  companies,
such as Compaq, IBM, Toshiba and Hewlett-Packard. Orders placed through PECOS.cm
and  PECOS.web   for  products  that  are  in

                                       4
<PAGE>

stock generally are fulfilled  automatically  from the inventory of one of ESG's
Distribution Fulfillment Partners ("DFPs"), which include Ingram Micro, Inc. and
Tech Data Corporation, the two largest PC product distributors in the world (See
"-  Fulfillment/Logistics/Information  Systems").  During  1999,  ESG focused on
operating  as more of a  "virtual"  inventory  company  with  minimal  inventory
on-hand  and reduced its  inventory  levels from $40 million as of December  31,
1998 to $1.5 million as of December  31,  1999.  ESG also offers a wide range of
professional services to its U.S. customers.

Products and Pricing

         Products.  The Company  offers over 250,000  products from thousands of
manufacturers.  The  substantial  majority of business  products  offered by the
Company are purchased  primarily from DFPs in both the U.S. and U.K. The Company
provides  customers  with a large  selection  of  business  products,  including
personal computer systems, monitors, printers, peripherals,  software and office
supplies, as well as a broad range of professional services. The Company markets
products sold by many brand name manufacturers including:

                                 PERSONAL COMPUTERS
           Compaq                       IBM                            Apple
             NEC                      Gateway                         Toshiba
      Hewlett-Packard                   Dell                         Panasonic

                                       PRINTERS
     Hewlett-Packard                    Canon                          Lexmark
          Epson                         Xerox                        Tektronics

                                   PERIPHERALS
           NEC                        Sony                         Cisco
           Intel                      Xircom                      Kingston
        Viewsonic                      3Com                        Iomega
     Hewlett-Packard                Golden Ram                     Seagate
          Viking                      Citrix                 Digi International

                                  SOFTWARE
      Microsoft                     Lotus                           Corel
       Seagate                      Novell                   Computer Associates
        Adobe                       IBM                          Symantec

                                OFFICE SUPPLIES
      Papermate                       3M                             GBC
        Avery                        Acco                           Smead
       Sparco                      Hammermill                       Epson
      Okidata                        Sony                           Kodak

         In the U.S.,  the Company has  established  electronic  purchasing  and
supply  relationships  with Ingram  Micro,  Tech Data,  SP Richards  and Digital
River, as well as traditional  relationships with several other large,  national
business product  suppliers.  The Company's  purchasing  relationships  with DFP
suppliers are pursuant to industry-standard arrangements with negotiated pricing
based on either a percentage  of all orders being  offered  electronically  to a
supplier or anticipated volume levels, with payment generally being made through
existing floor plan financing arrangements.

         Pricing. The Company believes that its business product pricing offered
through  ESG is  generally  competitive  with  other  remarketers.  The  Company
believes that the pricing offered through  Starbuyer.com,  the Company's digital
marketplace, is also competitive. The Company continues to review ESG's customer
orders for  profitability  and will decline to do business  with  customers  who
demand  pricing  which  cannot  be  provided  by the  Company  or  which  create
unnecessary  inventory  exposure.  The Company typically offers larger corporate
customers a greater discount than other customers, reflecting the economies of a
higher  level of purchases by such  customers.  The Company uses a  proprietary,
customized and automated pricing system for its customers through PECOS.cm's and
PECOS.web's  back-end  server

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<PAGE>

system, which supports and tracks a variety of pricing methodologies,  including
the ability to provide  customized  pricing for each  customer,  by product.  In
addition,  the Company believes that PECOS.ipm,  its  remotely-hosted  automated
procurement  system,  is aggressively  priced compared to license fees for other
eProcurement software providers.

Professional Services

     elcom.com's  Professional  Services  group offers  various  consulting  and
supplier services to its customers.  These services range from implementation of
PECOS.ipm and training,  to customized  coding in special cases,  to interfacing
data from  PECOS.ipm  into  non-standard  back-end  systems.  Suppliers are also
offered  services  associated with catalog content and  categorization,  loading
procedures and automated data update methodologies.

         ESG offers a wide range of professional services in the U.S., including
advising on project and roll-out  management,  providing  on-site  engineers for
network  integration and systems support,  responsive  "Help" desk and break/fix
services.  The Company also offers  national  dispatch  service for warranty and
repair contracts. The Company's  service-oriented  revenues decreased in 1999 to
approximately $26 million,  from $34 million in 1998,  primarily  reflecting the
sale of the Company's U.K.  services  business.  The Company intends to leverage
its   distribution,   logistics,   and  IT  capabilities  and  offer  logistics,
distribution, and product fulfillment services to other companies during 2000.

Fulfillment/Logistics/Information Systems

         Fulfillment.  In the U.S.  the  Company  sources  the  majority  of its
products from a number of DFPs, including Ingram Micro, Tech Data, S.P. Richards
and Digital  River.  The Company  sources a majority of  domestically  purchased
business  products  from  these  primary  DFPs,  both   electronically  and  via
traditional  methods.  Ingram Micro and Tech Data are the two largest PC product
distributors in the world,  with combined annual sales in excess of $34 billion.
Augmented  by its DFPs,  the Company  draws from  inventories  which the Company
believes are well in excess of $4 billion.

         PC  Configuration  Capabilities.  For  computer  systems  that  require
configuration, the Company operates two configuration facilities in the U.S. and
one in the U.K. and also utilizes an additional  outsourced facility in the U.S.
Products requiring configuration are typically shipped to these facilities.  The
configuration  services are offered  generally on a fee basis and  currently are
performed primarily by ESG at its Canton, MA and Irvine, CA facilities and in an
outsourced  facility in  Hartford,  CT. In  addition,  the  Company  maintains a
product distribution and configuration facility in Hounslow,  Middlesex,  in the
U.K.

         Information  Systems.  In the U.S.,  the Company  licenses and utilizes
software from Oracle  Corporation  and other software  firms as its  Information
Technology  ("IT") system to allow management to monitor and manage the Company.
The Company's  Oracle-based IT system installation  initially went "live" in the
U.S. in November of 1997. The Company experienced  substantial  difficulties and
inefficiencies with this implementation which significantly impacted operations,
logistics,  fulfillment and resultant  profitability through 1999. The IT system
incorporates  modules supporting general ledger,  accounts payable,  purchasing,
accounts receivable, inventory and order entry. The Company's IT design is now a
unique  implementation  of  Oracle  software  applications  that  have  been and
continue to be enhanced and extended to provide  functionality  not found in the
standard system, including the ability to:

          Accept  electronically  delivered sales orders such as PECOS, EDI, and
          XML orders, as well as converted quotations;

          automatically source product from the Company's or its principal DFPs'
          inventories based on variable parameters; and

          automatically create purchase orders, electronically transmit them and
          electronically  confirm  shipments  by DFPs  to  enable  invoicing  or
          anticipate receipt as the case may be.

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<PAGE>

         During  1999,  the Company  continued  to enhance its U.S.  and U.K. IT
systems.  The Company was assured by its electronic  trading partners that their
information systems applications are Year 2000 compliant and the Company has yet
to experience any significant problems internally or with customers,  clients or
electronic trading partners in connection with Year 2000 compliance.

         The  Company's  operations  are  dependent  in part upon its ability to
protect its IT network infrastructure in its Norwood, MA, Irvine, CA and Slough,
Berkshire,  U.K.  facilities  against  damage from physical  break-ins,  natural
disasters,  operational  disruptions  and other events.  The Company  operates a
fully redundant system for the U.S. with data centers in Norwood, MA and Irvine,
CA, which also provide the hosting platform for PECOS.ipm  clients.  The Company
has 24x7 physical  security at its Norwood data center. To protect the Company's
data and provide  service if both data centers were to become  inoperative,  the
Company is in the process of finalizing a disaster-recovery  system with a major
computer  company.  Although  the  Company  believes  that  its  technology  and
operating  systems will be adequate for its current needs,  such IT systems will
undoubtedly  require  ongoing  investments  to modify  and  enhance  them as the
Company expands and evolves.

Marketing and Sales

     The Company uses its direct and telemarketing  sales forces in the U.S. and
U.K. to market  products and  technology to targeted  business,  education,  and
corporate accounts. As of December 31, 1999, the Company employed  approximately
83 sales  representatives,  account  executives and related support personnel to
service those customer segments.  Of these 83 sales personnel,  49 are employees
of elcom.com  in the U.S.  and U.K. and 34 are  employees of ESG in the U.S. The
Company intends to  significantly  increase its direct sales force for PECOS.ipm
in the U.S. and U.K.

         As of December  31, 1999,  the  Company's  sales and support  personnel
operated  from Field Support and Sales  Offices  ("FSSO's") in six  metropolitan
areas  in the  U.S.,  as well as  three  locations  in the  U.K.  ESG's  primary
locations and FSSO's are listed below:

                                         UNITED STATES

            - Norwood, MA (Boston)(Headquarters)        - San Diego, CA
            - New York City, NY                         - Stamford, CT
            - Bristol, PA (Philadelphia)                - Edison, NJ

                                         UNITED KINGDOM

            - Basingstoke, Hampshire                    - Slough, Berkshire
            - Redditch, Hereford

         Corporate   Accounts.   ESG's  primary   target   customers  are  large
corporations  that wish to purchase  business  products in an efficient  manner.
Corporate   accounts   typically  employ   purchasing   agents  or  buyers  with
above-average  product knowledge who view most business products as commodities.
Business  accounts  targeted  by the  Company  range  from  divisions  of  large
corporations to businesses with as few as fifty employees.  These companies also
will  be  targeted  customers  for  PECOS.ipm,  the  Company's   remotely-hosted
automated  procurement  system.  The Company uses both direct sales  efforts and
telemarketing. The Company uses a defined business telemarketing staff operating
from certain of its U.S. and U.K.  locations  whose  mission is to introduce the
Company  to   targeted   businesses.   Telemarketers   also   assist  the  sales
professionals  by  contacting  and  pre-qualifying  accounts for  follow-up  and
on-site  visits by the direct  sales force,  if  appropriate.  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.  The Company restructured ESG's
government and education sales operations in September 1998 and has concentrated
on  building  an  educational  sales  force  focused on  providing  Windows  and
Intel-based ("Wintel") solutions to the education market in the U.S. The Company
decided to  leverage  its  experience  in cabling  and  network  integration  of
classrooms and

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<PAGE>

schools derived from its previous Apple Educational Sales Agent relationship, to
promote this division as it focuses on a larger potential market.

Customer and Technical Services

         The  Company  provides a wide range of customer  service and  technical
support,  including nationwide toll-free pre-sale and post-sale  telephone-based
support.  The Company  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,
the Company offers its customers  certain  return  privileges for products which
have not been used or were damaged.  Typically, such products can be returned to
the Company within a certain time for a refund or credit.  The Company  believes
that its product  return  policies are  competitive  with those offered by other
remarketers.  Historically,  product  returns  generally have not  represented a
material  exposure  to  the  Company.  Typically,  manufacturer  warranties  are
included as part of, and are packaged  with,  the product.  When  available from
manufacturers, the Company also offers on-site and extended-term warranty and/or
service policies as ancillary  products available for sale through the PECOS.cm,
PECOS.web or the Starbuyer B2B digital marketplace. In addition to the Company's
telephone-based  technical support and manufacturer programs, the Company offers
a full range of on-site and depot warranty and post-warranty  service options in
the U.S., generally through nationwide  outsourcing  agreements with third party
service  providers.  Product returns are centralized at ESG's facilities,  where
the various tasks are performed that are necessary to either return  products to
inventory,  to one of the Company's DFPs or to a manufacturer for credit,  or to
liquidate non-returnable items.

Competition

         eBusiness  Systems  Marketplace.  The market for interactive  eBusiness
software is relatively new and evolving rapidly. The Company expects competition
in this market to intensify in the future. Among other factors, before licensing
an eBusiness system, the Company believes potential  customers consider the cost
of the system  compared  to the level of features  and  functions  available  in
electronic commerce applications and the cost to acquire, implement and maintain
the  system,  as well as the  length  of time to  implement  a  system  and,  as
applicable,  integrate  it with a  company's  existing  IT system.  The  Company
competes with vendors of prepackaged  electronic  commerce software,  vendors of
software  tools for  developing  electronic  commerce  applications  and systems
integrators.  The Company's competitors include Ariba, Inc., Commerce One, Inc.,
Clarus  Corporation and  PurchasePro.com,  Inc. The Company  anticipates  future
competition from other emerging and established  companies,  possibly  including
Microsoft Corp., IBM, SAP AG and Oracle Corporation, all of which have announced
products  for  Internet-based   electronic  commerce.  The  Company's  potential
competitors  also include  systems  integrators  such as Electronic Data Systems
(EDS) and a number of EDI solution vendors,  including Sterling Commerce,  Inc.,
which recently announced a possible acquisition by SBC Communications, Inc.

         Certain of 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

                                       8
<PAGE>

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/or
financial condition.

         Business  Products  Marketplace.  The Company has invested  substantial
effort  and  capital to develop  and  implement  its  proprietary  PECOS.cm  and
PECOS.web front- and back-end  systems,  as well as for the associated  hardware
and  electronic  links with its primary  DFPs.  The overall  market of companies
which sell business and PC products is highly  fragmented and ESG operates in an
extremely competitive  environment which is continuously evolving and subject to
rapid technological  change. Of the more than 10,000 total outlets,  the Company
believes  that there are more than 1,000  significant  PC and  business  product
remarketers  of various  types in the U.S.  and U.K. In response to  competitive
pressures and declining margins,  traditional  remarketers are cutting costs and
acquiring or merging with other remarketers to increase scale and efficiency.  A
prospective  purchaser of PC products has the option to purchase directly from a
manufacturer  (e.g., IBM, Compaq,  Dell Computer Corp.), from a major remarketer
(e.g.,  MicroAge,  Inc., Inacom Corp., CompuCom Systems,  Inc.), from a computer
mail order company (e.g., CDW Computer Centers,  Inc.,  Creative Computers Inc.,
Micro Warehouse Inc.),  from a systems  integrator (e.g.,  Andersen  Consulting,
EDS),  from computer  superstores  (e.g.,  CompUSA  Inc.),  from  Internet-based
companies  (e.g.  Insight  Enterprises,  Inc.,  Cyberian  Outpost,  Inc.),  from
electronics  superstores  and from local  computer  stores,  among  others.  ESG
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.  The advent and  expansion of the  Internet-based  sales
companies has added substantial  additional pressure to price competition in the
marketplace and has continued to exacerbate gross profit  pressures.  Certain of
the companies noted above and other  potential  competitors  have  substantially
greater  financial,  technical  and  marketing  resources  than the  Company and
greater name recognition and more extensive customer bases.

Intellectual Property

         The Company's  success and ability to compete are  dependent,  in part,
upon its proprietary technology. While the Company relies to a certain extent 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  received  a patent  on  certain,  specific  aspects  of its  PECOS
technology,  there can be no assurance 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  also is
protected  both as a  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 the PECOS technology.

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 PCs, among local area networks or on the Internet.  However,
due to the increasing popularity and use of PCs and the Internet, it is possible
that  additional  laws and  regulations  may be adopted  with  respect  thereto,
covering issues such as user privacy,  pricing and characteristics,  taxation of
Internet  sales 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.


                                       9
<PAGE>

Moreover,  the  applicability  to the Internet of existing laws governing issues
such as property ownership, libel and personal privacy is uncertain.

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,  1999,  the  Company had a total of 435  personnel,
including 368 salaried and 67 hourly personnel.  The Company's personnel are not
represented  by any labor  union and the  Company  believes  that its  personnel
relations are good. 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,  especially  on the Internet,  has
presented a  significant  challenge to the Company's  personnel  and  management
resources. To manage its expected growth, the Company will continue to implement
and  improve  its  information  systems  and  solicit  key  candidates  for open
positions as well as continuing to train 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 tradenames or trademarks.
Such  tradenames  or  trademarks  are the property of the  respective  companies
owning such tradenames and trademarks.

Item 2.  Properties

         As of December 31, 1999,  the Company  leased the  properties set forth
below,  and rented seven other smaller FSSOs as well as a professional  services
office in Edison,  N.J. The following leases vary in length remaining,  from two
years to thirteen years and, in some cases,  include options to extend the lease
terms  (see  also Note 6 to the  Company's  Consolidated  Financial  Statements,
included elsewhere in this Annual Report on Form 10-K).

                                 APPROXIMATE
                                   SQUARE
          LOCATION                 FOOTAGE                      USE
Norwood, Massachusetts             36,000     Headquarters; Elcom Services
                                                      Group Boston-area FSSO

Westwood, Massachusetts            12,000     elcom.com's Corporate Headquarters

Canton, Massachusetts              84,000    Elcom Services Group Configuration
                                             and Distribution (U.S., East Coast)

Irvine, California                 21,000    Elcom Services Group Configuration
                                             and Distribution (U.S., West Coast)

Bristol, Pennsylvania              35,000   Elcom Services Group Administrative
                                                          and FSSO

Slough, Berkshire (U.K.)            7,800    elcom.com (U.K.) Administrative
                                                          and FSSO

Basingstoke, Hampshire (U.K.)       7,500             elcom.com (U.K.) FSSO

                                       10
<PAGE>

         In addition to the leased properties noted above, the square footage of
which is net of sub-leased  areas,  the Company also owns land and a building in
Redditch,  Hereford,  U.K.,  comprising  administrative  and FSSO  facilities of
approximately 20,000 square feet.

         The Company intends to relocate ESG to a separate  facility during 2000
and subsequently relocate elcom.com's  headquarters to its Norwood facility. The
Company considers these current and new facilities to be generally sufficient to
meet its near-term space requirements in light of its current plans.

Item 3.  Legal Proceedings

         The  Company  is  a  party  to  various  claims,   disputes  and  other
proceedings relating to former employees and other matters arising in the normal
course of its  business.  In the  opinion of  management,  the  outcome of these
matters will not have a material  adverse effect on the  consolidated  financial
condition or results of operations of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

Price Range of Common Stock

         The  Company's  Common  Stock trades on the Nasdaq  National  Market(R)
under the symbol ELCO.  As of December 31, 1999,  there were  approximately  184
stockholders  of record of the  Company's  Common  Stock.  This  number does not
reflect  persons or entities  who hold their  stock in nominee or "street  name"
through various  brokerage firms. The high and low closing sales prices reported
by the Nasdaq  National  Market for each of the  quarters in the two year period
ended  December 31, 1999 are set forth in the table  below.  For the period from
January 1, 2000 to March 20, 2000,  such high and low closing  sales prices were
$35.44 and $15.63, respectively.

  Quarter Ended               1999                            1998
-------------------    --------------------------      -------------------------
                          High           Low             High           Low
                       -----------    -----------      ----------    -----------
       March 31,       $  4.0625      $  1.5938         $6.6900        $5.0000
        June 30,       $  7.7500      $  2.8750         $6.0600        $3.4400
   September 30,       $  6.3750      $  3.7500         $4.1300        $1.1900
    December 31,       $ 36.5000      $  4.1563         $3.1300        $1.1600

         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.

Recent Sales of Unregistered Securities

         The Company issued a warrant to purchase 353,418 shares of Common Stock
to Wit  Capital on December  30,  1999.  The warrant was issued  pursuant to the
terms of a letter agreement,  dated July 8, 1999,  pursuant to which Wit Capital
agreed to act as a  financial  advisor to the  Company.  In that  capacity,  Wit
Capital  introduced the Company to Cripple Creek,  with whom the Company entered
into the

                                       11
<PAGE>

Structured Equity Line Flexible  Financing  Agreement,  dated as of December 30,
1999 (described  elsewhere  herein).  The warrant was exercisable  upon issuance
with  respect 80% of the shares  subject to the  warrant.  The  warrant  becomes
exercisable  with respect to the remaining 20% of the shares upon the earlier to
occur of (i) effectiveness of the Company's  registration  statement on Form S-3
filed in  connection  with the  Equity  Line or (ii) 120 days  after the date of
issuance of the  warrant.  The warrant  expires on December  30, 2002 and has an
exercise price of $28.71 per share. Exemption from registration for the issuance
of the warrant is claimed  pursuant  to Section  4(2) of the  Securities  Act of
1933, as amended.

Item 6.  Selected Financial Data

         The following table sets forth selected consolidated financial data for
the Company for the years ended December 31, 1995 through December 31, 1999. The
historical  financial data for 1999 is derived from the  Consolidated  Financial
Statements of the Company audited by KPMG LLP. The historical financial data for
1995 to 1998 is  derived  from  the  Consolidated  Financial  Statements  of the
Company  audited by Arthur  Andersen  LLP.  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 various  write-offs and write-downs in 1998 and 1999 and acquisitions
consummated at various times during the periods presented.

<TABLE>
                                                            (in thousands, except per share data)
                                                                  YEARS ENDED DECEMBER 31,

                                                  1995         1996         1997         1998         1999
INCOME STATEMENT DATA (1):                     ----------   ----------   ----------   ----------   ----------
<S>                                            <C>          <C>          <C>          <C>          <C>
Net Sales ..................................   $ 311,423    $ 620,115    $ 760,136    $ 763,600    $ 485,828
                                               ==========   ==========   ==========   ==========   ==========
Gross profit ...............................      39,382       70,039       90,394       76,942       43,401
Selling, general and administrative expenses      36,016       57,551       70,200       80,285       63,426
Research and development expenses ..........       1,122        1,200        1,275        1,178        1,343
Restructuring, impairment and other related
  charges ..................................        --           --           --         12,892       19,272
                                               ----------   ----------   ----------   ----------   -----------
Operating profit (loss) ....................       2,244       11,288       18,919      (17,413)     (40,640)
Interest and other income (expense), net ...      (1,909)      (2,303)      (4,142)      (7,664)      (2,221)
                                               ----------   ----------   ----------   ----------   -----------
Income (loss) before income taxes ..........         335        8,985       14,777      (25,077)     (42,861)
Provision for income taxes .................       1,239        3,410        4,489          484         (323)
                                               ----------   ----------   ----------   ----------   -----------
Net income (loss) ..........................   $    (904)   $   5,575    $  10,288    $ (25,561)    $(42,538)
                                               ==========   ==========   ==========   ==========   ===========
Basic net income (loss) per share ..........   $   (0.05)   $    0.21    $    0.38    $   (0.94)   $   (1.53)
                                               ==========   ==========   ==========   ==========   ===========
Basic weighted average shares outstanding ..      18,195       26,363       26,937       27,322       27,846
                                               ==========   ==========   ==========   ==========   ===========
Diluted net income (loss) per share ........   $   (0.05)   $    0.19    $    0.35    $   (0.94)   $   (1.53)
                                               ==========   ==========   ==========   ==========   ===========
Diluted weighted average shares outstanding       18,195       29,739       29,461       27,322       27,846
                                               ==========   ==========   ==========   ==========   ===========
</TABLE>
<TABLE>
                                                                     DECEMBER 31,
                                                ----------------------------------------------------
                                                   1995       1996       1997       1998       1999
                                                --------   --------   --------   --------   --------
<S>                                             <C>        <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA (1):
Total current assets ........................   $136,781   $210,185   $277,806   $220,415   $ 86,896
Total assets ................................    174,231    260,769    332,068    261,851     98,039
Total current liabilities ...................     89,290    161,158    218,300    175,929     50,851
Long-term liabilities, net of current portion         91      1,008      3,465        905        260
Total stockholders' equity ..................     84,850     98,603    110,303     85,017     46,928
</TABLE>

(1)  The  information   presented  for  all  periods  includes  the  results  of
     operations  and financial  condition of AMA, which was acquired in February
     1996.  The  acquisition  of AMA was 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 inception in September 1992 to include the results of
     operations of AMA.

                                       12
<PAGE>


Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

OVERVIEW

         The Company was founded as Elcom Systems,  Inc., in 1992 as a developer
of electronic  commerce  software.  The Company formed another company which, to
prove and use its technology,  commenced selling computer and business products,
primarily PCs and associated peripherals,  in December 1993 using its electronic
commerce  software,  and experienced rapid growth for several years. The Company
achieved its growth by using its proprietary PECOS  procurement  application and
by  offering  the use of  PECOS  through  ESG to its  customers  and by  various
marketing efforts, including the expansion of its direct sales force nationwide,
and  by  the  acquisition  of  six  computer  products  remarketers.   To  date,
substantially  all of the Company's net sales have been derived from the sale of
business and computer  products in the U.S. and U.K.,  to business and corporate
customers.  In addition,  the  Company,  through  elcom.com,  licenses its PECOS
technologies,  including PECOS.ipm,  its recently introduced  Internet-based and
remotely-hosted  automated  procurement system, and provides  implementation and
consulting services. In March 1999, elcom.com commenced operating Starbuyer.com,
its Internet digital  marketplace,  to sell products.  Since then, elcom.com has
added auction  capabilities  to its Internet site,  launched office supplies and
software product lines and plans to introduce other  business-oriented  products
in the future.

         On July 31, 1999,  the Company  completed  the sale of the  substantial
majority of its U.K.  remarketer group operations.  Generally,  the Company sold
its U.K. field-based sales operation,  its professional  services  organization,
its distribution  business, and certain of its inventories and fixed assets, all
in the U.K. The  disposed  businesses  accounted  for  approximately  75% of the
Company's  U.K.  revenues and 67% of its U.K.  operating  income in 1998 and the
first seven months of 1999 (excluding the asset impairment charge).  The Company
has retained its U.K. telemarketing group, which it intends to evolve towards an
Internet-based  B2B digital  marketplace  similar to  Starbuyer.com  operated by
elcom.com  in the U.S.  The Company  also plans to expand its direct sales force
and use the  U.K.  telemarketing  group to  market  PECOS  Internet  Procurement
Manager, its Internet-based and remotely-hosted automated procurement system.

         On October 1, 1999,  an internal  reorganization  was  accomplished  in
which the ownership of Elcom International Limited, the Company's United Kingdom
operations, was transferred from ESG, to elcom.com.

elcom.com, inc.

         elcom.com is the eBusiness  subsidiary of the Company that develops and
primarily licenses Internet-based,  remotely-hosted  applications that have been
designed to automate virtually all stages of the procurement cycle, from product
selection to financial settlement.

         In March 1999,  elcom.com launched its Internet digital  marketplace as
proof of concept of its digital marketplace  technologies.  Through this digital
marketplace,  which can be accessed at www.starbuyer.com,  elcom.com markets and
sells over  250,000  business  products  manufactured  by numerous  suppliers to
corporations  in a "24x7"  environment.  elcom.com  has commenced a branding and
marketing campaign in the fourth quarter of 1999 and intends to become a leading
supplier of multiple  commodity-type  products to  businesses.  elcom.com  added
auction  capabilities  to  its  site  as  part  of  its  Internet-based  digital
marketplace in April 1999.  The Company  expects to expand its customer base and
encourage repeat buying through various marketing programs,  including branding,
promotional  campaigns and  strategic  alliances  intended to provide  access to
global markets.  To accomplish  this,  elcom.com plans to increase its sales and
marketing expenditures in future periods.

         Beginning  in the latter half of 1998,  the  Company  shifted its focus
from  marketing  its PECOS.cm  technology  to investing  in the  development  of
PECOS.PM,  its intranet-based  automated procurement  management system and more
recently,  to PECOS.ipm.  During 1999,  the Company  focused  primarily on fully
developing  PECOS.ipm for commercial  launch as it  transitioned  from its older
PECOS.cm

                                       13
<PAGE>

technology,  thereby negatively affecting  technology-based revenues during this
product  transition  period. On a stand-alone basis, for the year ended December
31, 1999 and 1998,  the U.S.  operations  of elcom.com  reported  revenues  from
licenses,  including  associated  professional  services and maintenance fees of
approximately  $1.0  million  and  $2.2  million,   respectively.  In  addition,
elcom.com's digital  marketplace  generated product sales of approximately $56.1
million in the year ended  December  31, 1999 (and none in the  comparable  1998
period),  substantially  all of which were from customers who transitioned  from
ESG.  In total,  elcom.com's  consolidated  gross  profit  from U.S.  operations
increased  from $1.5 million in the year ended December 31, 1998 to $5.1 million
in the comparable 1999 period. Consequently, because elcom.com's U.S. operations
expenses increased approximately $11.2 million from 1998 to 1999, as the Company
continued  to staff  the  entity  to  support  expected  growth  of its  digital
marketplace  and invested in marketing for  PECOS.ipm,  the operating  loss from
U.S.  operations  increased $7.6 million, to $10.4 million during the year ended
December 31, 1999,  versus an operating  loss of $2.8 million in 1998  excluding
the 1998 $3.5 million restructuring charge.

Elcom Services Group, Inc.

         ESG  markets  and  sells  business-related  products  and  professional
services to commercial customers.

         The Company  introduced  a strategy for ESG in early 1999 to reduce its
revenues  and related  inventory  exposure  by  declining  to do  business  with
customers  that do not pay the  Company on time as per  agreements,  or demanded
pricing  which the  Company  would not provide  due to many  factors,  including
decreases in marketing development funding from various manufacturers.  This has
resulted in a  significant  decrease  in  revenues in 1999  compared to 1998 and
subsequent quarterly comparisons, but has effectively eliminated the majority of
the Company's marginal customers.

         ESG's  revenues  and  resultant  gross  profit  are  affected  by price
reductions and decreases in various vendor  inventory and other support programs
offered by computer manufacturers. These cutbacks have been substantial over the
last several years,  and most  particularly  over the last year,  resulting in a
corresponding decrease in gross margin.  Manufacturers' price reductions require
that ESG increase its base unit volumes and associated  peripheral product sales
to overcome the effect of such price  decreases and increase its revenue  volume
if it is to sustain its level of gross profit dollars.  The Company  experienced
substantial  difficulties  and  inefficiencies  with  its  Oracle-based  systems
implementation which significantly impacted operations,  logistics,  fulfillment
and resultant  profitability  through 1999.  Further,  the Company experienced a
softening of demand from its customers  that began in September of 1998,  which,
at  that  time,  the  Company  attributed  to the  Asian  financial  crisis  and
subsequent  fluctuations and related  uncertainties  in the worldwide  financial
markets,  that  impacted  some of the  Company's  customers  and  their  capital
outlays.  The Company believes that the relatively soft demand,  which continued
during 1999, possibly related to Year 2000 projects at certain of its customers,
which may have caused  delays in procuring  computers  and related  products and
professional  services,  as customers  focused on their  management  information
systems  infrastructure.  ESG's gross  margins may vary from quarter to quarter,
depending on the level of key vendor support programs, including rebates, return
policies and price  protection,  as well as product mix, pricing  strategies and
other factors.

Engagement of Wit Capital Corporation

         On July 19, 1999, the Company announced that it had engaged Wit Capital
Corporation ("Wit Capital") as its investment bank and strategic advisor for the
purpose of assisting the Company in evaluating  strategic options for itself and
for elcom.com. Wit Capital, which is partially owned by Goldman Sachs, continues
to  review  strategic  financing  options,  potential  strategic  partners,  and
possible  financing  alternatives  (including the potential of an initial public
offering of elcom.com).

         On December  30,  1999,  the Company  signed a  structured  Equity Line
Flexible  Financing  Agreement  with  Cripple  Creek  Securities  LLC  ("Cripple
Creek"), an investor  introduced to the Company by Wit Capital.  Under the terms
of the  agreement,  the Company may sell up to $50 million of Common


                                       14
<PAGE>

Stock  over and 18 month  period.  For  additional  information  concerning  the
financing  agreement,  see  Note  5(d) and  5(f) of the  consolidated  financial
statements.

Year 2000 Readiness Disclosure

         The  Company  has  implemented  an  Oracle-based,  Year 2000  compliant
Information Technology System ("IT System") in the U.S. In the U.K., the Company
has  implemented  a Year  2000  compliant  upgrade  to its  Computer  Associates
International,  Inc.  software system,  which operates on an IBM AS-400 hardware
platform.  Due  to  the  extended  timeframe  of the  U.S.  Oracle-based  system
implementation,  and related  ongoing  enhancements,  the  Company has  deferred
implementation of the Oracle-based system in the U.K. to the year 2000.

         The  Company's  various  Year 2000 tests on its IT  Systems  and non-IT
Systems did not reveal any Year 2000  issues,  and the Company did not incur any
material costs related to Year 2000 issues.

         During  1999,  the Company  continued  to enhance its U.S.  and U.K. IT
systems.  The Company has been assured by its electronic  trading  partners that
their information systems applications are Year 2000 compliant,  however,  there
can be no assurance by the Company that its electronic trading partners will not
experience Year 2000 oriented problems which could effect the supply of products
to the  Company.  The Company has yet to  experience  any  significant  problems
internally  or  with  customers,  clients  or  electronic  trading  partners  in
connection with Year 2000 compliance.

         The Company  operates a fully  redundant  system  with data  centers in
Norwood,  MA and Irvine,  CA, which provide the hosting platform for PECOS.ipm's
clients.  The Company is dependent  on its IT system and any  problems  with its
ongoing  development  and  enhancement,  or any  interruption  in its functional
availability  may have an adverse effect on sales to customers  and/or  customer
satisfaction.  Although the Company  believes that its  technology and operating
systems will be adequate for its current needs, such IT systems will undoubtedly
require ongoing  investments,  modification and enhancements as these IT systems
expand and evolve.

RESULTS OF OPERATIONS

         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, 1999:

                                               Year Ended December 31,
                                                1997    1998     1999
                                                ----    ----     ----
Net sales ..................................    100%    100%     100%
Gross profit ...............................     12      10        9
Selling, general and administrative expenses      9      11       13
Asset impairment, restructuring and
  other related charges ....................     --       1        4
Operating profit (loss) ....................      3      (2)      (8)

Interest expense ...........................      1       1        1

Provision for income taxes .................      1      --       --

Net income (loss) ..........................      1      (3)      (9)

Year ended December 31, 1999 compared to the year ended December 31, 1998

         Net Sales.  Net sales for the year ended December 31, 1999 decreased to
$485.8  million  from $763.6  million in the year ended  December  31,  1998,  a
decrease of $277.8 million or 36.4%. Net sales in the United States decreased to
$292.5 million in 1999 from $449.8 million in 1998, a 35% decrease. Professional
services  revenues of ESG for the year increased 0.9% from  approximately  $13.1
million in 1998 to $13.2 million in 1999.  The Company  experienced  substantial
difficulties and  inefficiencies  with its Oracle-based  systems  implementation
which significantly  impacted operations,  logistics,  fulfillment and resultant
profitability  through  1999.  The Company  believes the decrease in U.S.  sales
reflects the  continued  soft demand,  possibly due to certain of its  customers
focusing  on Year 2000  efforts and  possibly  deferring  purchases  of computer
products,  as well as a general  softening of demand from its larger  customers.
The Company believes that there is potential for a rebound or partial rebound in
U.S.  computer

                                       15
<PAGE>

product demand once its customers have  completed  their Year 2000 efforts.  The
Company  introduced  a strategy in early 1999 to reduce its revenues and related
inventory  exposure,  by declining to do business with customers that do not pay
the Company on time, or demand  pricing that the Company  cannot  provide due to
many factors,  including decreases in marketing development funding from various
manufacturers.  This has resulted in a significant  decrease in revenues in 1999
compared  to  1998,  but  has  effectively  eliminated  the  Company's  marginal
customers.

         Net sales of the Company's  U.K. based  operations  decreased to $193.3
million in 1999 from $313.8  million in 1998, a decrease of 38%.  Results in the
U.K.  were  effected  by the  disposal of the  substantial  majority of its U.K.
remarketer operations on July 31, 1999 as well as continued softening in demand,
consistent  with a general  economic  slowdown in 1999 versus 1998 and Year 2000
concerns.

         Gross  Profit.  Gross  profit  for the year  ended  December  31,  1999
decreased  to $43.4  million from $76.9  million in the year ended  December 31,
1998, a decrease of $33.5 million,  or 44%. The decrease in gross profit dollars
reflects  the  decrease in net sales,  as well as a decrease in the gross profit
percentage  between 1998 and 1999.  Gross  profit as a  percentage  of net sales
decreased  from 10.1% in 1998 to 8.9% in 1999.  The gross profit  percentage was
higher in 1998 due to direct purchasing  programs with certain  manufacturers in
the U.S.  which  have been  curtailed  by the  Company in 1999 due to changes in
certain manufacturers'  product-distribution  policies, as well as a decrease in
the availability of manufacturer rebate and incremental  discount programs.  The
Company  anticipates  ongoing pressure on its business  computer  products gross
margins,  the  impact of which it intends to  mitigate  with a more  streamlined
corporate  infrastructure  focused on Internet-based  selling, and by leveraging
the Company's  electronic  commerce  experience and software  capabilities.  The
Company  experienced  substantial   difficulties  and  inefficiencies  with  its
Oracle-based  systems  implementation  which significantly  impacted operations,
logistics, fulfillment and resultant profitability through 1999.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  ("SG&A") expenses for the year ended December 31, 1999 decreased
to $63.4  million  from $80.3  million in the year ended  December  31,  1998, a
decrease of $16.9 million or 21%. This decrease is primarily attributable to the
restructurings  accomplished  by the  Company  in  late  1998,  a  reduction  in
amortization  expense,  net of the cost of the Company's increased investment in
elcom.com's  infrastructure  to support  the  anticipated  future  growth of the
Internet-based   storefront  businesses  and  the  reduction  of  SG&A  expenses
associated with the disposed United Kingdom  operations.  The Company intends to
continue to increase  its  marketing  expenditures  to support the  branding and
growth of elcom.com.

         Overall,  SG&A expenses  increased as a percentage of net sales for the
year ended December 31, 1999 to 13% from 10.5% in 1998, which primarily  results
from a lower level of net sales in 1999, net of expense reductions.

         Research and  Development  Expense.  Research and  development  expense
remained essentially flat in 1999 compared with 1998. The expenditures reflect a
transition  from product  development  (in  particular,  the recently  announced
Internet-based  and  remotely-hosted  version of elcom.com's  PECOS  technology,
PECOS.ipm) to marketing and deployment of the product with  customers,  the cost
of which is not  reflected in research and  development  expense.  The Company's
research and development  expense  continues to focus on developing  incremental
functionality   and   features   for  its  PECOS   product   line   using   Java
programming/code and other tools and techniques. The Company expects to increase
its  investments  in research  and  development  as it enhances  PECOS.ipm,  its
remotely-hosted automated procurement system.

         Asset  Impairment,  Restructuring  and Other  Related  Charges.  In the
second quarter of 1999, the Company recorded charges of $19.5 million related to
the  July 31,  1999  sale of the  substantial  majority  of its U.K.  remarketer
operations,  as  further  described  elsewhere  herein.  See  Footnote  7 of the
consolidated financial statements.

                                       16
<PAGE>


         In the 1998  period,  the  Company  recorded a charge of $12.9  million
related  to a  restructuring  of  certain  of its  U.S.  operations  as  further
described  elsewhere  herein.  See  Footnote  7 of  the  consolidated  financial
statements.

         Interest Expense. Interest expense for the year ended December 31, 1999
decreased to $3.2 million  from $8.4 million in 1998.  Interest  expense in both
periods  reflects  floor  plan  line of  credit  borrowings  in  support  of the
Company's accounts  receivable and inventory balances and for 1999 is reflective
of the decrease in the Company's net sales,  improved  collection of receivables
and substantially  lower inventory balances compared with 1998, as well as lower
interest rates in 1999, versus 1998.

         Interest Income and Other, Net. Interest income and other, net, for the
year ended  December  31, 1999  increased  to $1.0  million from $0.7 million in
1998.  Other income in the 1999 period includes  proceeds of $418,000  resulting
from the  lapsing  (without  exercise)  of options  sold in 1997 to acquire  the
Company's   interest  in  ShopLink.com,   inc.  The  Company  continues  to  own
approximately  3% of  ShopLink.com,  inc.,  which  is a  privately-held  on-line
supplier of groceries and other consumables to homeowners.

         Income Tax Provision. The income tax recovery in 1999 primarily relates
to the estimated  recovery of income taxes by the Company's United Kingdom based
operations,  net of certain  estimated  current  state and federal  income taxes
payable by the Company.  The Company has net operating loss carryforwards  which
were not reflected as a benefit in either the Company's  1998 or 1999  financial
statements.

         Net Income.  The Company  reported a net loss of $42.5  million for the
year ended  December 31, 1999,  versus a net loss of $25.6  million in 1998 as a
result of the asset impairment charge and other factors described herein.

Year ended December 31, 1998 compared to the year ended December 31, 1997

         Net Sales.  Net sales for the year ended December 31, 1998 increased to
$763.6  million from $760.1  million in the year ended  December  31,  1997,  an
increase of $3.5 million or 0.5%.  Net sales in the United  States  decreased to
$449.8  million in 1998 from  $473.8  million in 1997,  a 5.1%  decrease,  which
reflected the impact of several  factors,  including  substantial  product price
decreases,  increased price  competition in the marketplace,  as well as overall
softer demand from the Company's domestic customers for PC products in 1998. The
Company's  Oracle IT system  installation  initially  went "live" in the U.S. in
November  of  1997.  The  Company  experienced   substantial   difficulties  and
inefficiencies with this implementation which significantly  impacted operations
and profitability  through 1999. Net sales of the Company's United Kingdom-based
operations  increased to $313.8  million in 1998 from $286.3 million in 1997, an
increase  of  9.6%,  which  generally  reflected  an  increase  in the  level of
distribution sales (to other resellers) in 1998 over 1997.

         Gross  Profit.  Gross  profit  for the year  ended  December  31,  1998
decreased  to $76.9  million from $90.4  million in the year ended  December 31,
1997,  a decrease of $13.5  million,  or 15%.  Gross  profit as a percent of net
sales  decreased  from  11.9% in 1997 to 10.1% in 1998.  The  decrease  in gross
profit  percentage  in 1998  reflected  a  significant  decrease in the level of
direct  purchases  from  manufacturers  in the United  States and a  substantial
decrease in  manufacturer  funding and  incremental  discounts  available to the
Company.  The decline in the gross  profit  percentage  also  reflected a higher
proportion  of the Company's  sales being to its larger  customers in the United
States, which typically generated higher than average volume, but at lower gross
profit margins than other customers.  The United Kingdom group was authorized to
"distribute"   certain  product  lines  to  other  PC  remarketers  through  its
distribution  entity and these sales,  which were at lower margins than sales to
end users,  increased in 1998 over 1997 levels,  thereby  lowering overall gross
profit margins. Increases in professional services sales, which are generally at
higher margins than product  sales,  were not  significant  enough to offset the
above described factors.  The Company's Oracle IT system installation  initially
went "live" in the U.S. in November of 1997. The Company experienced substantial
difficulties and inefficiencies  with this  implementation  which  significantly
impacted operations and profitability through 1999.

                                       17
<PAGE>

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative ("S,G&A") expenses for the year ended December 31, 1998 increased
to $80.3  million from $70.2  million in the year ended  December  31, 1997,  an
increase of $10.1 million or 14%. This increase is attributable primarily to the
Company's  investment  in sales and  technical  services  personnel,  as well as
associated   operational  and  administrative   infrastructure  to  support  the
anticipated  growth of the Company's  traditional  remarketer  and  professional
services  business.  The level of sales personnel and associated  infrastructure
put in place by the Company in 1998 anticipated a significantly  higher level of
net  sales  and  gross  profit  than  was  generated  by the  Company  in  1998.
Accordingly,  at the end of 1998,  the Company took certain steps to "rightsize"
its workforce to mitigate this situation.  See "- Restructuring,  Impairment and
Other Related Charges".

         Overall,  S,G&A expenses increased as a percentage of net sales for the
year ended December 31, 1998 to 10.5% from 9.2% in 1997, reflecting the combined
impact  of the  Company's  1998  investment  in sales and  other  personnel  and
infrastructure, while sales remained essentially flat with 1997.

         Research and  Development  Expense.  Research and  development  expense
remained essentially flat in 1998 compared with 1997. The Company's research and
development  expenses were focused on developing  incremental  functionality and
features  for  its  PECOS  product  line,   including  developing  the  PECOS.PM
technology  acquired  in  1997 in  current,  state-of-the-art  code,  as well as
modifications  to allow its PECOS  technologies to communicate and operate using
the Internet and the continued development of its browser-based and Java-enabled
version of its PECOS technologies for license to other companies.

         Asset  Impairment,  Restructuring  and Other Related  Charges.  In the
1998 period, the Company recorded  a charge  of  $12.9  million  related  to  a
restructuring of certain of its U.S.  operations as further described  elsewhere
herein.

         Interest Expense. Interest expense for the year ended December 31, 1998
increased to $8.4 million  from $5.2 million in 1997.  Interest  expense in both
years primarily  resulted from  borrowings in support of the Company's  accounts
receivable and inventory and reflected the substantial  increases in such assets
which began in the second half of 1997 and continued during substantially all of
1998,  prior to the  Company's  significant  reduction of both its inventory and
accounts  receivable  balances in the fourth  quarter of 1998.  The  increase in
interest  expense also reflected  higher interest rates in the United Kingdom in
1998 compared to 1997.

         Interest Income and Other, Net. Interest income and other, net, for the
year ended  December 31, 1998 decreased to $.7 million from $1.1 million in 1997
and  reflected  a  reduction  in  average  on-hand  balances  of cash  and  cash
equivalents  available for investment.  Interest  income and other,  net in 1997
included a gain of $.4 million resulting from the sale of the Bristol, PA rental
division  in March  1997,  net of  certain  redundant  operating  and  severance
expenses  of  certain  Computerware   operations,   which  were  phased-out  and
consolidated  into the Company's  headquarters and East Coast  configuration and
distribution  facility which was opened in Canton,  MA late in the first quarter
of 1997.

         Income  Tax  Provision.  The  income  tax  provisions  in 1998 and 1997
primarily  related to the income  taxes of the  Company's  United  Kingdom-based
operations,  as well as certain  current federal  (alternative  minimum tax) and
state income taxes provided by the Company,  partially offset by the tax benefit
associated with reversal of the 1997 United States deferred tax liability due to
the  Company's  tax  loss  in  1998.  Because  of  the  uncertainty  related  to
realizability  of the  Company's net operating  loss  carryforward,  the Company
recorded a full  valuation  allowance  against its United  States  deferred  tax
assets.

         Net Income.  The Company  reported a net loss of $25.6  million for the
year ended  December 31, 1998,  versus net income of $10.3 million in 1997, as a
result of the factors described herein.

         Liquidity  and  Capital  Resources.  Net  cash  provided  by  operating
activities  for the year  ended  December  31,  1999 was  $94.7  million,  which
primarily  reflected a total of $35.6 million in depreciation,

                                       18
<PAGE>


amortization  and  impairment  of  intangible  assets,  as well as a decrease in
inventory  of  $37.4  million,   and  a  $106.1  million  decrease  in  accounts
receivable.  Net cash used in investing activities was $5.1 million,  consisting
primarily of additions to property,  equipment  and  software.  Net cash used in
financing  activities was $69.7 million,  including a $73.5 million net decrease
in borrowings under floor plan lines of credit.

         Net cash provided by operating  activities  for the year ended December
31, 1998 was $38.8 million, which primarily reflects a total of $20.3 million in
depreciation,  amortization  and impairment of intangible  assets,  as well as a
decrease in inventory of $20.9 million, and a $12.3 million decrease in accounts
receivable.  Net cash used in investing activities was $6.8 million,  consisting
primarily of $7.3 million in additions to property,  equipment and software. Net
cash used in financing  activities was $51.1 million,  including a $50.0 million
net decrease in borrowings under floor plan lines of credit.

         At December  31, 1999,  the  Company's  principal  sources of liquidity
included cash and cash  equivalents  of $34.2 million,  accounts  receivable and
floor  plan  lines  of  credit  from  Deutsche  Financial  Services  Corporation
("DFSC").  As of December  31,  1999,  the Company  had  borrowings  aggregating
approximately  $29.9 million  outstanding  under its DFSC borrowing  facilities,
which approximated its maximum availability thereunder. For detailed information
concerning the line of credit, see Note 3.

         The Company is  dependent  upon the DFSC lines of credit to finance its
eligible accounts  receivable arising from sales of computer products as well as
its United States inventory purchases. The DFSC lines of credit limit borrowings
to defined percentages of eligible inventory (in the United States) and accounts
receivable and contain customary  covenants,  including financial covenants with
respect to the Company's net income,  net worth and  debt-to-equity  ratios,  as
defined  in  the  agreements,   and  customary  default  provisions  related  to
non-payment of principal and interest,  default under other debt  agreements and
bankruptcy.  After  receiving  a waiver  from  DFSC  concerning  the net  income
covenant for 1999, the Company is in compliance  with all other covenants of the
facility as of December 31, 1999. There can be no assurance,  however,  that the
DFSC  lines  of  credit  will  continue  to be  available,  or that  they can be
increased if necessary to support the Company's requirements.

         The Company also has a $5 million floor plan  financing  agreement with
IBM Credit Corporation ("IBMCC") to support purchases of IBM products. The IBMCC
borrowing   facility  is  secured  by  the  IBM  products  purchased  under  the
arrangement and relates to domestic  operations  only. At December 31, 1999, the
Company  had no  borrowings  outstanding  from  IBMCC on its floor  plan line of
credit.

         The Company is currently  seeking to minimize the level of inventory it
stocks by  leveraging  its  electronic  commerce  capabilities  to  quickly  and
efficiently source product and/or by drop shipping product to customers whenever
possible.  These efforts,  and the disposal of the  substantial  majority of the
Company's United Kingdom remarketer  operations,  have resulted in a decrease in
inventory of $38.2  million  (96%) since  December 31, 1998.  As a result of the
Company's policy changes, as well as manufacturer  revisions to their rebate and
incremental  discount  programs,  the Company  received a significantly  reduced
amount of manufacturer  funding support in 1999 versus 1998, and there can be no
assurance  that the Company  will  purchase  the levels of product  necessary to
continue to receive these reduced  levels of funding  support in the future,  or
that manufacturers  will continue to make such support available.  Reductions in
manufacturer  funding  support  reduce the Company's  gross profit.  The Company
intends to continue to maintain  logistical and traditional  relationships  with
selected   distributors   and/or   aggregators  and  is  further   investigating
outsourcing  of certain  activities.  The July 31, 1999 sale of the  substantial
majority of the Company's United Kingdom remarketer group, resulted in a further
reduction in its inventory position.

         On December 30 , 1999,  the Company  entered into a  Structured  Equity
Line Flexible Financing Agreement ("Equity Line") Cripple Creek. Under the terms
of the agreement,  the Company may sell up to $50 million of its Common Stock to
Cripple Creek over an 18 month period. For details concerning the agreement, see
Note 5(f).

         On January 14, 2000, the Company filed a registration statement on Form
S-3  with  the  Securities  and  Exchange  Commission  for the  registration  of
2,853,418  shares of Common Stock,  which consists of

                                       19
<PAGE>

2,500,000  shares of Common  Stock  issuable  under the Equity  Line and 353,418
shares of Common Stock  issuable  upon exercise of warrants held by Wit Capital,
the Company's financial advisor.

         The Equity Line will be in effect for a period of 18 months,  beginning
on a date shortly after the Registration  Statement is declared  effective.  The
Company may, at its option, terminate this agreement at any 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. In addition, the Company
will require  ongoing  investments  in property,  equipment  and  software,  and
research and development.

         The Company  believes  that its cash,  cash  equivalents  and  accounts
receivable,  together with its existing  sources of equity and its liquidity and
cash generated from  operations,  will be sufficient to meet its working capital
and  capital  expenditure  requirements  for the next  year,  unless  management
decides to accelerate spending, and so long as its financing sources continue to
make lines of credit available. However, there can be no assurance the Company's
lines of credit will continue to be available to the Company or that replacement
financing  could be arranged if  necessary,  or that the Company will be able to
timely collect its accounts receivable.

Seasonality and Impact of Inflation

         In prior years, the Company has not experienced  observable seasonality
in its business. Generally, however, sales in the business and computer products
remarketer  industry  slow in the summer months and, in the United  States,  are
stronger  in the  fourth  calendar  quarter  and  somewhat  weaker  in the first
calendar quarter, while sales are generally strong in the first calendar quarter
in the United  Kingdom.  Due to its current  size and the nature of its customer
base,  the Company's  sales have  reflected  this  seasonality in 1999 and it is
likely that the sales of the Company will continue to  experience  some level of
industry seasonality in the future.

         Inflation has been relatively low in recent years and accordingly,  the
Company has not been significantly impacted by the effects of general inflation.
However,  since the  latter  half of 1996,  the  Company  has been  increasingly
impacted by the low unemployment rate in certain of its markets, particularly in
the Northeastern United States and the United Kingdom.

         The  Company's  revenues are affected by general  price  reductions  by
computer  product  manufacturers,   which  have  been  substantial.  Such  price
reductions  require  that  the  Company  increase  its  base  unit  volumes  and
associated  peripheral product sales to existing and newly acquired customers in
order to overcome  the effect of this price  cutting and increase its net sales.
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 the Company's revenues.

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,"  "intends,"  "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,  or  will  be,  correct.   These  forward-looking
statements  involve a number of risks and  uncertainties  which  could cause the
Company's future results to differ materially from those anticipated, including:
availability  and terms of appropriate  working capital and/or other  financing,
the potential  dilutive  effect of the Equity Line, the overall  marketplace and
customer's  acceptance and usage of electronic  commerce software  systems,  the
impact of competitive  technologies,  products and pricing, control of expenses,
levels of gross margins,  revenue growth,  overall  business  conditions,  price
decreases of PC products,  corporate

                                       20
<PAGE>

demand for and  availability of PC products,  changes in  manufacturer  policies
reducing price protection, returns and other policies, the success and timing of
implementing the Company's new management  information system,  risks associated
with acquisitions of companies,  the consequent  results of operations given the
aforementioned  factors,  and  other  risks  detailed  from time to time in this
Annual Report on Form 10-K (including without limitation,  under Item 1 and this
Item 7) and in the  Company's  other SEC reports and  statements,  including the
Company's prospectus included as part of the S-3 Registration Statement filed on
January 14, 2000 as amended from time to time.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         The Company is exposed to market risk from changes in inventory values,
interest  rates and exchange  rates,  which could  affect its future  results of
operations and financial condition. The Company's risk associated with inventory
values is discussed elsewhere in this Form 10-K.

         The Company's cash and cash equivalents,  lines of credit and long term
debt are  sensitive to interest  rate  fluctuations.  Changes in interest  rates
would result in changes in interest income and interest  expense  resulting from
the difference between historical interest rates on these financial  instruments
and the interest rates that these variable-rate instruments may adjust to in the
future.  Based on December 31, 1999  balances,  the Company  estimates that a 1%
change in interest rates would have an effect of  approximately  $0.4 million on
income before income taxes.

         The  Company's   investment  in  its  United  Kingdom  subsidiaries  is
sensitive to  fluctuations in the exchange rate between the United States dollar
and the  United  Kingdom  pound  sterling.  The effect of such  fluctuations  is
included  in  accumulated  other   comprehensive   income  in  the  Consolidated
Statements of Stockholders'  Equity. To date, such fluctuations have amounted to
a positive accumulated amount of $538,000.

Item 8.  Financial Statements and Supplementary Data

         See the  Consolidated  Financial  Statements  beginning  on  page  F-1.
Supplemental  earnings(loss) per share and quarterly  financial  information for
the  Company  are  included  in Notes 11 and 12,  respectively,  of the Notes to
Consolidated Financial Statements.

Item 9.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure

         In September 1999, the Audit Committee of the Board of Directors of the
Company  solicited  proposals  for  the  year-end  audit  of its  calendar  1999
consolidated  financial  statements.  The Company solicited  proposals from four
independent  accounting firms,  including Arthur Andersen LLP ("Andersen"),  who
had been previously engaged by the Company as its principal  auditor.  The Audit
Committee  took this action to ensure that the Company would continue to receive
the best possible audit services at a competitive price.

         During  September  and October 1999,  management  met with and provided
appropriate information to the independent accounting firms involved. On October
19, 1999 the Audit Committee met and decided it would not engage Andersen to act
as the Company's independent  accountants for calendar year 1999. Andersen,  the
Company's  independent  accountants  in 1998 and prior years was informed of the
Audit Committee's decision on October 20, 1999.

         Andersen,  in its  reports  on  the  Company's  consolidated  financial
statements  for each of the  calendar  years ended  December  31, 1998 and 1997,
neither expressed an adverse opinion or a disclaimer of opinion, or qualified or
modified such reports as to uncertainty, audit scope or accounting principles.

         During each of the years ended  December 31, 1998 and 1997,  and during
the period from January 1, 1999 through the date of this report,  (i) there were
no  disagreements  between the Company and Andersen on any matter of  accounting
principles or practices,  financial statement  disclosure,  or auditing

                                       21
<PAGE>

scope or procedure,  which  disagreements if not resolved to the satisfaction of
Andersen,  would have caused Andersen to make reference thereto in its report on
the financial statements of the Company for such years; and (ii) there have been
no reportable events (as defined in Regulation S-K Item 304 (a) (1) (v)).

         The Audit Committee  decided to offer its year end audit engagement for
calendar 1999 to KPMG LLP ("KPMG") as its new independent accountants in October
1999.  KPMG entered into an engagement  letter with the Company in December 1999
to act as the Company's new independent accountants.  During the two most recent
fiscal years and through the date of this report,  the Company has not consulted
with KPMG on items that were or should have been  subject to SAS 50 or concerned
the subject matter of a  disagreement  or reportable  event with  Andersen,  the
former  independent  accountants of the Company,  as described in Regulation S-K
Item 304 (a) (2).

                                    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   1999  Annual  Meeting  of
Stockholders  to be  held at  Occasions  Banquet  Facility,  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  Related 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.

                                     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  Schedule  for each of the
Three Years in the Period Ended December 31, 1999:

                  Reports of Independent Auditors on Supplementary Information

                  Schedule II - Valuation and Qualifying Accounts

                                       22
<PAGE>

                  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.

         (b) Reports on Form 8-K:

              The Company filed a Current  Report on Form 8-K, dated October 19,
1999,  regarding the Company's change in independent  accountants on October 26,
1999 and amended such report on December 8, 1999.

         (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. Such request can be made to:
Chief Financial Officer,  Elcom International,  Inc., 10 Oceana Way, Norwood, MA
02062.

                                       23
<PAGE>




                                   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 30, 2000                      By: /s/  Robert J. Crowell
                                           ----------------------------
                                           Robert J. Crowell
                                           Chairman and Chief Executive Officer

         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.

     Signatures                           Title                      Date

/s/  Robert J. Crowell         Chairman of the                   March 30, 2000
----------------------------   Board of Directors
Robert J. Crowell              and Chief Executive Officer
                               (Principal Executive Officer)


/s/  Peter A. Rendall          Corporate Executive               March 30, 2000
----------------------------   Vice President,
Peter A. Rendall               Chief Financial Officer, Treasurer
                               and Secretary (Principal Financial
                               and Accounting Officer)

/s/  William W. Smith          Vice Chairman and Director        March 30, 2000
--------------------------
William W. Smith


/s/  Richard J. Harries, Jr.   Director                          March 30, 2000
----------------------------
Richard J. Harries, Jr.


/s/  John W. Ortiz             Director                          March 30, 2000
----------------------------
John W. Ortiz


                                       24



<PAGE>

                              Company Confidential

                              Company Confidential
                            ELCOM INTERNATIONAL, INC.
                         1999 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)

2.5      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. (14)

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

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) and Renouncement of related Board Observer
         Right effective December 16, 1999 (x)

4.16     Form of Lantec Warrant Agreement, dated January 7, 2000, with attached
         Second  Amended List of Holders of Warrants to Purchase  Common Shares
         of the Registrant. (x)

4.17     AMA  Securities  Agreement,  dated February 29, 1996, by and among the
         Registrant and the former stockholders of AMA (UK) Limited. (9)


                                      E-1
<PAGE>


Exhibit No.                                 Description

4.18     Final  Agreement of  Settlement  and Mutual  Release of All Claims and
         Demands, dated March 26, 1997, by and among the Registrant and certain
         of its  subsidiaries,  and the  Former  Shareholders  of  Computerware
         Business Trust. (13)

10.1     Form of Indemnity  Agreement for Executive Officers and/or Directors of
         the  Registrant  (1), with attached list of Director  and/or  Executive
         Officer Indemnitees. (18) (*)

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. (9) (*)

10.4     $80,000,000  Business Credit and Security  Agreement Dated as of March
         1, 1997 among  Elcom  Services  Group,  Inc.  and  Deutsche  Financial
         Services  Corporation  (9),  and  Amendments  to  Business  Credit and
         Security Agreement. (12)(15)(18)

10.5     Lease Agreement for the Registrant's Headquarters,  dated July 5, 1993,
         by and  among  Oceana  Way  Associates  and  the  Registrant  (1),  and
         Agreement of Amendment thereto, dated October 20, 1997. (14)

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)

10.7     Structured Equity Line Flexible  Financing  Agreement,  dated December
         30, 1999,  between the Registrant and Cripple Creek  Securities,  LLC.
         (20)

10.8     Registration  Rights Agreement,  dated December 30, 1999,  between the
         Registrant and Cripple Creek Securities, LLC. (20)

10.9     Form of Warrant  and  Minimum  Commitment  Warrant  of the  Registrant
         issuable to Cripple Creek Securities, LLC. (20)

10.10    Warrant Agreement,  dated as of December 30, 1999, between the Company
         and Wit Capital Corporation. (20)

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  Financial  Services
         Corporation (UK) LTD., dated December 1, 1997,  guarantying Elcom Group
         Limited's indebtedness to Deutsche. (14)

10.19    Amended  Employment  Agreement by and between the Registrant and Robert
         J. Crowell dated June 1, 1997 (11),  and Form of  Consulting  Agreement
         appended thereto as Exhibit A. (12) (*)

10.22    Employment  Agreement by and between the  Registrant and James Rousou,
         dated December 8, 1999. (x)

10.24    Standard Conditions for the Sale and Purchase of Debts, dated December
         3, 1997,  between Elcom Group Limited and Deutsche  Financial Services
         (UK) LTD. (14)

                                      E-2
<PAGE>


Exhibit No.                                 Description


10.25    Agreement  for the Sale and Purchase of Debts dated  December 3, 1997,
         between Elcom Group Limited and Deutsche  Financial Services (UK) LTD.
         (14)

10.29    1995 Non-Employee Director Stock Option Plan of the Registrant,  dated
         October 9, 1995 (1), and Amendment No. 1 thereto. (11) (*)

10.33    Guaranty by the  Registrant  in favor of Deutsche  Financial  Services
         Corporation, dated November 6, 1995, guarantying Elcom Services Group,
         Inc.'s indebtedness to Deutsche. (1)

10.34    Guaranty by the  Registrant  in favor of Deutsche  Financial  Services
         Corporation,  dated  March 31,  1999,  guarantying  elcom.com,  inc.'s
         indebtedness to Deutsche. (18)

10.36    The 1996 Stock Option Plan of Elcom International, Inc. (8) (*)

10.37    Amended Employment Agreement by and between the Registrant and Laurence
         F. Mulhern dated June 1, 1997 (11);  and Form of  Consulting  Agreement
         appended  thereto as Exhibit A. (12) (*) and Amendment and Waiver under
         Employment  Agreement and Executive Profit Performance Bonus Plan dated
         October 1, 1999. (x)

10.38    The 1997 Stock  Option Plan of Elcom  International,  Inc.  (11),  and
         Amendments One and Two thereto. (14) (17) (*)

10.39    Elcom International,  Inc. Executive Profit Performance Bonus Plan for
         Executive Officers dated September 4, 1997. (12) (*)

10.40    Elcom International,  Inc. Key Personnel Profit Performance Bonus Plan
         dated September 4, 1997. (12) (*)

10.42    Wit Capital Corporation Engagement Letter, dated July 8, 1999. (19)

21.1     List of the Registrant's Subsidiaries. (x)

23.1     Consent of KPMG LLP. (x)

23.2     Consent of Arthur Andersen  LLP. (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.

                                      E-3
<PAGE>

(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.

(9)  Previously  filed as an exhibit to Registrant's  Annual Report on Form 10-K
     for the year ended December 31, 1996, and incorporated herein by reference.

(10) Previously  filed as an exhibit to  Registrant's  Quarterly  Report on Form
     10-Q for the  quarter  ended March 31,  1997,  and  incorporated  herein by
     reference.

(11) Previously  filed as an exhibit to  Registrant's  Quarterly  Report on Form
     10-Q for the  quarter  ended  June 30,  1997,  and  incorporated  herein by
     reference.

(12) Previously  filed as an exhibit to  Registrant's  Quarterly  Report on Form
     10-Q for the quarter ended September 30, 1997, and  incorporated  herein by
     reference.

(13) Previously  filed as an exhibit to Registrant's  Current Report on Form 8-K
     dated March 26, 1997 and incorporated herein by reference.

(14) Previously  filed as an exhibit to Registrant's  Annual Report on Form 10-K
     for the year ended December 31, 1997, and incorporated herein by reference.

(15) Previously  filed as an exhibit to  Registrant's  Quarterly  Report on Form
     10-Q for the  quarter  ended  June 30,  1998,  and  incorporated  herein by
     reference.

(16) Previously  filed as an exhibit to  Registrant's  Quarterly  Report on Form
     10-Q for the quarter ended September 30, 1998, and  incorporated  herein by
     reference.

(17) Previously  filed as an exhibit to Registrant's  Annual Report on Form 10-K
     for the year ended December 31, 1998 and incorporated herein by reference.

(18) Previously  filed as an exhibit to  Registrant's  Quarterly  Report on Form
     10-Q for the  quarter  ended  June 30,  1999,  and  incorporated  herein by
     reference.

(19) Previously  filed as an exhibit to  Registrant's  Quarterly  Report on Form
     10-Q for the quarter ended September 30, 1999, and  incorporated  herein by
     reference.

(20) Previously  filed as an exhibit to Registration  Statement No. 333-94743 on
     Form S-3 and incorporated herein by reference.

(x)  Filed herewith.

(*)  Management contract or compensatory plan or arrangement.

                                      E-4

<PAGE>

                              Company Confidential

                        CONSOLIDATED FINANCIAL STATEMENTS

                   ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1999


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

                                                                           Page

Independent Auditors' Report                                        F-2
Report of Other Independent Public Accountants                      F-3
Consolidated Balance Sheets as of December 31, 1998 and 1999        F-4
Consolidated Statements of Operations and Other Comprehensive
     Income for the years ended December 31, 1997, 1998 and 1999    F-5
Consolidated Statements of Stockholders' Equity for the years
     ended December 31, 1997, 1998 and 1999                         F-6
Consolidated Statements of Cash Flows for the years ended
     December 31, 1997 1998 and 1999                                F-7
Notes to Consolidated Financial Statements                          F-8 to F-24


                                      F-1
<PAGE>






                          Independent Auditors' Report

To the Board of Directors and Shareholders of
Elcom International, Inc.

We  have  audited  the   accompanying   consolidated   balance  sheet  of  Elcom
International,  Inc. and  subsidiaries  as of December 31, 1999, and the related
consolidated   statements  of  operations   and  other   comprehensive   income,
stockholders' equity, and cash flows for the year then ended. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

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

In our opinion, 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,  1999,  and the  results  of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.



/s/ KPMG LLP
KPMG LLP



Boston, Massachusetts
February 9, 2000

                                      F-2
<PAGE>







REPORT OF OTHER INDEPENDENT PUBLIC ACCOUNTANTS


To Elcom International, Inc.:


We  have  audited  the   accompanying   consolidated   balance  sheet  of  Elcom
International,  Inc. and  subsidiaries  as of December 31, 1998, and the related
consolidated   statements of   operations   and  other   comprehensive   income,
stockholders'  equity,  and cash flows for the years ended December 31, 1998 and
1997. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

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

In our  opinion,  based on our audits,  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, 1998,
and the consolidated  results of its operations and its cash flows for the years
ended  December  31,  1998 and  1997,  in  conformity  with  generally  accepted
accounting principles.




/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP


Boston, Massachusetts
March 23, 1999

                                      F-3
<PAGE>

                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

                                                             December 31,
                                  ASSETS                  1998           1999
CURRENT ASSETS:                                        ---------      ---------
  Cash and cash equivalents                             $14,315        $34,159
                                                       ---------      ---------
  Accounts receivable (Note 3):
     Trade                                              134,753        45,571
     Other                                               36,068         8,321
                                                       ---------      ---------
                                                        170,821        53,892
     Less-Allowance for doubtful accounts                 6,796         3,838
                                                       ---------      ---------
        Accounts receivable, net                        164,025        50,054
  Inventory (Note 3)                                     39,617         1,462
  Prepaids and other current assets                       2,458         1,221
                                                       ---------     ----------
         Total current assets                           220,415        86,896
                                                       ---------     ----------
PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
  Computer hardware and software                         26,556        24,730
  Land, buildings and leasehold improvements              3,507         2,710
  Furniture, fixtures and equipment                       9,228         5,755
                                                       ---------     ----------
                                                         39,291        33,195
  Less -- Accumulated depreciation and amortization      25,034        22,230
                                                       ---------     ----------
                                                         14,257        10,965
                                                       ---------     ----------
GOODWILL AND OTHER ASSETS, NET OF
   ACCUMULATED AMORTIZATION (Note 1)                     27,179           178
                                                       ---------     ----------
                                                       $261,851      $ 98,039
                                                       =========     ==========

                   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Lines of credit (Note 3)                             $104,772      $ 29,870
  Accounts payable                                       49,341        12,440
  Accrued expenses and other current liabilities         20,747         8,230
  Current portion of capital lease obligations (Note 6)     991           311
  Current portion of long-term debt (Note 4)                 78           --
                                                       ---------     ---------
    Total current liabilities                           175,929        50,851
  OTHER DEFERRED LIABILITIES (Note 10)                      418           --
  CAPITAL LEASE OBLIGATIONS, NET OF
     CURRENT PORTION (Note 6)                               191           260
  LONG TERM DEBT, NET OF CURRENT PORTION (Note 4)           296           --
  COMMITMENTS AND CONTINGENCIES (Note 6)                     --           --
                                                       ---------     ---------
    Total liabilities                                   176,834        51,111
                                                       ---------     ---------

STOCKHOLDERS' EQUITY (Note 5):
  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 --  27,547,061
     and 29,128,585 shares                                  275           291
  Additional paid-in capital                            101,271       106,111
  Accumulated earnings (deficit)                        (16,192)      (58,730)
   Treasury stock, at cost -- 236,338 and 257,739 shares (1,182)       (1,282)
  Accumulated other comprehensive income                    845           538
                                                      ---------     ---------
         Total stockholders' equity                      85,017        46,928
                                                      ---------     ----------
                                                      $ 261,851     $  98,039
                                                      =========     ==========

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

                                      F-4

<PAGE>

<TABLE>

                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND OTHER COMPREHENSIVE INCOME
                      (in thousands, except per share data)

                                                                   For Years Ended December 31,
                                                                  1997         1998         1999
                                                               ----------   ----------   ----------
<S>                                                            <C>          <C>          <C>
Net sales ..................................................   $ 760,136    $ 763,600    $ 485,828
Cost of sales ..............................................     669,742      686,658      442,427
                                                               ----------   ----------   ----------
Gross profit ...............................................      90,394       76,942       43,401
                                                               ----------   ----------   ----------
Operating Expenses:
  Selling, general and administrative ......................      70,200       80,285       63,426
  Research and development .................................       1,275        1,178        1,343
  Asset impairment, restructuring and other related
    charges(Note 7)                                                 --         12,892       19,272
                                                               ----------   ----------   ----------
Total operating expenses ...................................      71,475       94,355       84,041
                                                               ----------   ----------   ----------
Operating profit (loss) ....................................      18,919      (17,413)     (40,640)
Interest expense ...........................................      (5,203)      (8,355)      (3,174)
Interest income and other, net .............................       1,061          691          953
                                                               ----------   ----------   ----------
Income (loss) before income taxes ..........................      14,777      (25,077)     (42,861)
Income tax expense (benefit)(Note 9)........................       4,489          484         (323)
                                                               ----------   ----------   ----------
Net income (loss) ..........................................   $  10,288    $ (25,561)   $ (42,538)
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments ...................        (653)         360         (307)
                                                               ----------   ----------   ----------
Other comprehensive income (loss)...........................   $   9,635    $ (25,201)   $ (42,231)
                                                               ==========   ==========   ==========




Basic net income (loss) per share ..........................   $    0.38    $   (0.94)   $   (1.53)
                                                               ==========   ==========   ==========

Basic weighted average shares outstanding ..................      26,937       27,322       27,846
                                                               ==========   ==========   ==========

Diluted net income (loss) per share ........................   $    0.35    $   (0.94)   $   (1.53)
                                                               ==========   ==========   ==========

Diluted weighted average shares outstanding.................      29,461       27,322       27,846
                                                               ==========   ==========   ==========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.




                                      F-5
<PAGE>



<TABLE>

                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     (in thousands, except number of shares)

                                                 Common Stock                                           Accumulated
                                           ---------------------  Additional  Accumulated   Treasury      Other           Total
                                              Number    $.01 Par    Paid-in     Earnings      Stock,   Comprehensive   Stockholders'
                                            Of Shares     Value     Capital    (Deficit)     At cost      Income           Equity
                                           ---------------------  ----------  ------------  ---------- -------------    ------------
<S>                                        <C>           <C>      <C>          <C>          <C>          <C>            <C>
BALANCE, DECEMBER 31, 1996 ..............   26,663,512   $ 267     $ 98,483    $    (919)    $   (366)    $     1,138    $   98,603
  Exercise of common stock options,
    including related tax benefit of
    approximately $450                         505,447       5        1,954           --         (183)             --         1,776
  Purchase of procurement technology ....       49,280      --          289           --           --              --           289
  Net income ............................           --      --           --       10,288           --              --        10,288
  Cumulative translation adjustment .....           --      --           --           --           --            (653)         (653)
                                           ------------  ------   ----------  -----------   -----------  -------------  ------------
BALANCE, DECEMBER 31, 1997 ..............   27,218,239   $ 272     $100,726    $   9,369     $   (549)    $       485    $  110,303
  Exercise of common stock options ......      328,822       3          545           --           --              --           548
  Purchase of treasury stock ............           --      --           --           --         (633)             --          (633)
  Net loss ..............................           --      --           --      (25,561)          --              --       (25,561)
  Cumulative translation adjustment .....           --      --           --           --           --             360           360
                                           ------------  ------   ----------  -----------   -----------  -------------  ------------
BALANCE, DECEMBER 31, 1998 ..............   27,547,061   $ 275     $101,271    $ (16,192)    $ (1,182)    $       845    $   85,017
  Exercise of common stock options ......    1,581,524      16        4,840           --           --              --         4,856
  Purchase of treasury stock ............          --       --           --           --         (100)             --          (100)
  Net loss ..............................          --       --           --      (42,538)          --              --       (42,538)
  Cumulative translation adjustment .....          --       --           --           --           --            (307)         (307)
                                           ============  ======   ==========   ==========   ==========   =============  ============
BALANCE, DECEMBER 31, 1999 ..............   29,128,585   $ 291     $106,111     $(58,730)    $ (1,282)    $       538    $   46,928
                                           ============  ======   ==========   ==========   ==========   =============  ============
</TABLE>

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




                                      F-6

<PAGE>

<TABLE>

                                       ELCOM INTERNATIONAL, INC.
                                           AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (in thousands)
                                                                   For the Years Ended December 31,
                                                                     1997        1998         1999
                                                                  ---------    ---------    ---------
<S>                                                                <C>          <C>          <C>
  Net income (loss) ..........................................    $ 10,288     $(25,561)    $(42,538)
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities --
      Depreciation and amortization ..........................       8,795        9,691       16,313
      Restructuring, impairment and other related charges ....        --         10,652       19,272
      Provision for doubtful accounts ........................       3,058        4,975        4,626
    Changes in current assets and liabilities, net
      of purchase acquisitions --
         Accounts receivable .................................     (30,168)      12,266      106,099
         Inventory ...........................................     (26,088)      20,939       37,418
         Prepaids and other current assets ...................      (1,995)         799        1,313
         Accounts payable ....................................       5,088        5,860      (35,241)
         Accrued expenses and other current liabilities ......     (15,356)       1,013      (12,164)
     Increase (decrease) in other deferred liabilities .......       2,183       (1,795)        (418)
                                                                  ---------    ---------    ---------
           Net cash provided by (used in) operating activities     (44,195)      38,839       94,680
                                                                  ---------    ---------    ---------
 CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, equipment and software ...............      (7,723)      (7,284)      (5,288)
  (Increase) decrease in other assets and deferred costs .....        (321)         527          194
  Purchase of Prophet Group, net of cash acquired ............        (625)          --           --
  Purchase of Data Supplies, net of cash acquired ............      (2,660)          --           --
                                                                  ---------    ---------    ---------
        Net cash used in investing activities ................     (11,329)      (6,757)      (5,094)
                                                                  ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (payments) under lines of credit ............      64,570      (50,041)     (73,523)
  Repayment of capital lease obligations and long-term debt ..        (731)        (965)        (971)
  Exercise of common stock options including
    related tax benefit ......................................       1,776          548        4,856
  Purchase of treasury stock .................................          --         (633)        (100)
                                                                  ---------    ---------    ---------
        Net cash provided by (used in) financing activities ..      65,615      (51,091)     (69,738)
                                                                  ---------    ---------    ---------
FOREIGN EXCHANGE EFFECT ON CASH ..............................        (185)         159           (4)
                                                                  ---------    ---------    ---------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS ................................................       9,906      (18,850)      19,844
CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD ........................................      23,259       33,165       14,315
                                                                  =========    =========    =========
CASH AND CASH EQUIVALENTS, END OF PERIOD .....................    $ 33,165     $ 14,315     $ 34,159
                                                                  =========    =========    =========
SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION:
  Interest paid ..............................................    $  5,141     $  8,232     $  3,420
                                                                  =========    =========    =========
  Income taxes paid ..........................................    $  1,620     $    636     $    258
                                                                  =========    =========    =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:
  Increase in capital lease obligations ......................    $  1,488     $    510     $    480
                                                                  =========    =========    =========
  Purchase of procurement technology .........................    $    289     $     --     $     --
                                                                  =========    =========    =========
 Acquisitions of businesses (Note 2):
     Fair value of assets acquired ...........................    $  6,332     $     --     $     --
     Less cash paid ..........................................       1,600           --           --
                                                                  ---------    ---------    ---------
        Liabilities assumed ..................................    $  4,732     $     --     $     --
                                                                  =========    =========    =========
Disposition of Assets:
     Cash proceeds from sale of assets in U.K ................    $     --     $     --     $ 18,805
     U.K. net book value of assets sold ......................          --           --      (18,805)
                                                                  ---------    ---------    ---------
                                                                  $     --     $     --     $     --
                                                                  =========    =========    =========

 </TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                      F-7

<PAGE>


                              Company Confidential



                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Elcom  International,  Inc.  (the  "Company")  develops  and  licenses
automated   procurement  software  applications  which  enable  the  conduct  of
interactive  electronic commerce and, through its business products  remarketing
subsidiary, uses a version of the procurement software technology (primarily the
Personal  Electronic  Catalog and Ordering  System,  hereinafter  referred to as
"PECOS"),  as well as certain  Web-based  technologies  to support  the sale and
marketing of business and PC products,  the source of  substantially  all of the
Company's  net  sales  since  inception.   elcom.com,  the  Company's  eBusiness
subsidiary,  develops and licenses automated  procurement systems and operates a
B2B Internet storefront.

(a) Basis  of Consolidation

         The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned  subsidiaries.  The accounting and reporting
policies of the Company conform with generally accepted  accounting  principles.
All material  intercompany  transactions  and balances  have been  eliminated in
consolidation. Certain amounts from prior years have been restated to conform to
the current presentation.

(b) 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  consolidated  financial
statements  and  accompanying   notes.  Actual  results  may  differ  from  such
estimates.

(c) Cash and Cash Equivalents

         Cash and cash  equivalents  at December  31, 1998 and 1999  consists of
deposits  with banks and financial  institutions  which are  unrestricted  as to
withdrawal  or use and which have  original  maturities of three months or less.
Interest  earned on all cash  equivalents  is included  in  interest  income and
other, net in the Consolidated  Statements of Operations and Other Comprehensive
Income.

(d)   Accounts Receivable

         Other  accounts  receivable  consists  primarily  of  receivables  from
vendors and manufacturers relative to returned goods and manufacturers' rebates.

(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  constantly  minimizes its
inventory  and  periodically   reviews  its  inventory  for  potential   excess,
slow-moving, nonsaleable or obsolete inventory.

(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 $55,000 and $0 at December 31, 1998
and 1999, respectively.


                                      F-8
<PAGE>


The Company charged approximately  $590,000,  $227,000 and $55,000 in 1997, 1998
and 1999 respectively,  of these costs to operations,  none of which represented
write-downs to net realizable value of the capitalized costs.

     For all other advertising expenditures, the Company expenses the production
costs of  advertising  the first time the  advertising  takes place.  In 1999, a
branding  campaign was launched on behalf of the  Company's  PECOS.ipm  product.
$2.6 million of costs were expensed,  of which $1.2 million  remained accrued on
the balance sheet at December 31, 1999.

(g) Depreciation and Amortization

         Depreciation  and  amortization  are provided on a straight-line  basis
over the  estimated  useful  lives of the assets  which are three to five years.
Buildings are depreciated  over a useful life of 50 years.  The capitalized cost
of leased equipment and leasehold improvements are amortized over the shorter of
the estimated useful life of the related assets, or related lease instrument.


(h) Software, Goodwill and other Assets

         In March 1998, the American Institute of Certified  Public  Accountants
issued SOP 98-1,  Accounting  for the Costs of Computer  Software  Developed  or
Obtained for Internal Use which provides  guidance on accounting for such costs.
SOP 98-1 requires  computer  software costs that are incurred in the preliminary
project stage to be expensed as incurred.  Once the  capitalization  criteria of
SOP 98-1  have been  met,  directly  attributable  development  costs  should be
capitalized.  It also  provides  that  upgrade and  maintenance  costs should be
expensed. The Company's treatment of such costs has historically been consistent
with SOP 98-1,  with the costs  capitalized  being  amortized  over the expected
useful life of the software, ranging from eighteen months to four years.

         Costs related to the research and development of new software  products
and  enhancements to existing  software  products are expensed as incurred since
the time period between technological feasibility,  general release of a product
and  development of a new version is not  significant and related costs incurred
during each time period are not material.

         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
was  amortized  on a  straight-line  basis over an  estimated  useful life of 15
years.  Goodwill (net of  accumulated  amortization  of  $6,405,000  and $0) was
$26,529,000 and $0 at December 31, 1998 and 1999, respectively. Other intangible
assets (net of  accumulated  amortization  of $354,000 and $0 ) associated  with
acquisitions  amounted  to  $270,000  and $0 at  December  31,  1998  and  1999,
respectively,  and was assigned a five-year  life.  Amortization of goodwill and
such other intangibles  amounted to $3,252,000,  $3,178,000 and $701,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.

         The Company  evaluates its long-lived  assets for  impairment  whenever
events or changes in  circumstances  indicate  that the carrying  amount of such
assets may not be recoverable.  Recoverability  of assets to be held and used is
measured  by a  comparison  of the  carrying  amount  of  any  asset  to  future
undiscounted  net cash flows  expected  to be  generated  by the asset.  If such
assets are  considered  to be  impaired,  the  impairment  to be  recognized  is
measured  by the amount by which the  carrying  amount of the assets  exceed the
fair value of the assets. See Note (7) to the financial statements. Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell.

(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.

         Revenue is recognized on fixed price implementation contracts while the
contract is in progress using the percentage of completion  method, by reference
to the  proportion  of the  total  contract  which  has  been  completed  at

                                      F-9
<PAGE>

the  financial   statement  date.   Revenue  on  contracts  for  the  supply  of
professional  services at  pre-determined  rates is recognized when the services
are rendered and billed, irrespective of the duration of the contract.

     The Company derives  license fees, user fees and maintenance  fees from its
PECOS.ipm  licensees.  License  fees  are  recognized  upon  the  signing  of an
applicable license agreement unless there are performance  conditions  required,
in which case the revenue is recognized  upon  completion  of those  performance
conditions. User fees and maintenance fees are recognized ratably over the terms
of the related licenses.

         The Company recognizes  software license revenue in accordance with SOP
No. 97-2,  Software Revenue  Recognition as amended by SOP No. 98-4. The Company
believes its current revenue  recognition  policies and practices are consistent
with SOP 97-2 and SOP  98-4.  In  December  1998,  the  AICPA  issued  SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition,  with respect to Certain
Transactions,   which  amends  SOP  97-2,  Software  Revenue  Recognition,   and
supersedes  SOP 98-4.  The  Company  does not expect SOP 98-9 to have a material
effect on its financial position,  results of  operations,  or cash flows.  The
Company will adopt SOP 98-9 in fiscal 2000.


(j)   Accrued Expenses

     At December 31, 1999 accrued expenses  consisted of $2.9 million related to
salaries,  wages  and  employee  benefits  and  $5.3  million  related  to other
expenses.  At December  31, 1998  accrued  expenses  consisted  of $5.0  million
related to salaries,  wages and employee  benefits and $15.7 million  related to
other expenses.

(k) Post Retirement Benefits

         The Company has no material  obligations for post retirement  benefits.
The Company and an indirect  U.K.  subsidiary  each  maintain  separate  defined
contribution  benefit plans  covering all eligible  employees,  as defined.  The
plans  contain  provisions  allowing for  discretionary  Company  contributions.
Discretionary  Company  contributions to the U.K. defined  contribution plan for
the years ended December 31, 1997,  1998 and 1999 were $263,000,  $300,000,  and
$205,000, respectively.

(l) Foreign Currency Translation

         The accounts of the Company's indirect U.K. subsidiaries are translated
in  accordance  with SFAS No. 52,  Foreign  Currency  Translation.  Accordingly,
assets and  liabilities  of the  Company's  indirect  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  and  reported  as part of  other
comprehensive  income in the  statement of  operations  and other  comprehensive
income.

(m) Income Taxes

         The Company  provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes.  Under the asset and 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  in  effect  when  these
differences are expected to reverse. (See Note 9.)

(n)  Stock-Based Compensation

         The Company  accounts for  employee  stock  option in  accordance  with
Accounting  Principles  Board  Opinion  No. 25 (APB 25),  Accounting  for Stock
Issued to  Employees.  Under APB 25, the  Company  recognizes  no  compensation
expense related to employee stock options,  as no options are granted at a price
below the market price on the day of the grant.

     In 1996, SFAS No. 123,  Accounting for Stock-Based  Compensation,  became
effective  for the  Company.  SFAS  123, which  prescribes  the  recognition  of
compensation  expense  based on the fair  value of  options  on the grant

                                      F-10
<PAGE>

date,  allows  companies  to  continue  applying  APB 25 if  certain  pro  forma
disclosures are made assuming  hypothetical fair value method  application.  See
Note  (5)  for pro  forma  disclosures  required  by SFAS  123  plus  additional
information on the Company's stock options.

(o) 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 period presented,
calculated  in  accordance  with SFAS No.  128,  Earnings  Per Share.  Basic EPS
excludes  dilution and is computed by dividing income (loss) available to common
stockholders by the weighted average number of common shares  outstanding during
the period.  Diluted EPS gives effect to all potential common shares outstanding
during  the  period.  In 1998 and  1999,  diluted  EPS is the same as basic  EPS
because the Company has reported a net loss, in which case  dilutive  securities
are not included in the determination of per share calculations (see Note 11).

(p)   Fair Value of Financial Instruments

         The Company's  financial  instruments  consist  mainly of cash and cash
equivalents,   accounts  receivable,  lines  of  credit,  accounts  payable  and
long-term debt. The carrying amounts of the Company's cash equivalents, accounts
receivable  and accounts  payable  approximate  fair value due to the short-term
nature of these instruments. Lines of credit and long-term debt bear interest at
variable market rates therefore, the carrying amounts approximate fair value.

(q)  Comprehensive Income

         SFAS No. 130, Reporting  Comprehensive Income establishes standards for
reporting and displaying comprehensive income and its components.  The Company's
comprehensive  income  consists  of  net  income  (loss)  and  foreign  currency
translation adjustments.

(r)  Current Pronouncements

         The Company  adopted SFAS No. 131,  Disclosures  about  Segments of an
Enterprise  and  Related  Information  (SFAS No. 131) in 1998.  This  statement
establishes  standards for the reporting of information about operating segments
in annual and interim  financial  statements  and requires  restatement of prior
year information.  Operating segments are defined as components of an enterprise
for  which  separate  financial  information  is  available  that  is  evaluated
regularly by the chief operating  decision  maker(s) in deciding how to allocate
resources and in assessing  performance.  SFAS No. 131 also requires disclosures
about products and services,  geographic areas and major customers. The adoption
of SFAS No. 131 did not affect  results of operations or financial  position but
did affect the disclosure of segment information, as presented in Note 8.

     In June   1998 the FASB  issued  SFAS No. 133,  Accounting  for  Derivative
Instruments  and Hedging  Activities.  SFAS No. 133  establishes  accounting and
reporting standards for derivative financial  instruments and hedging activities
related to those instruments,  as well as other hedging activities.  Because the
Company does not currently hold any derivative  instruments  and does not engage
in hedging activities,  the Company does not expect the adoption of SFAS No. 133
to have a material  impact on its financial  position,  results of operations or
cash flows. The Company will be required to adopt SFAS No. 133 in fiscal 2001 in
accordance with SFAS No. 137, which delays the required  implementation  of SFAS
No. 133 for one year.

                                      F-11

<PAGE>

(2) ACQUISITIONS

         The Company has consummated the following acquisitions:
<TABLE>
                                                                                            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
                                                    $6.4 million of cash and
                                                    750,000 warrants to purchase common
                                                    stock

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

Prophet Group Limited           December 1996       $8.9 million of cash                     Purchase

Data Supplies Limited           February 1997       $1.6   million   of   cash   and  an     Purchase
                                                    interest bearing note of $752,000
</TABLE>

         For the acquisitions accounted for as poolings 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 dates of acquisition.


(3) LINES OF CREDIT

     At December 31, 1999, the Company's principal sources of liquidity included
cash and cash  equivalents  of $34.2 million and accounts  receivable  and floor
plan lines of credit from  Deutsche  Financial  Services  Corporation  ("DFSC").
During 1998,  the United States DFSC facility  provided for  borrowings of up to
$120 million, and interest was charged at a rate of prime minus 1%. The facility
was amended in connection  with its March 1999 renewal to include  elcom.com and
to provide for  aggregate  borrowings  of up to $80 million,  and as of April 1,
1999,  the interest  rate was  increased to prime minus 0.5%. As of February 10,
2000, the facility was amended to provide for aggregate  borrowings of up to $50
million and as of April 1, 2000,  the interest  rate was increased to prime plus
0.25%.  Approximately  one-half of the Company's United States borrowings do not
bear interest until after interest-free periods of 30 to 60 days have lapsed.

         In  addition,  the  Company  has  agreed  that its  interest  rate will
increase  .25% for each quarter  that it reports a loss,  as defined in the DFSC
agreements. The interest rate at December 31, 1999 was prime (8.5%) minus 0.25%.
The  Company's  reported  loss in the  fourth  quarter of 1999  resulted  in an
interest  rate increase of 0.25%  commencing  January 1, 2000.  Availability  of
United  States  borrowings  is  based on  DFSC's  determination  as to  eligible
accounts  receivable  and  inventory.  As of December  31, 1999,  the  Company's
borrowings  from DFSC on its United  States floor plan line of credit were $23.9
million.  The  United  States  DFSC line of credit is secured  primarily  by the
Company's   United   States   inventory   and  accounts   receivable,   although
substantially  all of the Company's  other United States assets also are pledged
as collateral on the facility.

                                      F-12
<PAGE>


         In December 1997, the Company  established a United Kingdom DFSC credit
facility which provides for aggregate  borrowings of up to (pound)30 million, or
approximately  $48.5 million,  as of December 31, 1999.  Availability  of United
Kingdom  borrowings  is based upon DFSC's  determination  of  eligible  accounts
receivable  and amounts  outstanding  bear interest at the Base Rate of National
Westminster Bank plc (6.75% at December 31, 1999) plus 1.25%. As of December 31,
1999,  the  Company's  borrowings  under its United  Kingdom DFSC  facility were
(pound)3.7   million,   or  $6.0  million,   which  approximated  the  Company's
availability thereunder.

     The  Company is  dependent  upon the DFSC  lines of credit to  finance  its
eligible accounts  receivable arising from sales of computer products as well as
its United States inventory purchases. The DFSC lines of credit limit borrowings
to defined percentages of eligible inventory (in the United States) and accounts
receivable and contain customary  covenants,  including financial covenants with
respect to the Company's net income,  net worth and  debt-to-equity  ratios,  as
defined  in  the  agreements,   and  customary  default  provisions  related  to
non-payment of principal and interest,  default under other debt  agreements and
bankruptcy.  After  receiving  a waiver  from  DFSC  concerning  the net  income
covenant for 1999, the Company is in compliance  with all other covenants of the
facility as of December 31, 1999. There can be no assurance,  however,  that the
DFSC  lines  of  credit  will  continue  to be  available,  or that  they can be
increased if necessary to support the Company's requirements.

     As  of  December  31,  1999,   the  Company  had   borrowings   aggregating
approximately  $29.9 million  outstanding  under its DFSC borrowing  facilities,
which approximated its maximum availability thereunder.

         The Company also has a $5 million floor plan  financing  agreement with
IBM Credit Corporation ("IBMCC") to support purchases of IBM products. The IBMCC
borrowing   facility  is  secured  by  the  IBM  products  purchased  under  the
arrangement and relates to domestic  operations  only. At December 31, 1999, the
Company  had no  borrowings  outstanding  from  IBMCC on its floor  plan line of
credit.

(4) LONG-TERM DEBT

Long-term debt consists of the following (in thousands):
                                                              December 31,
                                                            1998         1999
                                                          --------     --------
Mortgage  payable to a bank,  interest  at the  greater
of the bank's  base rate (7.50% at December 31, 1998)
plus 3% or 10.25%,  due in monthly  installments of
principal plus interest through  June  2005,
secured by  certain  land and  buildings.                  $  374       $    -
This mortgage was paid in full in August, 1999.
Less current portion:                                          78            -
                                                          ========     ========
                                                           $  296       $    -
                                                          ========     ========

(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,  with the Board of  Directors  authorized  to fix the  rights,
privileges,  preferences  and  restrictions  of  any  series  thereof  as it may
designate.

(c) Stock Options

         The  Company's  Board of Directors  has adopted five stock option plans
and stockholders  have approved the adoption of all five such stock option plans
(the "Option Plans"). As of December 31, 1999, the Option Plans

                                      F-13
<PAGE>


provided that up to an aggregate of 11,650,000  incentive  stock options  (ISOs)
and  nonqualified  options  may be  granted  to  key  personnel,  directors  and
consultants 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 on varying dates, as determined by the  Compensation
Committee for each plan, and have terms not to exceed 10 years.

         One of the Option Plans,  the 1995  Nonemployee  Director  Stock Option
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.  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. The 1995 Nonemployee Director Plan provides
that  options are granted at fair market  value on date of grant,  vest  ratably
over three years, and have terms not to exceed 10 years.

         On April 29, 1997,  the Board of Directors  adopted and on February 17,
1998 and  March  11,  1999 it  amended,  The  1997  Stock  Option  Plan of Elcom
International,  Inc. (the "1997 Plan").  As of December 31, 1998,  the 1997 Plan
provided that an aggregate of up to 2,000,000, and as amended on March 11, 1999,
up to 3,000,000 ISOs and  nonqualified  options to acquire the Company's common
stock may be granted to key personnel,  directors and consultants of the Company
as determined by the Compensation  Committee.  Under the terms of the 1997 Plan,
ISOs are granted at not less than the fair market value of the Company's common
stock on the date of grant.  The 1997 Plan also  provides  that the  options are
exercisable at varying dates, as determined by the Compensation  Committee,  and
have terms not to exceed ten years.

         On  April 3,  1997,  the  Board  of  Directors  voted  to  reprice  all
outstanding  options  (excluding  those  issued  to  executive  officers  of the
Company)  with an  exercise  price in excess  of $6.57 per share to an  exercise
price of $6.57 per share. The repricing covered a total of 1,292,000 shares with
a  weighted  average  exercise  price of $7.95  per  share.  Such  repricing  is
reflected in the December 31, 1997 options outstanding in the table below.

     Information  relating to the Company  Option Plans during each of the years
in the three year period ended December 31, 1999 is as follows:

--------------------------------------------------------------------------------
                                                                 Weighted
                                                                  Average
                                      Number      Option Price     Price
                                    of Shares       Per Share    Exercise
                                   ------------  --------------  ---------
Outstanding, December 31, 1996      6,429,114    $0.11 - 14.25   $  4.64
  Granted .....................     2,073,275     5.03 -  8.80      5.84
  Terminated ..................      (266,517)    4.00 - 14.25      7.19
  Exercised ...................      (505,447)     .11 -  6.57      2.98
                                   ------------  --------------  ---------
Outstanding, December 31, 1997      7,730,425    $0.11 -  8.80   $  4.73
  Granted .....................     1,691,000     1.28 -  6.22      3.14
  Terminated ..................    (1,793,489)    1.44 -  7.69      5.30
  Exercised ...................      (328,822)    0.11 -  5.99      1.67
                                   ------------  --------------  ---------
Outstanding, December 31, 1998      7,299,114    $0.11 -  8.80   $  4.40
  Granted .....................     4,786,985     1.64 - 31.13      3.42
  Terminated ..................    (2,122,259)    1.28 -  7.69      4.30
  Exercised ...................    (1,581,524)    0.11 -  6.75      3.10
                                   ------------  --------------  ---------
Outstanding, December 31, 1999      8,382,316    $0.11 - 31.13   $  4.08
                                   ============  ==============  =========

Exercisable, December  31, 1997     3,665,547    $0.11 -  8.80   $  3.86
                                   ============  ==============  =========
Exercisable, December 31, 1998      4,538,781    $0.11 -  8.80   $  4.43
                                   ============  ==============  =========
Exercisable, December 31, 1999      3,640,392    $0.11 - 8.80    $  4.60
                                   ============  ==============  =========

                                      F-14
<PAGE>


The following table summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
                                      Options Outstanding                            Options Exercisable
                     -------------------------------------------------------    -------------------------------
                                                                 Weighted                            Weighted
                                          Weighted Average        Average                             Average
     Range of             Number              Remaining           Exercise          Number           Exercise
  Exercise Prices      Outstanding        Contractual Life         Price          Exercisable          Price
-----------------    ---------------    --------------------    ------------    ---------------    ------------
<S>                   <C>               <C>                     <C>             <C>                <C>
    $.011 - 1.64          1,650,484         8.04 years             $1.41              309,888         $0.44
     1.69 - 1.84            525,699         8.96 years              1.82              212,150          1.84
     2.55 - 3.16            202,800         7.05 years              3.04               93,975          3.00
     3.56 - 3.81          1,407,615         9.54 years              3.81               32,000          3.63
     3.86 - 4.09          1,267,875         6.34 years              4.03            1,190,725          4.03
     4.16 - 4.63            992,400         9.65 years              4.18               29,398          4.46
     4.81 - 5.03            609,575         7.53 years              5.02              508,425          5.03
    5.06 - 12.63          1,724,868         6.95 years              7.27            1,263,831          6.59
           31.13              1,000         10.00 years            31.13             -                    -
                     ===============                                           ===============     =========
                          8,382,316                                                 3,640,392         $4.60
                     ===============                                           ===============     =========
</TABLE>

         As of December  31,  1999,  8,700,518  shares of common stock have been
reserved for issuance under the Company's stock option plans.

     Had  compensation  costs  for  awards  in 1997,  1998 and  1999  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 (loss) and per share amounts would have been
as follows:

                                             1997         1998          1999
                                           --------     --------      --------
                                           (in thousands, except per share data)
           Net income (loss):
                As reported...............  $10,288     $(25,561)     $(42,538)
                Pro forma.................  $ 5,981     $(29,762)     $(45,530)
           Net income (loss) per share:
                As reported - basic.......  $  0.38     $  (0.94)     $  (1.53)
                Pro forma - basic.........  $  0.22     $  (1.09)     $  (1.64)
                As reported - diluted.....  $  0.35     $  (0.94)     $  (1.53)
                Pro forma - diluted.......  $  0.20     $  (1.09)     $  (1.64)

     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:

                                    1997          1998            1999
                                 ----------    ----------     -----------
Volatility......................   60.25%        60.25%         113.71%
Risk-free interest rate.........    5.94%         5.41%           6.77%
Expected life of options .......   5 years       5 years         6 years
Expected dividend yield ........     0%            0%              0%

     The weighted  average fair value per share of options  granted during 1997,
1998 and 1999 were $3.28, $1.76, and $2.92 respectively.

                                      F-15
<PAGE>

         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.com, also maintains
a stock option plan pursuant to which two million shares of its common stock are
reserved for issuance.  The plan has provisions  similar to the Company's Option
Plans, and none of the options issued thereunder were exercisable as of December
31, 1999. elcom.com, inc. has 18.25 million shares outstanding, all of which are
owned by the Company.

(d) Warrants

         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,  1999,  all of these  warrants  are
outstanding and exercisable. The warrants expire in June 2005.

     On July 19,  1999,  the Company  announced  the  engagement  of Wit Capital
Corporation  ("Wit Capital") as its investment  banker and strategic advisor for
the purpose of assisting the Company in  evaluating  strategic  options.  In the
event the Company  completes an equity placement with an investor  introduced by
Wit Capital,  the terms of the engagement  call for Wit Capital to receive Elcom
International,  Inc.  warrants  equal to 1% of the Company's  fully-diluted  (as
calculated by the Treasury Method) common stock and a placement fee of $700,000.
In accordance with the Wit Agreement, the Company issued warrants to Wit Capital
to purchase  353,418  shares of the  Company's  common  stock at $28.71 for each
common share. The warrants expire on December 30, 2002.

     On December 30, 1999, the Company signed a Structured  Equity Line Flexible
Financing Agreement with Cripple Creek Securities, an investor introduced to the
Company by Wit  Capital.  The Company has reserved  750,000  shares for issuance
pursuant to the  warrants  that may be issuable to Cripple  Creek in  connection
with the Equity Line financing. (See Note 5(f)).

 (e) Open Market Stock Purchase Plan

         On May 28, 1998,  the Board of Directors of the Company  authorized the
purchase of up to an aggregate  of 800,000  shares of common stock to be held as
treasury  stock  targeted   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 upon then-existing  market  conditions.  During
1998, the Company  purchased 180,019 shares of the Company's  common stock at an
aggregate cost of $633,000 pursuant to this authorization.

(f ) Structured Equity Line Flexible Financing Agreement

     On December 30,  1999,  the Company  entered into a Structured  Equity Line
Flexible  Financing  Agreement ("Equity Line") with Cripple Creek Securities LLC
("Cripple Creek"). Under the terms of the agreement,  the Company may sell up to
$50 million of its common stock to Cripple Creek over an 18 month period.

     The agreement provides that the Company,  at its option, may sell up to $10
million of common stock during each monthly investment period. Cripple Creek may
require the Company to sell  additional  shares of common  stock to it, up to an
amount  equal to the amount the Company  decided to sell during such  investment
period at a price equal to 100% of the lowest volume-weighted average sale price
during,  but no less than $1 million  the five days  immediately  preceding  the
notice of purchase  delivered  to the Company by Cripple  Creek.  The  agreement
allows the Company to set a minimum  price that the common  stock sold under the
Equity Line must be purchased at, during any particular  investment  period. The
Company also will issue to Cripple Creek,  warrants to purchase 15,000 shares of
common stock for each $1 million of common  stock sold by the Company,  provided
that  warrants  to acquire at least a minimum  total of 150,000  (100,000  under
certain circumstances) will be issuable upon termination of the Equity Line. The
exercise price of the warrants will equal 120% of the average price paid by

                                      F-16

<PAGE>

Cripple Creek for the common stock  purchased under the Equity Line. The Company
is not  obligated  to sell any minimum  amount of common  stock under the Equity
Line.

     On January 14, 2000, the Company filed a registration statement on Form S-3
with the Securities and Exchange  Commission for the  registration  of 2,853,418
shares of Common  Stock,  which  consists of  2,500,000  shares of Common  Stock
issuable  under the Equity Line and 353,418 shares of Common Stock issuable upon
exercise of warrants held by Wit Capital, the Company's financial advisor.

     The Equity Line will be in effect for a period of 18 months, beginning on a
date shortly after the Registration Statement is declared effective. The Company
may, at its option, terminate this agreement at any time.

(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 $2,710,000  and  $2,342,000 and related  accumulated  amortization  of
$1,262,000  and  $1,657,000  as of  December  31,  1998 and 1999,  respectively.
Amortization of leased assets is included in depreciation expense.

         The Company has entered into operating  leases for office and warehouse
space, software, computers, autos and other equipment. The period covered by the
leases  ranges  from one to 25 years.  Certain  leases for office and  warehouse
space require  payment by the Company of all related  operating  expenses of the
building, including real estate taxes and utilities.

         Future minimum rental payments as of December 31, 1999, are as follows:

                                                  Capital      Operating
 Year Ending December 31, (in thousands)          Leases         Leases
 ---------------------------------------          -------      ---------
 2000...............................              $ 347         $ 2,916
 2001...............................                160           1,784
 2002...............................                120             996
 2003...............................                 --             930
 2004...............................                 --             917
 Thereafter.........................                 --           6,042
                                                  -------      ---------
 Total minimum lease payments.......              $ 627         $13,585
                                                  =======      =========
   Less - Amounts representing interest              56
                                                  -------
   Present value of net minimum lease payments    $ 571
   Current portion..................                311
                                                  -------
 Long term portion..................              $ 260
                                                  =======

     Rent  expense  for  operating  leases  for each of the  three  years  ended
December 31, 1997, 1998 and 1999 amounted to  approximately  $4.0 million,  $4.3
million and $3.6 million, respectively.

(b) Employment Contracts

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

(c) Contingencies

     The Company is party to various  litigation as both plaintiff and defendant
in cases related to contractual  issues,  employment  matters and issues arising
out of the  conduct  of its  business.  The  Company  believes  that,  based

                                      F-17
<PAGE>

on  discussions  with its counsel,  the estimable  range of loss, if any, is not
material in relation to the financial statements.

(7) ASSET IMPAIRMENT, RESTRUCTURING AND OTHER RELATED CHARGES

     On July  31,  1999,  the  Company  completed  the  sale of the  substantial
majority of its United Kingdom  remarketer  group  operations which included its
United  Kingdom   field-based   sales  operation,   its  professional   services
organization,  its  distribution  business,  and  specified  inventory and fixed
assets. The disposed businesses accounted for approximately 75% of the Company's
United Kingdom  revenues and 67% of its United Kingdom  operating income in 1998
and the seven month period ended July 31, 1999  (excluding the asset  impairment
charge  described  below).  The Company  recorded total revenues  related to its
United Kingdom operations of $193 million in 1999, and $314 million in 1998. The
Company has retained its United Kingdom telemarketing group, which it intends to
evolve towards a B2B Internet-based  storefront business,  similar to elcom.com,
Starbuyer.com,  the Company's  wholly-owned  eBusiness  subsidiary in the United
States. The Company also plans to use the retained business as the platform from
which  it  will  market  PECOS   Internet   Procurement   Manager,   elcom.com's
Internet-based and  remotely-hosted  automated  procurement system. The acquirer
has assumed the lease of the  Company's  Langley  facility  and the lease of the
Company's  Glasgow  facility;  however,  the Company retained  substantially all
other  balance  sheet  assets  and  liabilities  of  the  disposed   businesses.
Accordingly,  the  Company is  responsible  for the current  costs of  severance
liabilities,  and subleasing excess facilities,  as well as realizing  inventory
and excess  fixed assets no longer  required to operate the retained  portion of
the business.

     Based  on the  sale  price  of  approximately  $12  million  (excluding
inventory  sold of  approximately  $6.8 million) and the Company's  estimates of
incremental  liabilities  associated with the sale transaction,  the Company has
recorded an asset  impairment  charge of $19.5 million in the second  quarter of
1999 which  includes a reduction  of the  carrying  value of its United  Kingdom
assets to estimated net realizable value and the accrual of  approximately  $3.3
million  primarily related to lease  termination  costs,  severance and accounts
receivable.  Additionally,  expenses of $3.1 million were recorded against gross
profit to reflect  inventory  valuation and returns  estimates.  The Company had
$25.7  million of goodwill  reflected on its balance sheet  associated  with the
acquisitions of these United Kingdom which was impaired and  incorporated in the
$19.5 million charge.  In the third and fourth quarters of 1999, $2.2 million of
costs primarily related to lease termination,  severance and accounts receivable
were incurred and charged against the $3.3 million accrual. At December 31, 1999
approximately  $1.1 million of this accrual  remained on the balance sheet to be
utilized in 2000.

         In the 1998  period,  the  Company  recorded a charge of $12.9  million
related to a restructuring  of certain of its U.S.  operations.  In August 1998,
the Company  restructured  Elcom Services Group's education sales operations and
in  September,  consolidated  certain of its customer  support  personnel in the
United   States.   The  total  charge   related  to  the  Elcom  Services  Group
restructuring is  approximately  $8.1 million,  consisting of approximately  $.1
million of  severance  costs,  a write-down  of $7.0  million to  estimated  net
realizable  value  relating to the impairment of certain  intangible  assets and
approximately $1.0 million in other related expenses and asset write-downs.  The
impaired  intangible  assets  generally  consist  of  the  unamortized  goodwill
associated  with the February  1995  acquisition  of  Computerware,  because the
Company has determined that there are no longer any  identifiable or significant
cash  flows  specifically  associated  with  this  acquisition,   including  the
non-renewal of the Apple Educational Sales Agent contract.

     In September 1998, the Company  restructured Elcom Systems,  its electronic
commerce  technology  subsidiary,  to serve as an  electronic  commerce-oriented
systems  integration  arm of Elcom Services  Group. In connection with the Elcom
Systems restructuring, the Company recorded a total charge of approximately $3.7
million,  consisting  of $0.9 million of severance  costs,  a write-down of $2.1
million to estimated net realizable  value relating to the impairment of certain
intangible  assets,  and approximately  $0.7 million in other estimated expenses
and asset write-downs.  The impaired  intangible assets generally consist of the
value assigned to the original client server coding and  architecture of various
PECOS technologies,  including Commerce Manager,  which is no longer competitive
with  alternatives  now available.  The Company has developed,  and continues to
develop,  PECOS.pm in current,  state-of-the-art code, especially for use on the
Internet.

                                      F-18
<PAGE>

         In December 1998, the Company streamlined its business model, focusing
primarily on  reengineering  its sales force and operating  infrastructure  in a
manner  intended to better align the  Company's  costs with  revenues and margin
expected to be generated by the Company. This rightsizing affected 133 positions
worldwide,  and the Company  recorded a total charge of $1.1 million,  primarily
associated  with personnel  severance and estimated costs related to closing six
United States field support and sales offices.

         Components  of the  restructuring  charges  recorded  in 1998,  amounts
incurred through December 31, 1999, and adjustments to the charge are as follows
(in thousands):

Elcom Services Group
                       Amount               Amount
              1998    Incurred   Balance   Incurred  Adjustments   Balance
             Charge     1998     12/31/98    1999     to Charge   12/31/99
            --------  --------   -------   -------    --------    --------
Severance    $   813   $    93   $   720   $   557    $   163     $   --
Goodwill .     6,970     6,970      --         --         --          --
Other ....     1,302       825       477       456         21         --
             -------   -------   -------   -------    -------     -------
    Total    $ 9,085   $ 7,888   $ 1,197   $ 1,013    $   184     $   --

elcom.com

Severance    $   976   $   212   $   764   $   764   $    --     $   --
Intangible
  Assets .     2,139     2,139        --        --        --         --
Other ....       692       126       566       518        48
             -------   -------   -------   -------   -------     -------
  Total ..   $ 3,807   $ 2,477   $ 1,330   $ 1,282   $    48     $   --

  Total ..   $12,892   $10,365   $ 2,527   $ 2,295   $   232     $   --
             =======   =======   =======   =======   =======     =======

         The excess accrual was reversed to the  restructuring and other related
charges line on the statement of operations in 1999.


(8) BUSINESS SEGMENT INFORMATION

     The  Company's  operations  are  classified  into two  reportable  business
segments:  elcom.com,  the Company's eBusiness technology subsidiary,  and Elcom
Services Group, which markets and sells business-related  products to commercial
customers.  The accounting  policies for the segments are consistent  with those
described  in the summary of  significant  accounting  policies.  The  Company's
management  evaluates  segment  performance based on net sales and gross profit.
All intercompany  transactions  between segments have been eliminated except for
transactions relating to the intercompany services agreements (see Note 10).

                                      F-19
<PAGE>

         On October 1, 1999, the ownership of the UK operations were transferred
from Elcom  Services  Group to elcom.com.  In accordance  with SFAS No. 131, the
Company has  restated  the segment  information  for  earlier  periods.  Segment
results for 1997, 1998 and 1999 are as follows (in thousands):

                                        1997            1998            1999
                                      ----------      ----------      ----------
Net Sales
     Elcom Services Group              $755,914        $761,305        $412,262
     elcom.com                            4,222           2,295          73,566
     elcom.com intercompany sales           619             314              14
     Elimination                           (619)           (314)            (14)
                                      ----------      ----------      ----------
                         Total         $760,136        $763,600        $485,828
                                      ==========      ==========      ==========
Gross Profit
     Elcom Services Group              $ 86,876        $ 75,135        $36,488
     elcom.com                            3,518           1,807          6,913
     elcom.com intercompany sales           267             146             10
     Elimination                           (267)           (146)           (10)
                                      ----------      ----------      ----------
                         Total         $ 90,394        $ 76,942        $43,401
Identifiable Assets
     Elcom Services Group              $297,000        $245,133        $ 21,858
     Corporate                           30,815          14,872          31,027
                                      ----------      ----------      ----------
                         Total         $332,068        $261,851        $ 98,039
                                      ==========      ==========      ==========

         Substantially all revenues,  net income and identifiable assets related
to the remarketing of personal computer products and related services.

         The Company  operates both in the US and UK and geographic  information
is as follows (in thousands):

                                       1997            1998            1999
                                     ----------      ----------      ----------
       Net Sales
                U.S.                 $ 473,806       $ 449,844       $ 292,507
                U.K.                   286,330         313,756         193,321
                                     ----------      ----------      ----------
                         Total       $ 760,136       $ 763,600       $ 485,828
                                     ==========      ==========      ==========
       Gross Profit (loss)
                U.S.                 $  52,529       $ 40,537        $  25,496
                U.K.                    37,865         36,405           17,905
                                     ----------      ----------      ----------
                         Total       $  90,394       $ 76,942        $  43,401
                                     ==========      ==========      ==========
       Identifiable Assets
                U.S.                 $ 224,718       $ 151,648       $  89,767
                U.K.                   107,350         110,203           8,272
                                     ----------      ----------      ----------
                         Total       $ 332,068       $ 261,851       $  98,039
                                     ==========      ==========      ==========

(9)  INCOME TAXES

         Income (loss) before provision for income taxes consisted of:

                                       1997             1998            1999
                                     ----------      -----------      ----------

                  U.S.                $  6,977        $(25,780)      $(18,760)
                  Foreign                7,800             703        (24,101)
                                     ----------      -----------     ----------
                                      $ 14,777        $(25,077)      $(42,861)
                                     ==========      ===========     ==========

                                      F-20
<PAGE>

         The provision (benefit) for income taxes consisted of (in thousands):

                                                  1997      1998       1999
                                                --------  --------   --------
Current tax provision
   U.S. federal.............................    $   250   $   190    $    25
   State....................................        375       701        742
   Foreign..................................      2,400       276     (1,090)
                                                --------  --------   --------
    Total current tax provision(benefit)....    $ 3,025   $ 1,167    $  (323)
                                                --------  --------   ---------

Deferred tax provision(benefit)
   U.S. federal.............................        468      (743)         0
   State....................................        257      (400)         0
   Foreign..................................        739       460          0
                                                --------  --------   --------
     Total deferred  tax provision(benefit).    $ 1,464   $  (683)   $     0
                                                --------  --------   --------
Provision(benefit) for income taxes.........    $ 4,489   $   484    $  (323)
                                                ========  ========   ========

         The following table summarizes the significant  differences between the
U.S.  federal  statutory  tax  rate  and the  Company's  effective  tax rate for
financial statement purposes:

                                                        1997     1998     1999
                                                       -------  -------  -------
Statutory tax rate...................................   34.0%   (34.0%)  (34.0%)
State taxes, net of U.S. federal tax benefit.........    2.8     (0.8)     1.7
Foreign taxes........................................   (1.6)     0.1     (1.9)
Valuation reserve provided against utilization of
  net operating loss carryforwards...................  (21.0)    24.3     20.7
Non deductible goodwill and other....................   16.2      8.5     12.7
                                                       =======  =======  =======
                                                        30.4%    (1.9%)  (0.8%)
                                                       =======  =======  =======


Deferred tax assets  (liabilities)  consisted of the following as of December 31
(in thousands):
                                                          1998         1999
                                                        --------    ---------
Deferred tax assets:
   Nondeductible reserves.............................  $ 1,776      $     -
   Capitalized inventory costs........................      178           24
   State income taxes.................................      578          352
   Accrued expenses...................................      801          297
   Other temporary differences........................      667           45
   Depreciation.......................................        -        2,362
   Foreign net operating loss carryforwards...........        -        1,871
   Net federal and state operating loss carryforwards.    6,095       20,399
                                                        ========    =========
                                                         10,095       25,350
                                                        ========    =========
Deferred tax liabilities:
   Depreciation.....................................       (372)           -
   Other intangible assets..........................         -          (791)
   Catalog costs....................................     (1,065)        (184)
   Other temporary differences......................       (556)        (337)
                                                        --------    ---------
                                                         (1,993)      (1,312)
                                                        --------    ---------
Valuation allowance.................................     (8,102)     (24,038)
                                                        --------    ---------
Net deferred tax liabilities........................     $    -     $      -
                                                        ========    =========

                                      F-21
<PAGE>


     At December 31, 1999, the Company has U.S. net operating loss carryforwards
of  approximately  $49.3  million,  which are available to offset future Federal
taxable income. These losses expire during the years 2010 through 2019.

         Section  382 of the  Internal  Revenue  Code of 1986  and the  Treasury
Regulations  promulgated thereunder subjects the prospective  utilization of net
operating  losses and certain other tax attributes,  such as tax credits,  to an
annual limitation in the event of an ownership change. An ownership change under
Section  382  generally  occurs  when the  ownership  percentages  of  5-percent
shareholders,  in  aggregate,  change by more than 50  percentage  points over a
three-year  period.  Some of the Company's net operating  losses and tax credits
are subject to limitation  under Section 382 as a result of ownership  changes
in earlier years.  However,  the size of the Section 382 limitations relative to
the losses  subject  to these  limitation  support  current  availability  under
Section 382 of all of the Company's net operating loss and tax credits.

         The Company's  ability to utilize its net  operating  loss and  general
business  tax credit  carryforwards  may be limited in the future if the Company
experiences an ownership change as a result of future transactions.

     At  December  31,  1999,   the  Company  has  state  net   operating   loss
carryforwards  of  approximately  $60.4  million,  which are available to offset
future state taxable income. These losses expire during the years 2000 through
2005.

     At  December  31,  1999,   the  Company  has  foreign  net  operating  loss
carryforwards  of  approximately  $6.0  million,  which are  available to offset
future foreign  taxable  income.  These losses may generally be carried  forward
indefinitely.

     The valuation  allowance increased by $8.1 million and $15.9 million during
the years ended December 31, 1998 and 1999,  respectively.  The Company believes
that it is more likely  than not that the  deferred  tax assets at December  31,
1999 will not be realized in the future. The valuation  allowance as of December
31, 1999,  includes a tax effect of approximately  $4.8 million  attributable to
deductions  associated  with employee  stock option plans,  the benefit of which
will be recorded as an increase to paid-in-capital when realized or recognized.

(10)    RELATED PARTY TRANSACTIONS

(a)    Transactions with Affiliated Company

     On  September  30,  1997,  the  Company  sold  options to acquire an equity
ownership  interest  in  ShopLink.com,  inc.  The Company  received  $418,000 in
payment for the options, which could have been exercised through March 31, 1999.
The Company has  included  the  $418,000  received in payment for the options in
other deferred  liabilities,  in the accompanying  consolidated balance sheet at
December 31, 1998. The option lapsed without being  exercised on March 31, 1999.
The  Company  included  the $ 418,000 in  interest  income and other on the 1999
Consolidated Statement of Operations and Other Comprehensive Income.

     Commencing  January 1, 1999,  Elcom  International,  Inc.,  Elcom  Services
Group,  and  elcom.com,  inc.  entered into  certain  agreements  governing  the
provision of intercompany  services.  Elcom  International Inc. provides various
administrative  services  including  accounting,  credit and  collection,  human
resources,  telecom,  office  leasing,  and  executive  management to both Elcom
Services  Group and elcom.com,  inc. Elcom Services Group provides  distribution
and product  configuration  services,  customer service and support services and
purchasing  and product  management  services to elcom.com.  elcom.com  provides
various   information   technology  hardware  and  software  services  to  Elcom
International Inc. and Elcom Services Group.

(b)  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 $699,000 and $0
at December 31, 1998 and 1999, respectively.

                                      F-22
<PAGE>



(11) EARNINGS(LOSS) PER SHARE (in thousands, except per share data)

         Basic and diluted earnings(loss) per share were calculated as follows:

Basic                                         1997         1998        1999
-----------------------------------------   --------    ---------    ---------

Net income (loss)........................   $ 10,288    $(25,561)    $(42,538)
                                            =========   =========    =========
Weighted average shares outstanding......     26,937      27,322       27,846
                                            =========   =========    =========
Basic net income (loss) per share........   $   0.38    $  (0.94)    $  (1.53)
                                            =========   =========    =========

Diluted
-----------------------------------------

Net income (loss)........................   $ 10,288    $(25,561)    $(42,538)
                                            =========   =========    =========
Weighted average shares outstanding......     26,937      27,322       27,846

Dilutive effect of stock options.........      2,524          -            -
                                            ---------   ---------    ---------
Weighted average shares as adjusted......     29,461      27,322       27,846
                                            =========   =========    =========
Diluted net income (loss) per share......   $   0.35    $  (0.94)    $  (1.53)
                                            =========   =========    =========

         Options to purchase  536,000  shares of common stock at prices  ranging
from $6.75 to $8.80 were  outstanding at December 31, 1997 but were not included
in the computation of diluted  earnings per share because the options'  exercise
prices were greater than the average market price of the common shares in 1997.

         Diluted net loss per share in 1998 does not reflect the dilutive effect
of stock options and warrants,  as the impact of including them is antidilutive.
Based on the average market price of the Company's  common shares in 1998, a net
total of  917,000  shares  covered  by options  would  have been  dilutive,  and
6,963,000  shares covered by options and warrants with per share exercise prices
ranging from $3.72 to $8.80, would not have been dilutive.

         Diluted net loss per share in 1999 does not reflect the dilutive effect
of stock options and warrants,  as the impact of including them is antidilutive.
Based on the average market price of the Company's  common shares in 1999, a net
total of  2,788,000  shares  covered by  options  and  warrants  would have been
dilutive,  and 1,780,000  shares  covered by options and warrants with per share
exercise prices ranging from $5.56 to $31.13, would not have been dilutive.

                                      F-23
<PAGE>

(12) QUARTERLY FINANCIAL DATA (UNAUDITED)

Certain  amounts from prior quarters have been  reclassed (in thousands,  except
per share data):

<TABLE>

                                                First       Second       Third       Fourth
Year Ended December 31, 1998                   Quarter     Quarter      Quarter     Quarter       Year
                                              ---------   ---------    ---------   ---------    ----------
<S>                                           <C>         <C>          <C>         <C>          <C>
Net sales .................................   $ 190,048   $ 191,778    $194,993    $ 186,781    $ 763,600
Gross profit ..............................      22,154      22,586      19,463       12,739       76,942
Operating profit (loss) ...................       4,021       3,234     (15,186)      (9,482)     (17,413)
Net income (loss) .........................       1,372         515     (15,036)     (12,412)     (25,561)
Basic net income (loss) per share .........   $     .05   $     .02    $   (.55)   $    (.46)   $    (.94)
Basic weighted average shares outstanding .      27,230      27,379      27,356       27,321       27,322
Diluted net income (loss) per share .......   $     .05   $     .02    $   (.55)   $    (.46)   $    (.94)
Diluted weighted average shares outstanding      28,802      28,254      27,356       27,321       27,322

</TABLE>
<TABLE>

                                                First       Second       Third      Fourth
Year Ended December 31, 1999                   Quarter     Quarter      Quarter     Quarter       Year
                                              ---------   ---------    ---------   ---------    ----------
<S>                                           <C>          <C>         <C>         <C>          <C>
Net sales .................................   $ 174,353    $ 149,411   $ 91,326    $  70,738    $ 485,828
Gross profit ..............................      17,174       13,519      7,720        4,988       43,401
Operating profit (loss) ...................        (246)     (21,579)    (7,609)     (11,206)     (40,640)
Net income (loss) .........................   $  (1,455)   $ (22,734)  $ (7,485)   $ (10,864)   $ (42,538)
Basic net income (loss) per share .........   $   (0.05)   $   (0.82)  $  (0.27)   $   (0.38)   $   (1.53)
Basic weighted average shares outstanding .      27,412       27,709     27,944       28,307       27,846
Diluted net income (loss) per share .......   $   (0.05)   $   (0.82)  $  (0.27)   $   (0.38)   $   (1.53)
Diluted weighted average shares outstanding      27,412       27,709     27,944       28,307       27,846
</TABLE>

                                      F-24

<PAGE>

                              Company Confidential

                   ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                         1999 ANNUAL REPORT ON FORM 10-K
                                INDEX TO SCHEDULE

                                                                        Page
                                                                      Reference

Reports of Independent Auditors on Supplementary Information          S-2 to S-3

Schedule II - Valuation and Qualifying Accounts for the Years Ended
         December 31, 1997, 1998 and 1999                             S-4


                                      S-1
<PAGE>





            Independent Auditors' Report on Supplementary Information




The Board of Directors
Elcom International, Inc.:

We have audited and reported  separately  herein on the  consolidated  financial
statements of Elcom International,  Inc. and subsidiaries as of and for the year
ended December 31, 1999.

Our  audit  was  made  for the  purpose  of  forming  an  opinion  on the  basic
consolidated financial statements of Elcom International, Inc. taken as a whole.
The supplementary  information included in Schedule II is presented for purposes
of  additional  analysis  and is not a  required  part  of the  basic  financial
statements.  Such  information  has been  subjected to the  auditing  procedures
applied in the audit of the basic consolidated  financial statements and, in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
consolidated financial statements taken as a whole.

/s/ KPMG LLP
KPMG LLP



Boston, Massachusetts
February 9, 2000





                                      S-2


<PAGE>





              Report of Other Independent Public Accountants Report
                          on Supplementary Information




To Elcom International, Inc.:

         We  have  audited,  in  accordance  with  generally  accepted  auditing
standards,  the  consolidated  balance  sheet as of  December  31,  1998 and the
related  consolidated  statements of operations and other comprehensive  income,
stockholders  equity and cash flows for the years  ended  December  31, 1998 and
1997 of Elcom International,  Inc. and subsidiaries  included in this Form 10-K,
and have issued our report  thereon  dated March 23, 1999.  Our audits were made
for the  purpose  of forming  an  opinion  on the basic  consolidated  financial
statements  referred to above taken as a whole. The schedule listed in the index
of this Form  10-K is the  responsibility  of the  Company's  management  and is
presented  for  purposes  of  complying   with  the   Securities   and  Exchange
Commission's  rules  and  is  not  part  of  the  basic  consolidated  financial
statements.  This schedule had 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.


/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP



Boston, Massachusetts
March 23, 1999




                                      S-3
<PAGE>

                                                                     SCHEDULE II



                   ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
              For the years ended December 31, 1997, 1998 and 1999
                                 (in thousands)


                                   Balance,                            Balance,
                                  Beginning              Utilization/    End
Allowance for Doubtful Accounts   of Period   Additions   Other (1)    Of Period
-------------------------------   ---------   ---------  -----------   ---------

Year ended December 31, 1997       $ 4,312    $ 3,058      $(1,896)    $ 5,474
                                   =======    =======      ========    =======
Year ended December 31, 1998       $ 5,474    $ 4,975      $(3,653)    $ 6,796
                                   =======    =======      ========    =======
Year ended December 31, 1999       $ 6,796    $ 4,626      $(8,345)    $ 3,077
                                   =======    =======      ========    =======


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

                                  Balance,                              Balance,
                                  Beginning                               End
Inventory Valuation Accounts      of Period   Additions  Utilization   Of Period
-------------------------------   ---------   ---------  -----------   ---------
Year ended December 31, 1997       $ 1,358    $ 1,796     $(1,791)     $ 1,363
                                   =======    =======     ========     =======
Year ended December 31, 1998       $ 1,363    $ 1,651     $(1,022)     $ 1,992
                                   =======    =======     ========     =======
Year ended December 31, 1999       $ 1,992    $ 1,734     $(2,956)     $   770
                                   =======    =======     ========     =======

                                  Balance,                             Balance,
                                  Beginning                               End
Deferred Tax Valuation Accounts   of Period   Additions  Utilization   Of Period
-------------------------------   ---------   ---------  -----------   ---------
Year ended December 31, 1997       $ 2,655    $   -       $(2,655)     $    -
                                   =======    =======     ========     =======
Year ended December 31, 1998       $   -      $ 8,102     $    -       $ 8,102
                                   =======    =======     ========     =======
Year ended December 31, 1999       $ 8,102    $15,936     $    -       $24,038
                                   =======    =======     ========     =======


                                      S-4