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, 2000 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
                    registrants 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 registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

        The aggregate market value of the voting stock held by non-affiliates of
the  registrant  based on the  closing  price of such stock on The Nasdaq  Stock
Market on March 19, 2001, was  approximately  $46,320,000.  For purposes of this
disclosure  only,  the  registrant  has assumed  that its  directors,  executive
officers,  and beneficial owners of 10% or more of the registrants  common stock
are affiliates of the registrant.

        The registrant had  30,902,000  shares of Common Stock,  $.01 par value,
outstanding as of March 19, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrants  definitive proxy statement for the 2001 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
remotely-hosted,   self-service   electronic   procurement   (eProcurement)  and
electronic marketplace  (eMarketplace),  Internet and intranet-based  purchasing
systems  which  enables  the  conduct of  interactive  electronic  commerce  for
businesses.  Over the last seven years,  elcom,  inc.,  the  Companys  eBusiness
technology subsidiary,  has developed its PECOS (Personal Electronic Catalog and
Ordering  System)  technology,  which is licensed to companies to enable them to
communicate, market, buy and sell various goods and services electronically over
the Internet or through private networks and  eMarketplaces.  The Companys PECOS
technology can support large numbers of end-user  clients,  products,  suppliers
and  transactions  and its  transaction  server  middleware  provides a scalable
foundation for robust system performance and high transaction capacity.

     The  Company  also  markets  and  sells  value-added  services,  as well as
computer and business information technology (IT) products to commercial clients
through Elcom Services  Group,  Inc., its  wholly-owned  value added  remarketer
subsidiary.  Elcom Services Group, Inc. commenced operations in December 1993 as
the original proof of concept of the Companys PECOS  technology.  Elcom Services
Group, Inc., serves its clients using PECOS.web,  an Internet-based ordering and
information system.

     In addition,  the Company  operates  Starbuyer.com,  its owned and operated
business-to-business eMarketplace, and through Elcom Services Group, Inc. in the
United  States  (U.S.) and Elcom  Information  Technology  Limited in the United
Kingdom  (U.K.),   uses  versions  of  its  PECOS   technology,   including  its
eMarketplace  system,  to support the sale and  marketing of business  products,
primarily PC products, to commercial clients which generate substantially all of
the Companys sales.

     In January 2001,  the Company  announced that it had signed an agreement to
outsource  its PC product  fulfillment,  inventory  and  logistics,  and product
configuration  for its two  subsidiaries  in the U.S.  (elcom,  inc.,  and Elcom
Services Group,  Inc.) to TD Fulfillment  Services,  L.L.C, a subsidiary of Tech
Data  Corporation  (Tech  Data),  one  of the  worlds  largest  distributors  of
computer-oriented IT products.

     Since its inception,  the Company has purchased products from distributors,
including Tech Data, and direct from certain manufacturers and, as an authorized
reseller of those  products,  resold  those  products to  commercial  customers.
Because the Company took title to these purchased products, the Company recorded
gross revenues for each sale transaction.  Under the outsourcing agreement, Tech
Data has become the Companys logistics and fulfillment  outsourcing  partner and
will assume  virtually all logistics and  fulfillment  functions,  including the
Companys  PC  product  financing  in the  U.S.,  allowing  the  Company  to hold
virtually  no  inventory  or product  accounts  receivable  in the U.S.  thereby
reducing  working capital  requirements  in the U.S. Under this agreement,  Tech
Data will recognize  product  revenues and own and manage inventory and customer
receivables.  The Company will receive  transaction-oriented fees related to the
gross profit generated as an agent on each sale, including products sold through
Starbuyer.com.   The  first  live  orders  processed  through  this  outsourcing
arrangement  were recorded in February 2001 and the transition is expected to be
completed by the end of the second quarter of 2001. The Company will continue to
provide its comprehensive suite of professional services and support directly to
its clients,  while acting as an agent for IT product sales  transactions in the
U.S. In addition, the Company expects inventory and accounts receivable risks to
decrease to virtually  nil and expects to realize  other cost  reductions in the
U.S. due to this outsourcing arrangement.  The U.K. business products remarketer
subsidiary  is not effected  and will  continue to own  inventory,  record gross
revenues on product sales and collect customer receivables.

     As a result  of this  outsourcing  arrangement  as  described  herein,  the
Companys  IT product  revenues  in the U.S.  will  begin to  reflect  increasing
transaction-oriented  fees,  which are  related  to the  amount of gross  profit
generated on IT product sales. When fully transitioned to Tech Data, reported

                                       2

<PAGE>

transaction fees, which will be the only revenues recorded on product sales, are
expected to be approximately 6% to 8% of previously reported IT product revenues
in the U.S. Services-oriented revenues will continue to be reported as they have
been historically.

elcom, inc.

     The eBusiness subsidiary of the Company, elcom, inc., develops and licenses
remotely-hosted,  self-service,  Internet and intranet-based purchasing systems,
primarily PECOS Internet  Procurement  Manager  (PECOS.ipm),  and PECOS Internet
Exchange Manager (PECOS.iem). The purchasing systems the Company offers include:

     eProcurement  Systems:  PECOS.ipm  is based  on more  than  seven  years of
eCommerce technology and has been in development for over three years. PECOS.ipm
is a robust  and  feature-rich  Internet-based,  remotely-hosted,  self-service,
automated procurement system. As a remotely-hosted system,  PECOS.ipm allows the
Companys clients to use their intranet/Internet to access the system to identify
and select  products,  check pricing,  automate the internal  approval  process,
place and track  orders  through  the  approval  and  fulfillment  process,  and
facilitate  invoicing  and payment to  suppliers.  Since it is  remotely-hosted,
PECOS.ipm is rapidly  deployable and has a minimal impact on a clients  computer
system and personnel resources.  elcom, inc. acts as its own application service
provider  and hosts  PECOS.ipm  on its own hardware  platform  giving  clients a
single  point  of  contact  and  responsibility.   In  addition,   PECOS.ipm  is
configurable by a client and does not require scripting or consultants to modify
administrative  items  or  approval  workflows.   PECOS.ipm  can  operate  as  a
standalone  system without an expensive  back-end  Enterprise  Resource Planning
(ERP)  system in place  thereby  enabling  easier  implementation.  Clients  may
integrate their ERP system using data feeds with PECOS.ipm already operating. If
a client wishes,  PECOS.ipm may also be installed  on-site at a clients facility
on its computers.  Further,  the Company facilitates  supplier catalog loads and
manages  catalog  content  for the client when the system is  remotely-  hosted.
Version 7.1, a more powerful version of PECOS.ipm,  is in final  development and
targeted  for  commercial  availability  in  April/May  2001  for  use by  large
multi-organizational  companies. Version 7.1 contains several features which are
necessary for Elcom Services Group,  Inc. to deploy  PECOS.ipm to its current or
prospective customers to enable them to purchase IT products. Several aspects of
the PECOS technology were patented in 1998 based on a 1994 patent filing.

     eMarketplace   Systems:   PECOS.iem  is  the  Companys  recently  announced
eMarketplace  system  which  allows  a  client  to  create  its  own  electronic
marketplace,  enabling  it to act as a market  maker for buyers  and  sellers of
products with transactions and catalog content managed by the Company. Remotely-
hosted by the Company,  PECOS.iem  allows  enterprises to deploy an eMarketplace
that  supports  buyer and  supplier  self-enrollment.  The Company is  currently
adding new  functions,  such as request for  proposal,  reverse  auctioning,  an
automated supplier portal for catalog management, and other features to its next
release targeted for mid-2001.

     Further,  the Company is in the process of  developing  eMarketplace  World
Network, a global eMarketplace Hub, which is designed to interconnect world-wide
eMarketplaces comprised of industry vertical and geographic trading communities,
allowing  eMarketplaces to connect their trading  communities so that buyers can
easily  review   participating   eMarketplaces  and  trade  with  the  suppliers
participating in those eMarketplaces.

     Starbuyer.com  is the Companys owned and operated  eMarketplace in the U.S.
which was  developed in 1999 as the proof of concept for the  Companys  original
eMarketplace technology. Through the Starbuyer eMarketplace, the Company markets
and sells over 200,000 business and IT products, including business and computer
products,  office supplies and other  commodity-type  products necessary for the
day-to-day operation of most businesses. The Company generated $128.2 million in
revenues through Starbuyer.com for the year ended December 31, 2000, compared to
$56.1 million in the prior year. The Company uses its eMarketplace and its PECOS
technology to source and order the majority of its products automatically in the
U.S. Historically,  in the U.S., the Company has been linked electronically with
Tech Data and Ingram Micro,  the worlds two largest PC product  distributors for
IT  products.  The  Companys  automated  sourcing  technology  allows it to have
multi-billion  dollar  on-line  "virtual" IT

                                       3


<PAGE>

product  inventory  available to its clients and to offer a very broad selection
of IT products. Historically, the Company has taken title to these products when
shipped  by its  distribution  fulfillment  partners  and  therefore  recognized
revenues on those sales.  The Company  recently  announced it has outsourced its
U.S. IT product fulfillment process to Tech Data, one of the largest IT products
distributors in the world.  As part of this  outsourcing  agreement,  which went
live in February  2001, the Company has started to pass orders through Tech Data
and expects  virtually all IT product orders in the U.S. to be processed through
Tech  Data by the end of the  second  quarter  of 2001.  Under  the  outsourcing
agreement, the Company will receive a transaction-oriented fee, which is related
to the gross profit generated on each sale, as agent for each sale.

     Starbuyer Gold: In March 2001, the Companys U.K. subsidiary began operation
of its business- to-business Internet-based  eMarketplace called Starbuyer Gold,
similar to Starbuyer.com operated by elcom, inc. in the U.S. Starbuyer Gold will
allow the  Companys  U.K.  clients  to have new  functionality  compared  to the
PECOS.web technology previously used by the U.K. subsidiary.

Business-to-Business Electronic Commerce Overview

     Market Overview.  With the widespread  implementation  of intranets and the
adoption of the Internet as a business communication platform, organizations can
now automate enterprise-wide and inter- organizational commerce activities.  The
availability  of the Internet as a ubiquitous  communications  network creates a
significant   market   opportunity   for   Internet-based   business-to-business
electronic commerce solutions for operating resources.

     Internet-based  procurement,  often  referred  to as  eProcurement,  is the
process of buying goods and  services  from  suppliers  over the  Internet.  The
Company believes that the market for eProcurement  solutions,  which consists of
buy-side  software  that  automates  the  requisitioning  and workflow  approval
process,  and  Internet-based  software  that  enables  online  transactions  in
eMarketplaces,  is  currently  at the  beginning  of a  dramatic  growth  cycle.
Internet-based  automated  procurement  systems  have  only been  available  for
approximately  two years and  represent  a new  category of cost  reduction  and
productivity- enhancing supply chain management systems. As indicated by various
research reports,  the marketplace is nascent;  however,  it is projected that a
substantial  percentage of  corporations  of various  sizes and across  multiple
industries  will adopt some form of  eProcurement  solution in the next  several
years.

     Forrester  Research  estimates  that  the  business-to-business  electronic
commerce  market will grow from $403  billion in 2000 to $2.7  trillion by 2004.
International   Data   Corporation   (IDC)  forecasts  that   eProcurement   and
eMarketplace application license revenues will grow from $770 million in 1999 to
$9.7  billion  in 2004.  AMR  Research  predicts  that the  market  for  private
exchanges (eMarketplaces) will reach $35 billion by 2005 with a compound average
growth  rate  of  68%.  These  research  forecasts  indicate  that  adoption  of
eProcurement and eMarketplace systems will create a large market opportunity for
solution   providers  as  the  market  moves  from  early  adopters,   currently
characterized  primarily by Fortune 1000 companies, to mid-market and mainstream
companies in 2001 and beyond.

Elcom Services Group, Inc.

     Elcom  Services  Group,   Inc.  (Elcom  Services   Group),  a  wholly-owned
subsidiary  of the  Company,  markets  and sells  business-related  products  to
commercial clients. Elcom Services Group serves its clients using PECOS.web,  an
Internet-based  ordering and information system.  Elcom Services Group commenced
operations  in December  1993 as the  original  proof of concept of the Companys
technology,  and experienced rapid growth through 1997. The Company achieved its
initial growth by offering its PECOS Commerce  Manager  (PECOS.cm) and PECOS.web
technology to its Elcom Services Group clients and by various marketing efforts,
including direct sales and by the acquisition of six PC remarketers.

     In addition to  PECOS.web,  Elcom  Services  Group intends to offer Version
7.1, the multi- organizational  version of PECOS.ipm,  to its clients, which the
Company  expects  will  provide  its  corporate  clients  with  the  ability  to
reengineer  their  internal  procurement  practices  for  products  and services
purchased  from  Elcom  Services  Group.  At the  clients  option,  their use of
PECOS.ipm   can  be  expanded  to

                                       4


<PAGE>

other suppliers,  creating an integrated eProcurement system. Although there can
be no  assurances  as to the  ultimate  timing or success  thereof,  the Company
believes that by offering  Version 7.1 of PECOS.ipm to existing and  prospective
clients,  Elcom Services  Groups sales force can be empowered with a substantial
competitive  differentiator  to  support  efforts to expand  sales and  increase
penetration of existing clients by providing a robust  value-added  eProcurement
solution  at a  significantly  reduced  cost to clients  which also  purchase IT
products from Elcom Services Group.

     On July  31,  1999,  the  Company  completed  the  sale of the  substantial
majority  of  its  U.K.   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  began  to  transition  to  a  business  to  business   Internet-based
eMarketplace  model in March 2001,  similar to that conducted by elcom, inc., in
the  U.S.  On  October  1,  1999,  the  ownership  of the U.K.  operations  were
transferred  from Elcom Services Group to elcom,  inc. to help  facilitate  this
strategy.

     Elcom Services Group offers  thousands of products  manufactured by leading
companies,  such as Compaq,  IBM,  Toshiba  and  Hewlett-Packard.  Historically,
orders placed through PECOS.web for IT products that are in stock generally were
fulfilled  automatically  from the  inventory  of one of Elcom  Services  Groups
Distribution  Fulfillment  Partners (DFPs),  which included Tech Data and Ingram
Micro,  Inc.,  two of the  largest  PC  product  distributors  in the world (See
Fulfillment  and  Logistics).  Elcom  Services Group also offers a wide range of
professional  services  to its U.S.  clients.  As  described  elsewhere  herein,
commencing in the first quarter of 2001, Elcom Services Group has outsourced its
product  fulfillment process to Tech Data and after the transition is completed,
virtually  all U.S. IT product  orders  will be  processed  by Tech Data.  Elcom
Services Group will receive a transaction-oriented fee as agent for each sale.

     Primarily  due  to  declining  gross  profit  margins  with  certain  large
customers  and  increasing  inventory  risks in 1999,  the Company  introduced a
strategy for Elcom Services  Group to reduce its revenues and related  inventory
exposure by declining  to do business  with clients that did not pay the Company
on time as per agreements,  or demanded  pricing which the Company was unwilling
to provide due to many  factors,  including  decreases in marketing  development
funding from various  manufacturers.  This  strategy  resulted in a  significant
decrease  in  revenues  in 2000  and 1999  compared  to  1998,  but  effectively
eliminated a majority of the Companys marginal clients.

Products and Pricing

     Products.  The Company  offers over  200,000  products  from  thousands  of
manufacturers.  Historically,  the  substantial  majority of  business  products
offered by the Company were  purchased  primarily from DFPs in both the U.S. and
U.K.  The  Company  provides  clients  with a large  selection  of IT  products,
including personal computer systems, monitors, printers,  peripherals,  software
together with office supplies,  and 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           Tektronics

                                   PERIPHERALS
                      NEC             Sony            Cisco
                     Intel           Xircom          Kingston
                   Viewsonic          3Com            Iomega

                                       5
<PAGE>

                Hewlett-Packard    Golden Ram         Seagate
               Citrix                 Digi         International

                                    SOFTWARE
                    Microsoft         Lotus            Corel
                     Seagate          Novell          Symantec
                      Adobe            IBM

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

     Historically in the U.S., the Company established electronic purchasing and
supply  relationships  with Tech Data,  Ingram  Micro,  SP Richards  and Digital
River, as well as traditional  relationships with several other large,  national
IT product suppliers.  The Companys 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.  As described  herein,  the Company recently
announced that it has outsourced its U.S. IT product fulfillment process to Tech
Data, including Tech Data owning and managing accounts receivable and inventory,
thereby  reducing the Companys  working  capital  requirements.  As part of this
outsourcing  agreement,  which went live in  February,  2001,  the  Company  has
started to pass IT product orders through Tech Data and expects virtually all IT
product  orders  to be  processed  through  Tech  Data by  mid-2001.  Under  the
outsourcing agreement, the Company will receive a transaction-oriented fee which
will be related to the gross profit generated on each IT products sale, as agent
for each sale.

     Pricing.  The Company  believes  that its IT product  pricing is  generally
competitive  with  other  remarketers.   The  Company  typically  offers  larger
corporate  clients  a  greater  discount  than  other  clients,  reflecting  the
economies of a higher level of  purchases  by such  clients.  The Company uses a
proprietary,  customized and automated  pricing  system for its clients  through
PECOS.webs,  and  Starbuyer.coms  back- end server  systems,  which supports and
tracks a variety  of pricing  methodologies,  including  the  ability to provide
customized  pricing  for each  client,  by  product.  In  addition,  the Company
believes that PECOS.ipm,  its remotely-hosted  automated  procurement system, is
competitively  priced  compared to license  fees  charged by other  eProcurement
software providers.

Professional Services

     elcom,  inc.s  professional  services group offers  various  consulting and
supplier  services to its clients.  These services range from  implementation of
PECOS.ipm and training,  to  interfacing  data from  PECOS.ipm into back-end ERP
systems. Suppliers are also offered services associated with catalog content and
categorization, loading procedures and automated data update methodologies.

     Elcom  Services Group 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,
on a subcontractor basis,  break/fix services.  The Company also offers national
dispatch  service for  warranty  and repair  contracts.  Elcom  Services  Groups
service-oriented revenues decreased in 2000 to approximately $12.5 million, from
$26 million in 1999, primarily reflecting the sale of the Companys U.K. services
business.

Fulfillment and Logistics

     United  States.  As described  herein,  the Company is  outsourcing  its IT
product logistics, distribution and fulfillment process to Tech Data. Under this
arrangement,  the Company will receive  transaction-oriented fees by acting as a
sales agent for Tech Data.  Until the transition to Tech Data is complete in the
second  quarter of 2001,  the Company will  continue to source  products  from a
number of DFPs,  including Tech Data,  Ingram Micro,  S.P.  Richards and Digital
River.

                                       6

<PAGE>

     United Kingdom.  The Company sources the majority of its business  products
from a number of distributors  and  manufacturers,  including C2000 (Tech Data),
IBM and Toshiba.

     PC   Configuration   Capabilities.   For  computer   systems  that  require
configuration,  the Company operates two primary configuration facilities in the
U.S. and one in the U.K. The  configuration  services are offered generally on a
fee basis and currently are performed in the U.S. by Elcom Services Group at its
Canton,  MA and Irvine,  CA facilities.  The outsourcing of the Companys U.S. IT
product  fulfillment  and  logistics  process to Tech Data will also include the
Companys PC configuration capabilities.  As a result, the Company will not renew
its Irvine,  CA  facility  lease and  anticipates  sub-leasing  its  Canton,  MA
facility.  In the  U.K.,  the  Company  maintains  a  product  distribution  and
configuration facility in Slough, Berkshire.

Management Information Systems

     In the U.S.,  the  Company  licenses  and  utilizes  software  from  Oracle
Corporation and other software firms for its Management Information System (MIS)
to  allow  management  to  monitor  and  manage  the  Company.  The  MIS  system
incorporates  modules supporting general ledger,  accounts payable,  purchasing,
accounts  receivable,  inventory  and order entry.  The Companys MIS design is a
unique  implementation  of  Oracle  software  applications  that  have  been and
continue  to be  enhanced  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 Companys 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.

     The Companys  operations  are dependent in part upon its ability to protect
its MIS network  infrastructure in its Norwood,  MA and Slough,  U.K. facilities
against  damage  from  physical   break-ins,   natural  disasters,   operational
disruptions and other events.  The Company operates a redundant  Internet access
system for the U.S. with data centers in Norwood, MA and Irvine, CA. The Company
has 24x7 physical  security at its Norwood data center.  To protect the Companys
data and provide  service if both data centers were to become  inoperative,  the
Company is in the process of negotiating a  disaster-recovery  system  agreement
with a major computer and services  company.  Although the Company believes that
its  technology  and operating  systems will be adequate for its current  needs,
such MIS systems will undoubtedly require some ongoing investments to modify and
enhance them as the Company 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, 2000, the Company employed  approximately
95 sales  representatives,  account  executives and related support personnel to
service client accounts. Of these 95 sales personnel, 67 are employees of elcom,
inc., 27 in the U.S. and 40, including  telephone-based sales personnel,  in the
U.K. Elcom Services Group employs 28 in the U.S.

     As of December 31, 2000, the Companys sales and support personnel  operated
from Field Support and Sales Offices  (FSSOs) in six  metropolitan  areas in the
U.S., as well as three  locations in the U.K.,  and one in each of India,  South
Africa and Brazil. The Companys primary locations and FSSOs are listed below:

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                                 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, Worcestershire (being
  relocated to Birmingham in 2001)



                         Other International Locations
                              -------------------

- New Delhi, India
- Parkview, South Africa
- Rio de Janeiro, Brazil

     Subsequent to December 31, 2000, the Company commenced discussions with two
companies whereby those companies,  as System Sales Partners (which confers them
the right to remarket  PECOS.  ipm), may assume the Companys FSSOs and personnel
based in India and South Africa.

     Corporate Accounts.  The Companys primary target group for IT product sales
are  corporations  that wish to purchase IT  products  in an  efficient  manner.
Corporate   accounts   typically  employ   purchasing   agents  or  buyers  with
above-average  product  knowledge  who view  most IT  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  clients for Version  7.1, the multi-  organization  version of
PECOS.ipm,  the  Companys  remotely-hosted  automated  procurement  system.  The
Company   markets  its  products  and  service   through  field  sales  efforts,
telemarketing,  and system sales  partners.  The Companys  telemarketing  staff,
operating from certain of its U.S. and U.K. locations,  introduce the Company to
targeted  companies.  The Company has two types of field sales executives.  Some
are dedicated to managing  corporate  accounts with their  day-to-day IT product
purchasing  requirements.  Other field sales  personnel are dedicated to selling
the Companys PECOS  technologies.  In addition to using field sales personnel to
sell the Companys PECOS technologies,  the Company has a number of systems sales
partners  who  provide  leads,  and in some  cases,  manage the  complete  sales
process.   Client  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 sales force.

     Educational  and  Governmental   Accounts.   The  Companys  government  and
education  sales   operations  is  based  in  Bristol,   Pennsylvania  and  have
concentrated  on  building  educational-based  sales by  focusing  on  providing
Windows and Intel-based (Wintel) solutions to the education market in the U.S.

Client and Technical Services

     The Company provides a wide range of client service and technical  support,
including nationwide toll-free pre-sale and post-sale  telephone-based  support.
The Company believes that maintaining a direct client and technical support link
with  its  clients  is an  important  competitive  factor  and  promotes  client
satisfaction.  In addition,  certain  manufacturers require their remarketers to
provide certain levels of technical support as an ongoing condition to authorize
remarketers to sell their products.  The Company is not outsourcing its customer
support functions and will continue to directly support its IT product customers
and technology clients.

                                       8

<PAGE>



Product Warranty and Service Policies

     In addition to providing  its clients with  manufacturers  warranties,  the
Company offers its clients 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.web
or the  Starbuyer  eMarketplace.  In  addition to the  Companys  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.  Historically,  product  returns were  centralized  at Elcom Services
Groups facilities,  where the various tasks were performed that are necessary to
either  return  products  to  inventory,  to one of the  Companys  DFPs  or to a
manufacturer for credit, or to liquidate  non-returnable items. In the U.S., the
product returns process will be transitioned to Tech Data in accordance with the
outsourcing agreement described herein.

Competition

     eBusiness Systems Marketplace. The market for eProcurement and eMarketplace
solutions  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  clients
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 companys existing computer system.  The
Company  competes  with vendors of  prepackaged  electronic  commerce  software,
vendors of software tools for developing  electronic  commerce  applications and
systems integrators. The Companys competitors include Ariba, Inc., Commerce One,
Inc., Clarus Corporation,  Oracle  Corporation,  and  PurchasePro.com,  Inc. The
Company  anticipates  future  competition  from other  emerging and  established
companies,  possibly  including  Microsoft Corp.,  IBM, and SAP AG, all of which
have  announced  products  or  alliances  to  offer  Internet-based   electronic
commerce.  The Companys potential  competitors also include systems  integrators
such as  Electronic  Data Systems  (EDS) and a number of EDI  solution  vendors,
including Sterling Commerce, Inc. (SBC).

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

     IT Products  Marketplace.  The Company has invested  substantial effort and
capital to develop and implement its proprietary  PECOS.web and Starbuyer 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 IT
products is highly  fragmented  and both  subsidiaries  operate 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  IT product

                                       9


<PAGE>

remarketers of various types in the U.S. and U.K. 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.,  CompuCom Systems,
Inc.),  from a computer mail order company (e.g.,  CDW Computer  Centers,  Inc.,
Micro Warehouse  Inc.),  from a systems  integrator  (e.g.,  EDS), from computer
superstores (e.g.,  CompUSA Inc.), from  Internet-based  companies (e.g. Insight
Enterprises, Inc.), from electronics superstores and from local computer stores,
among others.  The Company  competes with all of these  entities for the sale of
its IT 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 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 client bases.

Intellectual Property

     The Companys  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 competitive 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 Companys
technology.  The  source  code for the  Companys  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 Companys  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.

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 Companys  products and increase
the Companys cost of doing  business or otherwise  have an adverse effect on the
Companys  business,  operating  results or financial  condition.  Moreover,  the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is uncertain.

Environmental Matters

     Based on the  Companys  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,  2000,  the  Company  had a  total  of 438  personnel,
including 414 salaried and 24 hourly personnel.  The Companys  personnel are not
represented  by any labor  union and the  Company  believes  that its  personnel
relations are good. The Companys future success  depends,  in significant  part,
upon the continued service of its key technical and senior management  personnel
and its continuing ability

                                       10


<PAGE>

to attract and retain  highly  qualified  technical  and  managerial  personnel.
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.

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, 2000, the Company leased the properties set forth below,
and rented seven other FSSOs.  The  following  leases vary in length  remaining,
from 6 months to twelve years and, in some cases,  include options to extend the
lease terms (see also Note 8 to the Companys Consolidated  Financial Statements,
included elsewhere in this Annual Report on Form 10-K).


                           APPROXIMATE
                             SQUARE
     LOCATION                FOOTAGE                       USE
---------------------    -----------------   ----------------------------------

Norwood,
Massachusetts                 36,000         Corporate Headquarters, Boston-area
                                             FSSO, elcom, inc.  Headquarters

Canton,
Massachusetts                 42,800         Elcom Services Group Headquarters
                                             (United States, East Coast)

Canton,
Massachusetts                 84,000         Elcom Services Group Configuration
                                             and Distribution
                                             (United States, East Coast)

Irvine,
California                    21,000         Elcom Services Group Configuration
                                             and Distribution
                                             (United States, West Coast)

New York                      5,570          elcom, inc. FSSO

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

Slough, Berkshire (U.K.)      16,657         elcom, inc. (United Kingdom)
                                             Administrative and FSSO


Basingstoke, Hampshire
(U.K.)                        6,042          elcom, inc. (United Kingdom) FSSO

Redditch, Worcestershire
(U.K.)                        2,416          elcom, inc. (United Kingdom) FSSO


     Subsequent to December 31, 2000, as a result of the  outsourcing  agreement
with Tech Data, as describes  herein,  the Company will not renew its Irvine, CA
facility lease and anticipates  sub-leasing  its Canton,  MA  configuration  and
distribution facility.

     Subsequent to December 31, 2000,  the Company sold its land and building in
Redditch,  Worcestershire,  U.K. and is relocating to a new FSSO in  Birmingham,
U.K.

                                       11

<PAGE>

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.  Subsequent to December 31, 2000, the Company  commenced an action
against a software  supplier to recover its acquisition  cost and other expenses
incurred in the purchase of certain software technology. In an unrelated matter,
the Company is  disputing a claim made by one of its  software  consultants  for
claimed work which the Company intends to defend.  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 Registrants Common Equity and Related Stockholder Matters

Price Range of Common Stock

     The Companys Common Stock trades on the Nasdaq National  Market?  under the
symbol ELCO. As of December 31, 2000, there were  approximately 226 stockholders
of record of the Companys Common Stock.  This number does not reflect persons or
entities  who hold  their  stock in  nominee  or  street  name  through  various
brokerage  firms which persons or entities are estimated by the Company to be in
excess of 20,000 as of December 31, 2000.  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, 2000 are set forth in the table below.  For the period
from January 1, 2001 to March 19, 2001,  such high and low closing  sales prices
were $5.125 and $1.719, respectively.

Quarter Ended                2000                           1999
------------------  -----------------------      --------------------------
                      High            Low          High              Low
                    --------       --------      --------          -------
March 31,           $35.4375       $14.0625      $ 4.0625          $1.5938
June 30,            $14.3750       $ 4.2500      $ 7.7500          $2.8750
September 30,       $ 7.0000       $ 4.4375      $ 6.3750          $3.7500
December 31,        $ 4.8750       $ 1.2188      $36.5000          $4.1563


     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 Companys
earnings,  financial  condition,  capital  requirements,  level of indebtedness,
contractual  restrictions  with  respect to the payment of  dividends  and other
factors that the Companys 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 Soundview on December 30, 1999. The warrant was issued pursuant to the terms
of a letter  agreement,  dated July 8,  1999,  pursuant  to which Wit  Soundview
agreed to act as a  financial  advisor to the  Company.  In that  capacity,  Wit
Soundview introduced the Company to Cripple Creek, with whom the Company entered
into the  Structured  Equity  Line  Flexible  Financing  Agreement,  dated as of
December 30, 1999 (described  elsewhere herein).  The warrant is exercisable and
expires on  December  30,  2002 and has an  exercise  price

                                       12


<PAGE>


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, 1996 through  December 31, 2000.  The
historical  financial  data for 1999 and 2000 is derived  from the  Consolidated
Financial  Statements  of the  Company  audited  by  KPMG  LLP.  The  historical
financial  data for 1996 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  Companys  Consolidated   Financial
Statements  and  related  Notes  thereto  and with  Managements  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>
<CAPTION>

                                                               Years ended December 31,
                                             ----------------------------------------------------------
                                                1996       1997         1998        1999        2000
                                             ---------  ----------  -----------  ----------  ----------
INCOME STATEMENT DATA (1):
<S>                                          <C>        <C>         <C>          <C>         <C>
Net sales                                    $ 620,115  $  760,136  $  763,600   $  485,828  $  317,985
Gross profit                                    70,039      90,394       76,942      43,401      31,074
Selling, general and administrative expenses    57,551      70,200       80,285      63,426      50,864
Research and development expenses                1,200       1,275        1,178       1,343       1,695
Asset impairment, restructuring and other
  related charges                                   --          --       12,892      19,272          --
                                             ---------  ----------  -----------  ----------  ----------
Operating profit (loss)                         11,288      18,919      (17,413)    (40,640)    (21,485)
Interest and other income (expense), net        (2,303)     (4,142)      (7,664)     (2,221)        945
                                             ---------  ----------  -----------  ----------  ----------
Income (loss) before income taxes                8,985      14,777      (25,077)    (42,861)    (20,540)
Income tax expense (benefit)                     3,410       4,489          484        (323)       (786)
                                             ---------  ----------  -----------  ----------  ----------
Net income (loss)                            $   5,575  $   10,288  $   (25,561) $  (42,538) $  (19,754)
                                             =========  ==========  ===========  ==========  ==========

Basic net income (loss) per share            $    0.21  $     0.38  $     (0.94) $    (1.53) $    (0.65)
Basic weighted average shares outstanding       26,363      26,937       27,322      27,846      30,487
                                             ---------  ----------  -----------  ----------  ----------
Diluted net income (loss) per share          $    0.19  $     0.35  $     (0.94) $    (1.53) $    (0.65)
                                             =========  ==========  ===========  ==========  ==========

Diluted weighted average shares
  outstanding                                   29,739      29,461       27,322      27,846      30,487
                                             =========  ==========  ===========  ==========  ==========
</TABLE>



                                                December 31,
                              -----------------------------------------------
                                 1996      1997     1998      1999      2000
                              --------- --------- --------- -------- --------
CONSOLIDATED BALANCE SHEET DATE (1):
Total current assets          $ 210,185 $ 277,806 $ 220,415 $ 86,896 $ 80,679
Total assets                    260,769   332,068   261,851   98,039   95,204
Total current liabilities       161,158   218,300   175,929   50,851   63,790
Long-term liabilities, net
  of current portion              1,008     3,465       905      260      813
Total stockholders equity        98,603   110,303    85,017   46,928   30,601


(1)  The  acquisition of AMA was accounted for on a pooling of interests  basis.
     As a result,  the Companys results of operations have been restated back to
     the Companys inception to include the results of operations of AMA.

                                       13

<PAGE>



Item 7. Managements  Discussion and Analysis of Financial  Condition and Results
of Operations.

OVERVIEW

     The Company was  originally  founded in 1992 as Elcom  Systems,  Inc., as a
developer of electronic commerce software. The Company formed another company in
December 1993,  which is now known as Elcom Services Group, to prove and use its
technology  by selling IT products,  primarily PCs and  associated  peripherals,
using its electronic  commerce  software and Elcom  Services  Group  experienced
rapid growth for several  years.  The Company  achieved  this initial  growth by
using its proprietary PECOS  procurement  application and by offering the use of
PECOS  through  Elcom  Services  Group to its clients  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  Companys net sales have been derived from the sale of IT products in the
U.S. and U.K.,  to business and  corporate  clients.  In addition,  the Company,
through  elcom,  inc.,  offers  licenses  of its PECOS  technologies,  including
PECOS.ipm, its Internet-based and remotely-hosted automated eProcurement system,
and as of October 3, 2000,  PECOS.iem,  Version 2.0 of its eMarketplace enabling
technology.  The Company also provides implementation and consulting services to
its clients. In March 1999, elcom, inc. commenced operating  Starbuyer.com,  its
first  generation  Internet  business  to business  eMarketplace,  as a proof of
concept to develop and utilize  eMarketplace  enabling  technology by selling IT
products.

     On July  31,  1999,  the  Company  completed  the  sale of the  substantial
majority of its U.K.  group  operations.  Generally,  the Company  sold its U.K.
field-based sales operation,  professional services  organization,  distribution
business,  and certain  inventories  and fixed assets.  The disposed  operations
accounted for  approximately  75% of the Companys  U.K.  revenues and 67% of its
U.K.  operating  income in the first seven months of 1999  (excluding  the asset
impairment  and  other  related   charges).   The  Company   retained  its  U.K.
telemarketing  group as its primary  sales  force.  In March  2001,  the U.K. IT
products  reseller  introduced  Starbuyer Gold, an  Internet-based  eMarketplace
similar to Starbuyer.com in the U.S.

elcom, inc.

     elcom,  inc. is the  eBusiness  technology  subsidiary  of the Company that
develops and licenses the Companys Internet-based,  remotely-hosted applications
(eProcurement and eMarketplace systems.)

     Beginning  in the latter half of 1998,  the Company  shifted its focus from
marketing its PECOS Commerce Manager (PECOS.cm)  client/server  sell-side system
technology  to  investing  in  the  development  of  PECOS  Procurement  Manager
(PECOS.PM),  its intranet-based automated procurement management system and more
recently, to PECOS.ipm, its remotely-hosted automated procurement system. During
1999 and 2000, the Company focused  primarily on fully developing  PECOS.ipm for
commercial  launch as it  transitioned  from its older PECOS.cm and its PECOS.PM
technology,  thereby negatively affecting  technology-based revenues during this
product transition period.

     In  March  1999,   elcom,   inc.   launched  its   Starbuyer.com   Internet
eMarketplace,  from which elcom,  inc.  markets and sells over 200,000  products
manufactured by numerous  suppliers to companies in a 24x7  environment.  elcom,
inc. intends to become a leading supplier of multiple commodity-type products to
businesses.  The Company made  Starbuyer.com  available to Elcom Services Groups
client  base  and,  for  those  clients  who  wished  to  purchase  products  as
users/members  of the  Starbuyer.com  eMarketplace  and at  their  request,  the
Company transitioned their accounts to elcom, inc., which accordingly  increased
elcom, inc.s. revenues.  This transition included setting up clients on separate
systems used by elcom, inc., including the Starbuyer.com  eMarketplace which the
Company believes  represents a more efficient  methodology for transactions with
clients.  The  Company  expects to expand its client base and  encourage  repeat
transactions  through  various  marketing  programs,   including  telemarketing,
promotional  campaigns and  strategic  alliances  intended to provide  access to
incremental clients.

     Starbuyer.com  recorded IT product  sales and related  service  revenues of
approximately  $128.2  million for the year ended  December 31, 2000 compared to
$56.1 million in the year ended December 31, 1999.

                                       14

<PAGE>

     In total,  elcom, inc.s consolidated gross profit from U.S.  operations for
the year ended  December 31, 2000 was $10.3 million  compared to $5.1 million in
the year ended December 31, 1999. elcom, inc.s U.S. operating expenses increased
by  approximately  $12.0  million from 1999 to 2000 as the Company  continued to
staff  the  entity  to  support  expected  growth  of  its  business   segments.
Consequently,  the  operating  loss  generated by elcom,  inc.s U.S.  operations
increased by $6.8 million to $17.2  million  during the year ended  December 31,
2000  versus an  operating  loss of $10.4  million in 1999.  The  Companys  U.K.
telemarketing  group  currently uses  PECOS.web as its eBusiness  system for its
clients.  In the first quarter of 2001, the U.K. group launched  Starbuyer Gold,
an owned and operated eMarketplace similar to Starbuyer.com,  in the U.S. In the
year ended December 31, 2000, the U.K.  generated  revenues of $82.1 million and
gross profit of $9.1 million.

     On October 3, 2000,  the Company  announced  Version 2.0 of PECOS.iem,  the
Companys second generation  eMarketplace  enabling technology.  Phase one of its
first (external)  eMarketplace became operational with the Commonwealth  British
Council at  cbcmarketplace.net  on March 12, 2001.  The Companys  strategy is to
become a leader in the area of enabling and remotely-hosting eMarketplaces using
this technology.

     During 1999 and 2000,  the Company  focused  primarily on fully  developing
PECOS.ipm for commercial  launch as it transitioned  from its older PECOS.cm and
its PECOS.PM technology,  thereby negatively affecting technology-based revenues
during this product transition period.

     For the years  ended  December  31,  2000 and 1999,  elcom,  inc.  reported
revenues  from  licenses,   including  associated   professional   services  and
maintenance fees of approximately $1.0 million.

     The Companys  list of clients and  perspective  clients is expanding and as
more companies  become aware of the  advantages of the Companys  remotely-hosted
systems, the Company expects to increase the number of licenses signed.

Elcom Services Group, Inc.

     Elcom  Services  Group  markets  and  sells IT  products  and  professional
services to enterprise  business  clients which  typically  require  specialized
services.

     Primarily  due  to  declining  gross  profit  margins  with  certain  large
customers  and  increasing  inventory  risks in 1999,  the Company  introduced a
strategy for Elcom Services  Group to reduce its revenues and related  inventory
exposure by declining to do business with clients that have not paid the Company
on time as per agreements, or demanded pricing which the Company was not willing
to provide due to many  factors,  including  decreases in marketing  development
funding from various manufacturers.  This strategy has resulted in a significant
and planned  decrease in revenues in 2000 compared to 1999, but has  effectively
eliminated a majority of the Companys marginal clients and exposure thereto.

     Elcom Services  Groups  revenues and resultant gross profit are affected by
price  reductions and decreases in vendor support  programs  offered by computer
manufacturers. Consequently, in order to increase gross profit, the Company must
sell incremental  amounts of PCs to offset such price reductions which amplifies
the impact of any slowdown in  corporate  client  demand on the  Companys  gross
profit. Although these manufacturer cutbacks have been substantial over the last
several  years,  Elcom  Services  Group has increased its gross profit margin in
2000,  primarily due to its aforementioned  strategy of declining to do business
with clients that demand  unacceptable  pricing.  Manufacturers price reductions
require Elcom  Services  Group to increase its base unit volumes and  associated
peripheral product sales to overcome the effect of such price decreases if it is
to  sustain  its  level of gross  profit  dollars.  The  Company  experienced  a
softening  of demand from its clients  that began in the third  quarter of 1998,
which, at that time, the Company  attributed to the Asian  financial  crisis and
related  uncertainties in worldwide financial markets, that impacted some of the
Companys  clients  capital  spending  programs.  The Company  believes  that the
relatively  soft demand,  which  continued  during 1999 and 2000 related to many
factors, including Year 2000 concerns as well as a general slow-down seen in the
business PC markets. Elcom Services

                                       15


<PAGE>

Groups 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.  As a
result  of the  outsourcing  agreement  with  Tech Data  described  herein,  the
Companys IT product  revenues  will begin to reflect  more  transaction-oriented
fees,  which are related to the amount of gross  profit  generated on IT product
sales. When fully  transitioned to Tech Data,  reported  transaction fees, which
will be the only  revenues  recorded  on IT product  sales,  are  expected to be
approximately  6% to 8% of previously  reported IT product  revenues in the U.S.
Services-oriented  revenues  will  continue  to be  reported  as they  have been
historically.

Dresdner Kleinwort Wasserstein Engagement

     On January 10, 2001,  the Company  announced  that it has engaged  Dresdner
Kleinwort  Wasserstein to identify and evaluate options available to the Company
to  maximize   stockholder  value  including   potential   strategic   financing
alternatives for elcom, inc.

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, 2000:


                                                     Year ended December 31,
                                                      1998    1999    2000
                                                     ------  ------  ------
Net sales .........................................   100%    100%     100%
Gross profit ......................................    10       9       10
Selling, general and administrative expenses ......    11      13       16
Asset impairment, restructuring and other related
  charges .........................................     1       4        -
Operating profit (loss) ...........................    (2)     (8)      (7)
Interest expense ..................................     1       1        -
Income tax expense (benefit).......................     -       -        -
                                                     ------  ------  ------
Net income (loss) .................................    (3)%    (9)%     (6)%
                                                     ======  ======  ======

Results of Operations

Year ended December 31, 2000 compared to the year ended December 31, 1999.

     Net Sales.  Net sales for the year ended  December  31, 2000  decreased  to
$318.0  million  from $485.8  million in 1999,  a decrease of $167.8  million or
34.5%. This decrease was primarily due to the sale of a substantial  majority of
the  Companys  U.K.  remarketer  group  operations  in July 1999,  as well as an
industry-wide  slowdown of PC and related product sales.  Largely as a result of
these reasons, sales of the Companys U.K. based operations decreased from $193.3
million  to $82.1  million  for the  year,  a 57.5%  decrease.  U.S.  net  sales
decreased from $292.5 million to $235.9 million, a decrease of 19.4%,  primarily
due to an  industry-wide  slowdown  and  continued  adherence  to  the  Companys
strategy  to reduce  its  exposure  to clients  that do not pay on time,  demand
pricing  that  negatively  impacts  margins or that would  require  unacceptable
inventory exposure.

     Gross Profit.  Gross profit for the year ended  December 31, 2000 decreased
to $31.1  million  from $43.4  million in 1999,  a decrease of $12.3  million or
28.4%.  The  decrease  in gross  profit  dollars  is  primarily  a result of the
decrease in net sales as described  above.  Gross profit as a percentage  of net
sales  increased  to 9.8% in 2000 from 8.9% in 1999 as the  Company  reduced its
exposure to clients who demanded pricing that negatively  impacted margins.  The
increase  in gross  profit  margin was  partially  offset by a  decrease  in the
availability of manufacturer rebate and incremental discount programs.

     Selling,  General and Administrative  Expenses.  Total selling, general and
administrative  expenses for the year ended December 31, 2000 decreased to $50.9
million from $63.4 million in 1999, a decrease of $12.5  million or 19.8%.  Most
of this decrease  reflected  the sale of a substantial  majority of the Companys
U.K.  operations in July 1999. As a percentage  of sales,  selling,  general and
administrative  expenses  for the year  ended  December  31,  2000 rose to 16.0%
compared to 13.0% in 1999 due to a decrease  in sales while

                                       16


<PAGE>

many  administrative and overhead expenses remained fixed. In the event that the
Companys SG&A expenses are not reduced  commensurate lean with the generation of
transaction-oriented  fees  expected  as a result of the Tech  Data  outsourcing
arrangement, then during the transition period the Companys operating losses may
increase.

     Research and Development Expense.  Research and development expense for the
years  ended  December  31, 2000 and 1999 were $1.7  million  and $1.3  million,
respectively, an increase of $0.4 million or 26.2%. The expenditures reflect the
on-going product development of the PECOS.ipm  technology prior to technological
feasibility.

     Interest  Expense.  Interest  expense for the year ended  December 31, 2000
decreased to $1.6 million  from $3.2 million in the  comparable  year of 1999, a
decrease of $1.6 million. Interest expense in both periods results from the line
of credit borrowings.  The reduction in 2000 is a reflection of the 48% decrease
in average  monthly  borrowings  under the  Companys  line of credit,  partially
offset by an increase in average U.S. interest rates from 8.25% in 1999 to 9.75%
in 2000.

     Interest Income and Other,  Net.  Interest  income and other,  net, for the
year ended  December  31, 2000  increased  to $2.5  million from $1.0 million in
1999.  This increase was primarily a result of recording an $0.8 million gain on
the sale of assets  related  to the  receipt  of funds  which were being held in
escrow  pursuant  to the U.K.  remarketer  group  Purchase  and Sale  Agreement.
Additionally,  the  Company  had an 89%  increase  in average  monthly  interest
earnings due to a higher monthly cash balances and an increase in interest rates
in the U.S during 2000.

     Income Tax  Expense  (Benefit).  The income tax  benefit in 1999  primarily
relates to the refund of income  taxes paid in prior  years in the U.K.,  net of
certain estimated current state income taxes payable by the Company.  The income
tax benefit in 2000 relates to the refund of income taxes paid in prior years in
the U.K.

     Net Income  (Loss).  The  Company  generated  a net loss for the year ended
December 31, 2000 of $19.8 million as a result of the factors described herein.

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 U.S.  decreased to $292.5
million  in 1999 from  $449.8  million  in 1998,  a 35%  decrease.  Professional
services  revenues  of Elcom  Services  Group 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 clients  focusing on Year 2000  efforts  and  possibly  deferring
purchases of computer  products,  as well as a general  softening of demand from
its larger clients.  The Company  believes that there is potential for a rebound
or  partial  rebound in U.S.  computer  product  demand  once its  clients  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  clients 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 Companys marginal clients.

     Net sales of the Companys 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.

                                       17

<PAGE>


     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 Companys  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 Companys increased  investment in
elcom,  inc.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 U.K. operations. The Company intends to continue to
increase its marketing expenditures to support the branding and growth of elcom,
inc.

     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,  inc.s PECOS technology,
PECOS.ipm) to marketing and deployment of the product with clients,  the cost of
which is not  reflected  in  research  and  development  expense.  The  Companys
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  9 of the
consolidated financial statements.

     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 9 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 Companys
accounts  receivable  and  inventory  balances and for 1999 is reflective of the
decrease in the Companys  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
Companys interest in ShopLink.com, inc. ShopLink.com, inc., ceased operations in
late 2000.

                                       18

<PAGE>


     Income Tax Provision.  The income tax recovery in 1999 primarily relates to
the estimated  recovery of income taxes by the Companys U.K.  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 Companys 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.

Liquidity and Capital Resources

     Net cash used in operating  activities for the year ended December 31, 2000
was $1.5  million,  which is primarily  due to the net loss of $19.8 million and
other cash uses which were partially  offset by $6.0 million in depreciation and
amortization, a $4.4 million decrease in accounts receivable and an $8.4 million
increase in accounts  payable.  Net cash used in investing  activities  was $7.3
million,  consisting  primarily  of  $8.4  million  in  additions  to  property,
equipment  and  software.  Net cash  provided by financing  activities  was $9.0
million,  including a $3.8  million net  increase in  borrowings  under lines of
credit,  and $5.4  million  provided by the net  exercise  of stock  options and
warrants and repurchase of treasury stock.

     At December 31, 2000, the Companys  principal sources of liquidity included
cash and of $32.3 million and accounts receivable and floor plan lines of credit
from Deutsche  Financial Services  Corporation  (DFSC). As of December 31, 2000,
the Company had borrowings  aggregating  approximately $33.2 million outstanding
under its DFSC borrowing facilities, which approximated its maximum availability
thereunder.  For detailed information concerning this line of credit, see Note 5
to the consolidated financial statements.

     Cash and cash  equivalents  of $15 million were pledged as collateral for a
Letter of Credit  that  secured a portion of the DFSC  facility.  Subsequent  to
December 31, 2000, the pledge and Letter of Credit were reduced to $10 million.

     The DFSC  lines of  credit  limit  borrowings  to  defined  percentages  of
eligible  inventory (in the U.S.) and accounts  receivable and contain customary
covenants,  including  financial  covenants  with  respect to the  Companys  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.  The Company  received a
waiver from DFSC concerning certain covenants for 2000.

     Subsequent  to December 31,  2000,  the Company  outsourced  its IT product
fulfillment, inventory, logistics, and product configuration in the U.S. to Tech
Data. As a result of this agreement,  the Companys working capital  requirements
for inventory and accounts  receivable will be  substantially  reduced  overall,
with the U.S.  operations  virtually  nil and the U.K.  operations  as described
below. Accordingly, on February 5, 2001, the Company notified DFSC of its intent
to  terminate  its DFSC line of credit in the U.S.  by May 7,  2001.  During the
termination  period, the DFSC facility provides for aggregate U.S. borrowings of
up to $20 million  through April 15,  reducing to $10 million through May 7, the
date at which the DFSC line of credit  in the U.S.  will  terminate.  Borrowings
under the line of credit will be  extinguished  by cash  received  from accounts
receivable balances and, if necessary,  cash. As Tech Data will take title to IT
products   sold,   the   Companys   revenues   will   being  to   reflect   more
transaction-oriented  fees,  which are  related  to the  amount of gross  profit
generated on IT product sales.  When fully  transitioned to Tech Data,  reported
transaction fees, which will be the only revenues recorded on product sales, are
expected to be approximately 6% to 8% of previously reported IT product revenues
in the U.S. Services-oriented revenues will continue to be reported as they have
been  historically.  The  Company  also  anticipates  that its SG&A  costs  will
decrease  as a result of the  reduction  in  infrastructure  that is required to
support   the  Tech   Data   outsource   model.   The   Company   will   receive
transaction-oriented  fees from Tech  Data as an agent on each IT  product  sale
made to clients.

19

<PAGE>


     Subsequent to December 31, 2000,  the Company  refinanced  its DFSC line of
credit in the U.K. with Lloyds TBS  Commercial  Finance  Limited  (Lloyds) under
terms substantially  similar to the prior DFSC terms. The Lloyds credit facility
provides for aggregate  borrowings of up to 10.0 million (or approximately $14.4
million)  in the  U.K.  Availability  is  based  upon  Lloyds  determination  of
eligibility based on accounts  receivable.  Amounts outstanding bear interest at
the Base Rate of Lloyds plus 1.5%.

     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 U.S.  operations  only.  At December 31,  2000,  the
Company had borrowings  outstanding of approximately  $137,000 from IBMCC on its
floor plan line of credit. These amounts are included in accounts payable in the
consolidated balance sheet.

     On December 30, 1999, the Company signed a structured  Equity Line Flexible
Financing  Agreement  (Equity Line) with Cripple Creek  Securities  LLC (Cripple
Creek),  which was introduced to the Company by Wit Soundview  Group,  Inc. (Wit
Soundview).  Under the terms of the  agreement  the  Company may sell to Cripple
Creek up to $50 million of Common Stock over an 18-month  period at a price note
less than $4.00 per share  commencing  June 12, 2000, the date the Company could
first sell Common  Stock to Cripple  Creek.  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.  On May 11,  2000,  the
Companys  registration  statement on Form S-3 with the  Securities  and Exchange
Commission was declared  effective 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 the
warrants held by Wit Soundview.

     The Equity Line  provides that the Company,  at its option,  may sell up to
$10 million of common  stock  during each  monthly  investment  period,  up to a
maximum aggregate total of $50 million. 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,  but no less
than $1 million, at a price equal to 100% of the lowest volume-weighted  average
sale price  during the five days  immediately  preceding  the notice of purchase
delivered to the Company by Cripple Creek up to an aggregate,  in total,  of $50
million. The Equity Line allows the Company to set a minimum price, but not less
than $4 per share,  that the common stock sold 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  shares  (100,000  shares 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 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.  In  September
2000, as a test of the process,  the Company sold 60,952 shares to Cripple Creek
under the equity line for $320,000.

     The  Equity  Line will be in effect  for a period of 18  months,  ending on
December 2001. The Company may, at its option,  terminate the Equity Line at any
time.

     The  Companys  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  and so long as its
financing sources continue to make lines of credit available. However, there can
be no assurance  the Companys  lines of credit will  continue to be available to
the Company or that replacement financing could be arranged if necessary or that
the Companys  stock price will increase to the minimum level of $4.00,  at which
point the Company could elect to utilize the Equity Line  available from Cripple
Creek as described herein.

                                       20

<PAGE>


Seasonality and Impact of Inflation

     In  prior  years,  the  Company  has  not  experienced  seasonality  in its
business.  Generally,  however,  sales in the  business  and  computer  products
remarketer  industry slow in the summer months and, in the U.S., 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 U.K. Due
to its current size and the nature of its client base,  the Companys  sales have
reflected  this  seasonality in 1999 and 2000 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 U.S. and the U.K.

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 Companys  objectives,
plans and  strategies set forth herein and those preceded by or that include the
words  believes,  expects,  targets,  intends,  anticipates,  plans,  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  Companys  expectations  are,  or will be,  correct.  These  forward-looking
statements  involve a number of risks and  uncertainties  which  could cause the
Companys 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
clients acceptance and usage of electronic commerce software systems, the impact
of  competitive  technologies,  products  and  pricing,  particularly  given the
subsequently  larger  size  and  scale  of  certain  competitors  and  potential
competitors;  the  ability of Tech Data to  fulfill  its  obligations  under the
outsourcing  arrangements,  and the  Companys  resultant  reliance on Tech Data,
customers  willingness  to transition  their IT product  purchases to Tech Data,
control of expenses,  revenue growth, price decreases of PC products,  corporate
demand for and  availability of PC products,  changes in  manufacturer  policies
reducing price  protection,  returns and other policies,  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,  the Companys 1999 Annual Report on Form 10-K and in
the  Companys  other SEC  reports and  statements,  including  particularly  the
Companys Risk Factors  contained in the  prospectus  included as part of the S-3
Registration Statement that became effective on May 11, 2000.

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 Companys risk associated with inventory
values is discussed elsewhere in this Form 10-K.

     The Companys 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, 2000  balances,  the Company  estimates that a 1%
change in interest  rates would have no impact on income  (loss)  before  income
taxes.

     The  Companys   investment  in  its  U.K.   subsidiaries  is  sensitive  to
fluctuations  in the exchange  rate between the U.S.  dollar and the U.K.  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 an accumulated amount of $(871,000).

                                       21

<PAGE>

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 13 and 14,  respectively,  of the Notes to
Consolidated Financial Statements.


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

     No items to report.


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 Companys 2001 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.

                                       22

<PAGE>


     (2)  Consolidated  Financial Statement Schedule for each of the Three Years
          in the Period Ended December 31, 2000:

               Reports of Independent Auditors on Supplementary Information

               Schedule II - Valuation and Qualifying Accounts

               See Index to Schedule on page S-1.

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


     (3)  Index to Exhibits:

     The  exhibits  filed as part of this Form  10-K are  listed on the Index to
Exhibits  beginning on page E-1, which Index to Exhibits is incorporated  herein
by reference.

     (b)  Reports on Form 8-K:

     The Company  filed a Current  Report on Form 8-K,  dated  January 26, 2001,
regarding the engagement of Dresdner  Kleinwort  Benson North America LLC (DrKB)
to  identify  and  evaluate  options   available  to  the  Company  to  maximize
stockholder value.

     (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, 2001                      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, 2001
---------------------------- Board of Directors
Robert J. Crowell            and Chief Executive Officer
                             (Principal Executive Officer)

/s/  Peter A. Rendall        Corporate Executive            March 30, 2001
---------------------------- Vice President,
Peter A. Rendall             Chief Financial Officer
                             and Secretary (Principal Financial
                             and Accounting Officer)

/s/  William W. Smith        Vice Chairman and Director     March 30, 2001
----------------------------
William W. Smith

/s/  Richard J. Harries, Jr. Director                       March 30, 2001
----------------------------
Richard J. Harries, Jr.

/s/  John W. Ortiz           Director                       March 30, 2001
----------------------------
John W. Ortiz

                                       24

<PAGE>
                       CONSOLIDATED FINANCIAL STATEMENTS

                   ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 2000


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, 1999 and 2000        F-4
Consolidated Statements of Operations and Other
  Comprehensive Income (Loss) for the years ended
  December 31, 1998,  1999 and 2000                                 F-5
Consolidated Statements of Stockholders Equity for the years
  ended December 31, 1998, 1999 and 2000                            F-6
Consolidated Statements of Cash Flows for the years
  ended December 31, 1998, 1999 and 2000                            F-7
Notes to Consolidated Financial Statements                          F-8 to F-23

                                      F-1

<PAGE>


                          Independent Auditors' Report

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

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Elcom
International,  Inc. and  subsidiaries as of December 31, 1999 and 2000, and the
related  consolidated  statements of operations and other  comprehensive  income
(loss),  stockholders'  equity,  and cash flows for the years 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 audits.

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

In our opinion, 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 2000, and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.



/s/ KPMG LLP

KPMG LLP

Boston, Massachusetts
February 9, 2001

                                      F-2

<PAGE>


REPORT OF OTHER INDEPENDENT PUBLIC ACCOUNTANTS


To Elcom International, Inc.:


We have audited the accompanying consolidated statements of operations and other
comprehensive   income,   stockholders'   equity,   and  cash   flows  of  Elcom
International, Inc. and Subsidiaries for the year ended December 31, 1998. These
consolidated financial statements are the responsibility of Elcom International,
Inc.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 auditing standards  generally accepted
in the United States. 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  audit,  the  consolidated  financial  statements
referred to above present fairly,  in all material  respects,  the  consolidated
results of Elcom International, Inc.s operations and its cash flows for the year
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles generally accepted in the United States.


/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)



<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                     1999        2000
                                                                                  ---------   ---------
                                 ASSETS

     CURRENT ASSETS:
<S>                                                                               <C>         <C>
             Cash and cash equivalents (including restricted
                 cash of $15,000,000 at December 31, 2000)                        $  34,159   $  32,313
                                                                                  ---------   ---------
             Accounts receivable (Notes 2 and 5):
                     Trade                                                           45,571      41,311
                     Other                                                            8,321       5,280
                                                                                  ---------   ---------
                                                                                     53,892      46,591
                     Less-Allowance for doubtful accounts                             3,838       2,400
                                                                                  ---------   ---------
                             Accounts receivable, net                                50,054      44,191
             Inventory (Note 5)                                                       1,462       1,992
             Prepaids and other current assets                                        1,221       2,183
                                                                                  ---------   ---------
                     Total current assets                                            86,896      80,679
                                                                                  ---------   ---------
     PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
             Computer hardware and software                                          24,730      31,001
             Land, buildings and leasehold improvements                               2,710       3,026
             Furniture, fixtures and equipment                                        5,755       7,308
                                                                                  ---------   ---------
                                                                                     33,195      41,335
             Less -- Accumulated depreciation and amortization                       22,230      27,182
                                                                                  ---------   ---------
                                                                                     10,965      14,153

     OTHER ASSETS                                                                       178         372
                                                                                  ---------   ---------
                                                                                  $  98,039   $  95,204
                                                                                  =========   =========
                     LIABILITIES AND STOCKHOLDERS' EQUITY
     CURRENT LIABILITIES:
             Lines of credit (Note 5)                                             $  29,870   $  33,241
             Accounts payable                                                        12,440      20,237
             Accrued expenses and other current liabilities                           8,230       9,191
             Current portion of capital lease obligations (Note 8)                      311         474
             Short-term debt (Note 6)                                                    --         647
                                                                                  ---------   ---------
                     Total current liabilities                                       50,851      63,790
                                                                                  ---------   ---------
     CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION  (Note 8)                        260         813
                                                                                  ---------   ---------
                     Total liabilities                                               51,111      64,603
                                                                                  ---------   ---------

     COMMITMENTS AND CONTINGENCIES (Note 8)

     STOCKHOLDERS' EQUITY (Note 7):
             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 --  29,128,585 and 31,207,477 shares                        291         312


             Additional paid-in capital                                             106,111     114,196
             Accumulated earnings (deficit)                                         (58,730)    (78,484)
             Treasury stock, at cost -- 257,739 and 409,609 shares                   (1,282)     (4,552)
             Accumulated other comprehensive income (loss)                              538        (871)
                                                                                  ---------   ---------
                     Total stockholders' equity                                      46,928      30,601
                                                                                  ---------   ---------
                                                                                  $  98,039   $  95,204
                                                                                  =========   =========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-4
<PAGE>



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




<TABLE>
<CAPTION>

                                                                                 For the years ended December 31,
                                                                                   1998         1999        2000
                                                                                ----------  ----------  ----------

<S>                                                                             <C>         <C>         <C>
     Net sales                                                                  $  763,600  $  485,828  $  317,985
     Cost of sales                                                                 686,658     442,427     286,911
                                                                                ----------  ----------  ----------
     Gross profit                                                                   76,942      43,401      31,074
                                                                                ----------  ----------  ----------

     Operating Expenses:
             Selling, general and administrative                                    80,285      63,426      50,864
             Research and development                                                1,178       1,343       1,695
             Asset impairment, restructuring and other related charges (Note 9)     12,892      19,272          --
                                                                                ----------  ----------  ----------
     Total operating expenses                                                       94,355      84,041      52,559
                                                                                ----------  ----------  ----------
     Operating profit (loss)                                                       (17,413)    (40,640)    (21,485)

     Interest expense                                                               (8,355)     (3,174)     (1,567)
     Interest income and other, net                                                    691         953       2,512
                                                                                ----------  ----------  ----------
     Income (loss) before income taxes                                             (25,077)    (42,861)    (20,540)
     Income tax expense (benefit) (Note 11)                                            484        (323)       (786)
                                                                                ----------  ----------  ----------

     Net income (loss)                                                          $  (25,561)  $ (42,538)  $ (19,754)
     Other comprehensive income (loss), net of tax:
     Foreign currency translation adjustments                                          360        (307)     (1,409)
                                                                                ----------  ----------  ----------

     Other comprehensive income (loss)                                          $ (25,201)  $  (42,845)  $  (21,163)
                                                                                ==========  ==========   ==========

     Basic and diluted  net income (loss) per share                              $   (0.94)  $   (1.53)  $    (0.65)
                                                                                ==========  ==========   ==========

     Basic and diluted weighted average shares outstanding                          27,322      27,846       30,487
                                                                                ==========  ==========   ==========
</TABLE>



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

                                      F-5

<PAGE>


                           ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES

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



<TABLE>
<CAPTION>

                                                                            Accumulated
                                       Common Stock Additional  Accumulated   Treasury     Other       Total
                                          Number     $.01 Par     Paid-in     Earnings     Stock,   Comprehensive  Stockholders
                                         Of Shares    Value       Capital     (Deficit)    At Cost  Income (Loss)     Equity
                                        ----------   --------   ----------   ----------   ---------   ---------    -----------
<S>                                     <C>          <C>        <C>          <C>          <C>         <C>          <C>
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
  Exercise of common stock options       2,017,940        20         8,618           --          --          --          8,638
  Sale of common stock                      60,952         1           319           --          --          --            320
  Cost of capital                               --        --          (852)          --          --          --           (852)
  Purchase of treasury stock                    --        --            --           --      (3,270)         --         (3,270)
  Net loss                                      --        --            --      (19,754)         --          --        (19,754)
  Cumulative translation adjustment             --        --            --           --          --      (1,409)        (1,409)
                                        ----------   -------    ----------   ----------   ---------   ---------    -----------

BALANCE, DECEMBER 31, 2000              31,207,477   $   312    $  114,196   $  (78,484)  $  (4,552)  $    (871)   $    30,601
                                        ==========   =======    ==========   ==========   =========   =========    ===========
</TABLE>


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

                                      F-6

<PAGE>

                           ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)



<TABLE>
<CAPTION>
                                                                  For the years ended December 31,
                                                                   1998         1999        2000
                                                                 ---------   ---------   ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                              <C>         <C>         <C>
  Net loss                                                       $ (25,561)  $ (42,538)  $ (19,754)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities --
      Gain on sale of fixed assets                                      --          --        (680)
      Depreciation and amortization                                  9,691      16,313       5,976
      Restructuring, impairment and other related charges           10,652      19,272          --
      Provision for doubtful accounts                                4,975       4,626         440
    Changes in current assets and liabilities
      Accounts receivable                                           12,266     106,099       4,394
      Inventory                                                     20,939      37,418        (590)
      Prepaids and other current assets                                799       1,313        (926)
      Accounts payable                                               5,860     (35,241)      8,434
      Accrued expenses and other current liabilities                 1,013     (12,164)      1,160
      Decrease in other deferred liabilities                        (1,795)       (418)         --
                                                                 ---------   ---------   ---------
            Net cash provided by (used in) operating activities     38,839      94,680      (1,546)
                                                                 ---------   ---------   ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, equipment and software                      (7,284)     (5,288)     (8,444)
  Proceeds from sale of assets                                          --          --         798
  Decrease in other assets and deferred costs                          527         194         365
                                                                 ---------   ---------   ---------
            Net cash used in investing activities                   (6,757)     (5,094)     (7,281)
                                                                 ---------   ---------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (payments) under lines of credit                  (50,041)    (73,523)      3,842
  Proceeds from issuance of short-term debt                             --          --       1,448
  Sale of common stock                                                  --          --         320
  Repayment of capital lease obligations and debt                     (965)       (971)     (1,176)
  Exercise of common stock options                                     548       4,856       8,638
  Cost of equity line financing agreement                               --          --        (852)
  Purchase of treasury stock                                          (633)       (100)     (3,270)
                                                                 ---------   ---------   ---------
            Net cash provided by (used in) financing activities    (51,091)    (69,738)      8,950
                                                                 ---------   ---------   ---------
FOREIGN EXCHANGE EFFECT ON CASH                                        159          (4)     (1,969)
                                                                 ---------   ---------   ---------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                                      (18,850)     19,844      (1,846)
CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                                               33,165      14,315      34,159
                                                                 ---------   ---------   ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD                         $  14,315   $  34,159   $  32,313
                                                                 =========   =========   =========

SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION:
  Interest paid                                                  $   8,232   $   3,420   $   1,596
                                                                 =========   =========   =========
  Income taxes paid                                              $     636   $     258   $     165
                                                                 =========   =========   =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:
  Increase in capital lease obligations                          $     510   $     480   $   1,091
                                                                 =========   =========   =========
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>

                           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 Companys net
sales since inception. elcom, inc., the Companys eBusiness subsidiary,  develops
and licenses automated  procurement  systems and operates a business to business
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 accounting principles generally accepted in
the  United  States of  America.  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  accounting
principles   generally  accepted  in  the  United  States  of  America  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, 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.  Cash and cash
equivalents  at December  31, 2000  consists of $17.3  million of deposits  with
banks and financial  institutions which are unrestricted as to withdrawal or use
which have original  maturities of three months or less and a restricted deposit
of $15 million which serves as collateral for the letter of credit issued to the
Deutsche  Financial  Services  Corporation  (See Note 5). Interest earned on all
cash and cash  equivalents is included in interest income and other,  net in the
Consolidated Statements of Operations and Other Comprehensive Income (Loss).

(d) Inventory

     Inventory consists of purchased personal computer products, peripherals and
accessories  available for resale.  Inventories  are stated at the lower of cost
(first-in,  first-out) or market. The Company periodically reviews its inventory
for potential excess, slow-moving, nonsaleable or obsolete inventory.

(e) Prepaids and Other Current Assets

     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 Companys PECOS.ipm product.  Company advertising expenses for 1998, 1999 and
2000 totaled $0.3 million, $3.8 million and $1.9 million, respectively.

(f) Property, Equipment and Software

     Equipment and software are  depreciated  and  amortized on a  straight-line
basis over the  estimated  useful  lives of the assets or lease term,  which are
three to five years.  Buildings are depreciated  over a useful life of 50


                                      F-8

<PAGE>

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.

        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 Companys 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.

        In January 2000, the Emergency Issues Task Force (EITF) issued Issue No.
00-2,  Accounting  for Web Site  Development  Costs.  Issue 00-2  requires  that
planning  stage  costs  be  expensed  as  incurred,  costs to  develop  web site
application  and  infrastructure  and  graphics,   be  capitalized  or  expensed
according to the  guidelines in SOP 98-1,  and operating  costs such as training
and maintenance be expensed as incurred.

        Expenditures  for the research and development of the Companys  products
to be marketed are expensed as incurred, except for certain software development
costs. Specifically,  costs associated with the development of computer software
are expensed as incurred prior to the establishment of technological feasibility
(as  defined by  Statement  of  Financial  Accounting  Standards  (SFAS) No. 86,
Accounting  for the Costs of Computer  Software to Be Sold,  Leased or Otherwise
Marketed).  Costs  incurred  subsequent to the  establishment  of  technological
feasibility  and prior to the general  release of the products are  capitalized.
The Company capitalized software development costs of $300,000, $0, and $470,000
during the years ended December 31, 1998, 1999, and 2000, respectively.

(g) Goodwill and Other Intangibles

     The excess of the purchase price over the fair value of net assets acquired
in each  acquisition  accounted  for under the purchase  method of accounting is
classified as goodwill.  Goodwill was being amortized on a  straight-line  basis
over an estimated useful life of 15 years.  Other intangible  assets  associated
with acquisitions  were assigned a five-year life.  Amortization of goodwill and
such other  intangibles  amounted to  $3,178,000,  $701,000 and $0 for the years
ended December 31, 1998, 1999 and 2000, respectively. See Note (9).

(h) Impairment of Long Lived Assets

     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 amounts of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell. See Note (9).

(i) Revenue Recognition

     (i)  Product  The Company  derives  substantially  all of its revenue  from
          sales of personal computer products,  peripherals and accessories. The
          Company  provides for returns as incurred.  Revenue from product sales
          is recognized upon shipment. The Company records revenue from shipping
          in net sales and the  associated  costs in cost of sales.  The Company
          records  revenue on a gross basis, as the Company acts as principal in
          the  transaction,  takes title to the products,  and has the risks and
          rewards  of  ownership,  such  as the  risk of  loss  for  collection,
          delivery and returns.

     (ii) Consulting  Professional  services are  rendered  pursuant to time and
          materials  based contracts and revenue is recognized when the services
          are provided. To date, consulting revenue has not been material to the
          Companys operations.

                                      F-9

<PAGE>


     (iii)Licenses  In  accordance  with the  provisions  of SOP 97-2,  Software
          Revenue  Recognition,  as amended by SOP 98-9, the Company  recognizes
          revenues   from   software   product   licenses   when  (i)  a  signed
          noncancelable  software  license  exists,  (ii) delivery has occurred,
          (iii)  the   Companys   fee  is  fixed  or   determinable,   and  (iv)
          collectibility is probable. However, if the license agreement contains
          performance  conditions,  the revenue is recognized upon completion of
          such conditions.  The Company adopted the provisions of SOP 97-2 as of
          January 1, 1998.  Prior to the  adoption,  the Company  accounted  for
          software  revenues in  accordance  with SOP 91-1.  The adoption of SOP
          97-2  did  not  have  a  material  impact  on the  Companys  financial
          condition or results of operations.

          In addition to license fees, the Company also recognizes user fees and
          maintenance fees from sales of its software  products.  These fees are
          recognized  ratably over the terms of the related  licenses.  To date,
          license revenue has not been material to the Companys revenues.

(j) Foreign Currency Translation

     The accounts of the Companys indirect U.K.  subsidiaries and branch offices
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 (loss).

(k) 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 (11).

(l) Stock-Based Compensation

     The  Company  has  adopted  SFAS  No.  123,   Accounting  for   Stock-Based
Compensation,  which requires  entities to recognize as expense over the vesting
period the fair value of stock-based  awards on the date of grant.  For employee
stock-based  awards  however,  SFAS No. 123 allows entities to continue to apply
the provisions of Accounting  Principles  Board (APB) Opinion No. 25 and provide
pro forma net earnings disclosures as if the fair- value-based method defined in
SFAS No. 123 had been applied.  The Company has elected to apply the  provisions
of APB Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123.

     The Company accounts for non-employee  stock-based awards in which goods or
services are the consideration  received for the equity instruments issued based
on the fair value of the consideration  received or the grant date fair value of
the equity instruments issued, whichever is more reliably measurable.

(m) 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.  As the Company  was in a net loss  position  for all periods
presented,  diluted  EPS is the same as basic  EPS  because  the  effect  at any
potential common stock equivalents would be antidilutive.

                                      F-10

<PAGE>


(n) Fair Value of Financial Instruments

     The  Companys  financial  instruments  consist  mainly  of  cash  and  cash
equivalents,  accounts receivable, lines of credit, accounts payable and current
debt. The carrying amounts of the Companys 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  and  therefore,   the  carrying  amounts  for  these  instruments
approximate fair value.

(o) Comprehensive Income

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

(p) Segment Reporting

     The  Company  adopted  SFAS  No.  131,  Disclosures  about  Segments  of an
Enterprise  and  Related  Information,   in  1998.  This  Statement  establishes
standards for the reporting of information  about  operating  segments in annual
and  interim  financial  statements  and  required  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 clients.

(q) Current Pronouncements

     In June 1998, the Financial  Accounting  Standards Board (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,  and was  amended by SFAS No.  138,  Accounting  for
Certain Derivative  Instruments and Certain Hedging Activities.  Management does
not believe  that the Company  holds any  derivative  instruments  or engages in
hedging  activities.  Accordingly,  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  was  required to adopt SFAS No. 133 on
January 1, 2001.

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial  Statements.
The Company was required to adopt this  accounting  guidance,  as amended by SAB
101A and SAB 101B,  no later than the fourth  quarter of fiscal  year 2000.  The
Company has adopted  SAB 101 and there was no  material  impact on the  Companys
financial condition, results of operations or cash flows.

     In March 2000, the FASB issued FASB  Interpretation  No. 44, Accounting for
Certain  Transactions  Involving Stock  Compensation:  an  Interpretation of APB
Opinion No. 25. This Interpretation  clarifies the application of APB No. 25 for
certain  issues,  including:  the  definition  of an employee,  the criteria for
determining  whether a plan qualifies as a noncompensatory  plan, the accounting
consequence of  modifications to the terms of a previously fixed stock option or
award,  and the  accounting  for an exchange of stock  compensation  awards in a
business  combination.  This  Interpretation  was  effective  July 1, 2000,  but
certain conclusions apply to events occurring after December 15, 1998 or January
12, 2000. To the extent that this Interpretation covered events occurring during
the period  after  December  15,  1998,  or  January  12,  2000,  but before the
effective date, the effects of applying this  Interpretation are recognized on a
prospective basis from July 1, 2000. The Company has adopted the  Interpretation
and  there  was  no  material  impact  on its  financial  position,  results  of
operations or cash flows.


(2) ACCOUNTS RECEIVABLE

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

                                      F-11

<PAGE>


(3) 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,  2000,  accrued  expenses  consisted of $2.8 million
related to  salaries,  wages and employee  benefits and $6.4 million  related to
other expenses.

(4) EMPLOYEE BENEFITS

     The Company  maintains  two defined  contribution  benefit  plans,  one for
eligible  employees in the U.S.  and one for eligible  employees in the U.K. 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, 1998,  1999 and 2000 were  $300,000,  $205,000 and
$90,600,  respectively.  No discretionary Company contributions were made to the
U.S. defined contribution plan for any of the periods presented. The Company has
no material obligations for post retirement benefits.

(5) LINE OF CREDIT

     At December 31, 2000, the Companys  principal sources of liquidity included
cash and cash  equivalents  of $32.3 million and accounts  receivable  and floor
plan lines of credit from Deutsche Financial Services Corporation (DFSC). During
1999,  the U.S.  DFSC  facility  was amended in  connection  with its March 1999
renewal to include elcom, inc. and to provide for aggregate  borrowings of up to
$80 million. As of April 1, 1999, the interest rate was increased to prime minus
0.5% and as of April 1, 2000,  the  interest  rate was  increased  to prime plus
0.25%. As of November 6, 2000, the facility was amended to provide for aggregate
borrowings  of up to $40  million  in the  U.S.  Approximately  one-half  of the
Companys U.S. borrowings do not bear interest until after interest-free  periods
of 30 to 60 days have lapsed.

     The  interest  rate at  December  31,  2000 was prime  (9.5%)  plus  0.25%.
Availability of U.S.  borrowings is based on DFSCs  determination as to eligible
accounts  receivable  and  inventory.  As of December  31,  2000,  the  Companys
borrowings  from DFSC on its U.S.  floor plan line of credit were $22.1 million.
The U.S.  DFSC line of credit is secured  primarily  by a $15 million  Letter of
Credit and by the Companys  U.S.  inventory  and accounts  receivable,  although
substantially  all of the  Companys  other  U.S.  assets  also  are  pledged  as
collateral on the  facility.  The Letter of Credit is secured by a pledge of $15
million of cash and cash equivalents.

     In December 1997, the Company established a U.K. DFSC credit facility which
provided for aggregate  borrowings of up to 30 million.  As of November 6, 2000,
the U.K. DFSC credit facility was amended to provide for a decrease in aggregate
borrowings  to  10.0  million  (or  approximately  $14.4  million)  in the  U.K.
Availability of U.K.  borrowings is based upon DFSCs  determination  of eligible
accounts  receivable and amounts  outstanding  bear interest at the Base Rate of
National  Westminster  Bank plc (6.0% at December  31,  2000) plus 1.65%.  As of
December 31, 2000, the Companys borrowings under its U.K. DFSC facility were 7.4
million, or $11.1 million.

     The DFSC  lines of  credit  limit  borrowings  to  defined  percentages  of
eligible  inventory (in the U.S.) and accounts  receivable and contain customary
covenants,  including  financial  covenants  with  respect to the  Companys  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  certain  covenants for 2000, the Company is in compliance
with all other covenants of the facility as of December 31, 2000.

     As of December 31, 1999 and 2000,  the Company had  borrowings  aggregating
approximately $29.9 million and $33.2 million,  respectively,  outstanding under
its DFSC  borrowing  facilities,  which  approximated  its maximum  availability
thereunder.

     Subsequent  to  December  31,  2000,  the  Company  outsourced  its product
fulfillment,  inventory,  logistics, and configuration in the U.S. to Tech Data.
As a result of this agreement,  the Companys  working capital  requirements  for
inventory and accounts  receivable are substantially  reduced.  Accordingly,  on
February  5, 2001,  the Company  notified  DFSC of its intent to  terminate  the
Business Credit and Security  Agreement  (Agreement) by May 7, 2001.  During the
termination  period, the DFSC facility provides for aggregate U.S. borrowings of
up to $20

                                      F-12


<PAGE>


million  through  April 15,  reducing to $10 million  through May 7, the date at
which the DFSC line of credit in the U.S. will terminate.  Borrowings  under the
line of credit will be  extinguished  by cash received from accounts  receivable
balances  and, if  necessary,  cash.  The Letter of Credit and pledged  cash and
equivalents were reduced to $10 million on March 5, 2001.

     Subsequent to December 31, 2000,  the Company  refinanced  its DFSC line of
credit in the U.K. with Lloyds TBS  Commercial  Finance  Limited  (Lloyds) under
substantially  similar terms. The Lloyds credit facility  provides for aggregate
borrowings of up to 10.0 million (or  approximately  $14.4  million) in the U.K.
Availability is based upon Lloyds determination of eligibility based on accounts
receivable.  Amounts  outstanding  bear interest at the Base Rate of Lloyds plus
1.5%.

     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 and
December 31, 2000,  the Company had $0 and $137,000,  respectively,  outstanding
from  IBMCC on its floor  plan line of credit  which was  included  in  accounts
payable on the consolidated balance sheet.

(6) SHORT-TERM DEBT

Short-term debt consists of the following (in thousands):

                                                       December 31,
                                                      1999        2000
                                                  ----------  ----------
IBM Credit Corporation note for the purchase of
software at a rate of 13.8%, due August 30, 2001
monthly payments of $80 including interest        $       --  $      647
                                                  ==========  ==========

(7) 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  Companys  Board of  Directors  has adopted six stock  option plans and
stockholders  have  approved  the  adoption of all such stock  option plans (the
Option Plans). A seventh option plan (2001 Plan) providing 2,400,000 options has
been approved by the Board of Directors and will be voted on by the stockholders
at the 2001 Annual  Meeting.  As of December 31, 2000, all Option Plans provided
that up to an  aggregate  of  16,800,000  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. In addition, the
2001 Plan allows for the exercise of options for a 180-day period  commencing on
the date of  employee  termination,  provided  that the  termination  is without
cause.

     One of the Option Plans,  the 1995  Nonemployee  Director Stock Option Plan
(the 1995 Nonemployee  Director Plan) provides up to 250,000  nonqualified stock
options  to acquire  the  Company's  common  stock to be  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

                                      F-13


<PAGE>


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.

     Information  relating to the Company  Option plans  (including  convertible
shares  from the  elcom,  inc.  option  plan)  during  each of the  years in the
three-year period ended December 31, 2000 is as follows:

                                                                     Weighted
                                      Number          Option Price    Average
                                    Of Shares          Per Share  Exercise Price
                                    ----------      --------------  ------------
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
        Granted                      5,152,147          1.17-24.06          3.72
        Terminated                    (960,120)         1.17-21.47          5.05
        Exercised                   (1,350,440)          0.11-8.00          4.06
                                    ----------      --------------  ------------
Outstanding, December 31, 2000      11,223,903      $   0.11-31.13  $       3.83
                                    ==========      ==============  ============

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
                                    ==========      ==============   ==========

Exercisable, December 31, 2000       3,759,034      $   0.11-31.13   $     4.17
                                    ==========      ==============   ==========

        The  following  table   summarizes   information   about  stock  options
(including  convertible  options from the elcom,  inc.  plan)  outstanding as of
December 31, 2000:

<TABLE>
<CAPTION>

                                    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>
$  0.11 - 0.11            76,169           2.15              0.11          76,169     $    0.11
   0.39 - 0.39            75,800           2.15              0.39          75,800          0.39
   1.17 - 1.64         3,080,916           9.18              1.33         366,419          1.64
   1.69 - 2.50           420,512           7.56              1.89         291,262          1.83
   2.55 - 3.81         1,539,975           8.33              3.69         449,477          3.61
   3.86 - 5.75         5,010,240           6.95              4.67       1,840,014          4.44
   5.81 - 8.25           780,041           6.21              6.86         627,934          6.95
  8.80 - 12.63           139,250           8.27             12.28          31,509         11.10
 13.31 - 19.28            46,000           9.22             15.90             300         13.31
 20.19 - 24.06            54,000           9.11             22.21              --            --
         31.13             1,000           9.00             31.13             150         31.13
                      ----------                                        ---------     ---------
                      11,223,903                                        3,759,034     $    4.17
                      ==========                                        =========     =========
</TABLE>

     As of  December  31,  2000,  12,500,078  shares of common  stock  have been
reserved for issuance under the Companys stock option plans.

                                      F-14

<PAGE>


     Had  compensation  costs for  awards  under  the  option  plans  (including
convertible  shares from the elcom, inc. plan) been determined based on the fair
value  method set forth in SFAS No. 123, the effect on the Companys net loss and
per share amounts would have been as follows:

                                    1998            1999           2000
                                ------------    -----------    ------------
                                   (in thousands, except per share data)
Net loss:
        As reported             $    (25,561)   $   (42,538)   $    (19,754)
        Pro forma               $    (29,762)   $   (45,530)   $    (24,626)

Net loss per share:
        As reported  basic and
        diluted                 $      (0.94)   $     (1.53)   $      (0.65)
        Pro forma  basic and
        diluted                 $      (1.09)   $     (1.64)   $      (0.81)

     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:

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

Volatility                              60.25%       113.71%         115.14%
Risk-free interest rate                  5.41%         6.77%           4.98%
Expected life of options               5 years       6 years         5 years
Expected dividend yield                     0%            0%              0%

     The weighted  average fair value per share of options  granted during 1998,
1999 and 2000 were $1.76, $2.92 and $3.06, respectively.

        The  Companys  wholly-owned  technology  subsidiary,  elcom,  inc.  also
maintains  a stock  option  plan (the elcom,  inc.  Plan)  pursuant to which two
million  shares of its common stock are reserved for issuance.  The elcom,  inc.
Plan has provisions similar to the Option Plans discussed above and during 2000,
1,740,363  stock options were granted and 31,750 stock options were  terminated,
leaving a balance of  1,708,613  outstanding  at December  31,  2000.  All stock
options were issued at $3.82 and none were  exercisable as of December 31, 2000.
In addition,  for each elcom, inc. option granted,  optionee receives 0.65 of an
option of the Companys common stock,  all of which were included in the Companys
SFAS 123  calculation.  In the event the optionee  exercises  this Company stock
option, the elcom, inc. stock options automatically terminate.

(d) Warrants

     In June 1995, the Company issued warrants to purchase 750,000 shares of the
Companys  common  stock at $4.75 per share in  connection  with the  purchase of
Lantec.  As of December 31, 2000,  82,500 of these warrants are  outstanding and
exercisable. The warrants expire in June 2005.

     On July 19, 1999,  the Company  announced  the  engagement of Wit Soundview
Group, Inc. (Wit Soundview) as its investment bank and strategic advisor for the
purpose of assisting the Company in evaluating  strategic options for it and for
elcom,  inc. The Company  issued  warrants to Wit Soundview to purchase  353,418
shares of the Companys common stock at $28.71 for each common share. At December
31, 2000, all of these warrants are  outstanding and  exercisable.  The warrants
expire on December 30,  2002.  The fair market value of the warrants at the date
of the grant was $20.31 per share based on the  volatility,  risk-free  rate and
dividend yield noted above and an expected life of three years.

     On December 30, 1999, the Company signed a Structured  Equity Line Flexible
Financing Agreement (the Equity Line) with Cripple Creek Securities, an investor
introduced  to the Company by Wit  Soundview.  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 7(f)). No warrants
have been issued as of December 31, 2000.

                                      F-15

<PAGE>


(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 Companys  common stock at an
aggregate  cost of  $633,000  pursuant  to this  authorization.  No shares  were
repurchased pursuant to this plan in 1999 or 2000.

(f ) Structured Equity Line Flexible Financing Agreement

     On December 30, 1999, the Company signed the Equity Line with Cripple Creek
Securities  LLC  (Cripple  Creek),  which was  introduced  to the Company by Wit
Soundview.  Under the terms of the  agreement  the  Company  may sell to Cripple
Creek up to $50 million of Common Stock over an 18-month period. 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.  On May
11, 2000,  the Companys  registration  statement on Form S-3 with the Securities
and Exchange Commission was declared effective 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 the warrants held by Wit Soundview.

     The Equity Line  provides that the Company,  at its option,  may sell up to
$10 million of common  stock  during each  monthly  investment  period,  up to a
maximum aggregate total of $50 million. 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,  but no less
than $1 million, at a price equal to 100% of the lowest volume-weighted  average
sale price  during the five days  immediately  preceding  the notice of purchase
delivered to the Company by Cripple Creek up to an aggregate,  in total,  of $50
million. The Equity Line allows the Company to set a minimum price, but not less
than $4 per share,  that the common stock sold 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  shares  (100,000  shares 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 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.  In  September
2000,  the Company sold 60,952 shares to Cripple Creek under the equity line for
$320,000.

     The  Equity  Line will be in effect  for a period of 18  months,  ending in
December 2001. The Company may, at its option,  terminate the Equity Line at any
time.

(8) 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 $2,342,000  and  $2,079,000 and related  accumulated  amortization  of
$1,657,000  and  $660,000  as of  December  31,  1999  and  2000,  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 6 months to twelve  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.

                                      F-16

<PAGE>

Future minimum rental payments as of December 31, 2000, are as follows:

                                                      Capital    Operating
     Year Ending December 31, (in thousands)           Leases      Leases
     ---------------------------------------          --------    --------
     2001  ........................................   $    593    $  2,213
     2002  ........................................        567       1,983
     2003  ........................................        327       1,699
     2004                                                   --       1,312
     2005                                                   --       1,183
     Thereafter ...................................         --       2,540
                                                      --------    --------
     Total minimum lease payments .................      1,487      10,930
         Less - Amounts representing interest .....       (200)         --
         Less  minimum sublease income ............         --      (1,046)
                                                      --------    --------
         Present value of net minimum lease
           Payments ...............................   $  1,287    $  9,884
                                                                  ========
         Current portion ..........................        474
                                                      --------
     Long term portion ............................   $    813
                                                      ========

     Rent expense for operating  leases for each year in the  three-year  period
ended December 31, 2000 amounted to approximately $4.3 million, $3.6 million and
$2.9 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 on
discussions  with its  counsel,  the  estimable  range of loss,  if any,  is not
material in relation to the financial statements.

(9) ASSET IMPAIRMENT, RESTRUCTURING AND OTHER RELATED CHARGES

     On July  31,  1999,  the  Company  completed  the  sale of the  substantial
majority  of its  U.K.  remarketer  group  operations  which  included  its U.K.
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 Companys U.K. revenues and 67%
of its U.K.  operating  income in 1998 and the seven month period ended July 31,
1999  (excluding  the asset  impairment  charge  described  below).  The Company
recorded net sales related to its U.K.  operations of $82 million in 2000,  $193
million in 1999,  and $314  million in 1998.  The Company has  retained its U.K.
telemarketing  group,  which it intends to evolve towards a business to business
Internet-based  storefront  business,  similar to  Starbuyer.com,  the  Companys
wholly-owned  eBusiness subsidiary in the U.S. The Company also plans to use the
retained  business  as the  platform  from which it will market  PECOS  Internet
Procurement Manager,  elcom, inc.s Internet-based and remotely-hosted  automated
procurement  system.  The  acquirer  assumed the lease of the  Companys  Langley
facility and the lease of the Companys Glasgow  facility;  however,  the Company
retained  substantially  all other balance sheet assets and  liabilities  of the
disposed  businesses.  Accordingly,  the Company was 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 Companys  estimates of incremental
liabilities associated with the sale transaction,  the Company recorded an asset
impairment  charge of $19.5 million in the second quarter of 1999 which included
a reduction of the carrying value of its U.K. 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

                                      F-17


<PAGE>


$25.7  million of goodwill  reflected on its balance sheet  associated  with the
acquisitions of certain U.K.  businesses  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.  During
the first two  quarters  of 2000,  $0.9  million of the  remaining  accrual  was
utilized  for costs  primarily  related to accounts  receivable.  The  remaining
balance  of $0.2  million  was  utilized  in the  second  half of 2000 for costs
related to lease  termination.  As of December 31,  2000,  this accrual has been
fully utilized as originally intended by the Company.

     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 Groups  education sales  operations and in
September  consolidated certain of its client support personnel in the U.S.. The
total charge related to the Elcom Services Group restructuring was 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
consisted  of  the  unamortized  goodwill  associated  with  the  February  1995
acquisition of  Computerware  because the Company had determined that there were
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,  inc., its electronic
commerce  technology  subsidiary,  to serve as an  electronic  commerce-oriented
systems  integration  arm of Elcom Services Group. In connection with the elcom,
inc.  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 consisted of the
value assigned to the original client server coding and  architecture of various
PECOS technologies,  including Commerce Manager, which was no longer competitive
with  alternatives  then  available.  The Company has developed and continues to
develop, PECOS.pm in current,  state-of- the-art code, especially for use on the
Internet.

        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  Companys  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
U.S. 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):

                           Amount  Balance   Amount               Balance
                   1998   Incurred December Incurred Adjustments  December
                  Charge    1998   31, 1998   1999    to Charge   31, 1999
                 ----------------------------------------------------------
Elcom Services
Group
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, inc
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    $      --
                 =======  =======  =======  =======    =======    =========




                                      F-19

<PAGE>


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

(10) BUSINESS SEGMENT INFORMATION

     The  Companys  operations  are  classified  into  two  reportable  business
segments:  elcom,  inc.,  the  Companys  eBusiness  technology  subsidiary  that
develops and licenses remotely-hosted, self-service, Internet and intranet-based
purchasing   systems,   and  Elcom  Services  Group,  which  markets  and  sells
business-related products to commercial clients. The accounting policies for the
segments  are  consistent  with those  described  in the summary of  significant
accounting policies. The Companys management evaluates segment performance based
on net sales and gross profit.

On October 1, 1999, the ownership of the U.K.  operations were  transferred from
     Elcom Services Group to elcom, inc. Segment results for 1998, 1999 and 2000
are
as follows (in thousands):

                                    1998        1999        2000
                                 ---------   ----------  ----------
Net Sales
  Elcom Services Group           $ 761,305   $  412,262  $  106,699
  elcom, inc                         2,295       73,566     211,286
  elcom, inc. intercompany sales       314           14          --
  Elimination                         (314)         (14)         --
                                 ---------   ----------  ----------
Total                            $ 763,600   $  485,828  $  317,985
                                 =========   ==========  ==========
Gross Profit
  Elcom Services Group           $  75,135   $   36,488  $   11,621
  elcom, inc                         1,807        6,913      19,453
  elcom, inc. intercompany sales       146           10          --
  Elimination                         (146)         (10)         --
                                 ---------   ----------  ----------
Total                            $  76,942   $   43,401  $   31,074
                                 =========   ==========  ==========
Identifiable Assets
  Elcom Services Group           $ 245,133   $   21,858  $    9,370
  elcom, inc                         1,846       45,154      62,186
  Corporate                         14,872       31,027      23,648
                                 ---------   ----------  ----------
Total                            $ 261,851   $   98,039  $   95,204
                                 =========   ==========  ==========

     Substantially all net sales and gross profit are related to the remarketing
of personal computer products and related services.

     The Company  operates both in the U.S. and U.K. and geographic  information
is as follows (in thousands):

                                    1998         1999       2000
                                 ---------   ----------  ----------
Net Sales
        U.S                      $  449,844  $  292,507  $  235,900
        U.K                         313,756     193,321      82,085
                                 ---------   ----------  ----------
Total                            $  763,600  $  485,828  $  317,985
                                 =========   ==========  ==========
Gross Profit
        U.S                      $   40,537  $   25,496  $   21,969
        U.K                          36,405      17,905       9,105
                                 ---------   ----------  ----------
Total                            $   76,942  $   43,401  $   31,074
                                 =========   ==========  ==========
Identifiable Assets
        U.S                      $  151,648  $   89,767  $   67,834
        U.K                         110,203       8,272      27,302
        Other foreign locations          --          --          68
                                 ---------   ----------  ----------
Total                            $  261,851  $   98,039  $   95,204
                                 =========   ==========  ==========

        During 2000, the Company had one client that accounted for approximately
14.87%  of net  sales.  For 1998 and 1999 the  Company  did not have any  client
accounts that represent more than 10% of net sales.  At December 31, 2000,  this
customer  accounted  for  approximately  14%  of  the  Companys  trade  accounts
receivable balance.

                                      F-19

<PAGE>


(11) INCOME TAXES

Income (loss) before income tax expense (benefit) consisted of:

                                               1998          1999        2000
                                             --------      --------    --------
        United States                        $(25,780)     $(18,760)   $(20,870)
        Foreign                                   703       (24,101)        330
                                             --------      --------    --------
                                             $(25,077)     $(42,861)   $(20,540)
                                             ========      ========    ========

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

                                               1998         1999         2000
                                             --------     --------    --------
Current tax expense
        United States federal                $    190     $     25    $     --
        State                                     701          742        (642)
        Foreign                                   276       (1,090)       (144)
                                             --------     --------    --------
                Total current tax expense
                    (benefit)                $  1,167     $   (323)   $   (786)
                                             ========     ========    ========

Deferred tax expense (benefit)
        United States federal                $   (743)    $     --    $     --
        State                                    (400)          --          --
        Foreign                                   460           --          --
                                             --------     --------    --------
                Total deferred  tax expense
                    (benefit)                $   (683)    $     --    $     --
                                             ========     ========    ========

Expense (benefit) for income taxes           $    484     $   (323)   $   (786)
                                             ========     ========    ========

        The following table summarizes the significant  differences  between the
United States federal statutory tax rate and the Companys effective tax rate for
financial statement purposes:

                                                 1998      1999      2000
                                               -------    ------    ------
Statutory tax rate                                34.0%     34.0%     34.0%
State taxes, net of United States federal
        tax benefit                                0.8      (1.7)      2.1
Foreign taxes (benefit)                           (0.1)      1.9       0.7
Valuation reserve provided against
        utilization of net operating loss
                carryforwards                    (24.3)    (20.7)    (27.9)
Non deductible goodwill and other                 (8.5)    (12.7)     (5.1)
                                               -------    ------    ------
                                                   1.9%      0.8%      3.8%
                                               =======    ======    ======

        Deferred  tax assets  (liabilities)  consisted  of the  following  as of
December 31 (in thousands):

                                                           1999          2000
                                                        ----------    ---------
Deferred tax assets:
Nondeductible reserves                                  $       --    $     272
Capitalized inventory costs                                     24           13
Accrued expenses                                               297          232
Other temporary differences                                    397        1,126
Depreciation                                                 2,362        4,356
Foreign net operating loss carryforwards                     1,871          942
Net federal and state operating loss carryforwards          20,399       36,585
                                                        ----------    ---------
                                                        $   25,350    $  43,526
                                                        ==========    =========

                                      F-20

<PAGE>


Deferred tax liabilities:
        Other intangible assets                         $     (791)   $  (1,871)
        Catalog costs                                         (184)          --
        Other temporary differences                           (337)          --
Valuation allowance                                        (24,038)     (41,655)
                                                        ----------    ---------
Net deferred tax liabilities                            $       --    $      --
                                                        ==========    =========

        At December 31, 2000,  the Company has U.S.  federal net operating  loss
carryforwards  of  approximately  $82.7  million,  which are available to offset
future Federal taxable income. These losses expire during the years 2010 through
2020.

        Section  382 of the  Internal  Revenue  Code  of 1986  and the  Treasury
Regulations  promulgated thereunder subjects the prospective  utilization of the
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 Sec 382  generally  occurs  when the  ownership  percentage  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
may be subject to these limitations.

        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,  2000,  the  Company  has  state  net  operating  loss
carryforwards  of  approximately  $89.3  million  which are  available to offset
future state taxable  income.  These losses expire during the years 2001 through
2020.

        At December  31,  2000,  the Company  has  foreign  net  operating  loss
carryforwards  of  approximately  $4.4  million,  which are  available to offset
future foreign  taxable income.  Generally,  these losses may be carried forward
indefinitely.

        The  valuation  allowance  increased by $15.9  million and $17.6 million
during the years ended  December  31, 1999 and 2000,  respectively.  The Company
believes  that it is more  likely  than not  that the  deferred  tax  assets  at
December 31, 2000 will not be realized in the future. The valuation allowance as
of  December  31,  2000  includes a tax effect of  approximately  $12.2  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.

(12) RELATED PARTY TRANSACTIONS

        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
and the $ 418,000  was  recorded  as other  income.  ShopLink.com,  Inc.  ceased
operations in late 2000.

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

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

                                               1998         1999          2000
                                             --------     --------     --------
Net loss                                     $(25,561)    $(42,538)    $(19,754)
Weighted average shares outstanding            27,322       27,846       30,487
                                             --------     --------     --------
Net loss per share                           $  (0.94)    $  (1.53)    $  (0.65)
                                             ========     ========     ========


     Diluted  net loss per  share in 1998,  1999 and 2000 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 Companys common shares
in 1998,  1999, and 2000,  the following are the number of potentially  dilutive
securities:

                                      F-21

<PAGE>


                                       Potentially Dilutive Securities
                               ----------------------------------------------
                                 Number                            Range
                               Of Dilutive                       Of Exercise
     Year ending December 31,  Securities       Number             Price
     ------------------------  -----------    ----------      ---------------

              1998                917,000      6,963,000      $    3.72-$8.80

              1999              2,788,000      1,780,000      $   5.56-$31.13

              2000              4,945,000      1,440,000      $   10.81-31.13

                                      F-22

<PAGE>


(14) QUARTERLY FINANCIAL DATA (UNAUDITED)

     Certain amounts from prior quarters have been  reclassified  (in thousands,
except per share data):
<TABLE>
<CAPTION>

                                                  First       Second        Third        Fourth
                                                 Quarter      Quarter       Quarter      Quarter      Year
                                               -----------  -----------   -----------   ---------   ---------
Year Ended December 31, 1999

<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 and diluted net income (loss) per share. $     (0.05) $     (0.82)  $     (0.27)  $   (0.38)  $   (1.53)
Basic and diluted weighted average shares
    outstanding .                                   27,412       27,709        27,944      28,307      27,846


Year Ended December 31, 2000
Net sales                                      $    80,191  $    83,708   $    77,051   $  77,035   $ 317,985
Gross profit .                                       6,412        7,634         8,119       8,909      31,074
Operating profit (loss)                             (7,697)      (4,460)       (5,235)     (4,093)    (21,485)
Net income (loss)                              $    (7,567) $    (4,327)  $    (3,793)  $  (4,067)  $ (19,754)
Basic and diluted net income (loss) per share. $     (0.25) $     (0.14)  $     (0.12)  $   (0.13)  $   (0.65)
Basic and diluted weighted average shares
    outstanding .                                   29,711       30,707        30,727      30,797      30,487

</TABLE>

                                      F-23

<PAGE>


                              Company Confidential

                   ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                      2000 ANNUAL REPORT ON THE 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, 1998, 1999 and 2000                                  S-4

                                      S-1

<PAGE>


          Independent Accountants 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 years
ended December 31, 1999 and 2000.

Our  audits  were  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 audits 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
KPMG



Boston, Massachusetts
February 9, 2001

                                      S-2

<PAGE>





             Report of Other Independent Public Accountants Report
                          on Supplementary Information




To Elcom International, Inc.:

We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated statements of operations and other comprehensive
income, stockholders equity and cash flows for the years ended December 31, 1998
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 Elcom International, Inc.'s management and is
presented for purposes of complying with the Securities and Exchange Commissions
rules  and is not part of the  basic  consolidated  financial  statements.  This
schedule has been subjected to the auditing  procedures applied in our audits of
the basic consolidated financial statements and, in our opinion,  fairly states,
in all material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.


/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, 1998, 1999, and 2000
                                 (in thousands)



                                Balance at                             Balance
                                Beginning                             at End of
                                Of Period    Additions   Utilizations   Period
                                ----------   ----------   ----------  ----------
Allowance for Doubtful Accounts
    For the years ending
-------------------------------
December 31, 1998               $    5,474   $    4,975   $   (3,653) $    6,796
                                ==========   ==========   ==========  ==========

December 31, 1999               $    6,796   $    4,626   $   (8,345) $    3,077
                                ==========   ==========   ==========  ==========

December 31, 2000               $    3,077   $      440   $   (1,117) $    2,400
                                ==========   ==========   ==========  ==========


Inventory Valuation Accounts
    For the years ending
-------------------------------
December 31, 1998               $    1,363   $    1,651   $   (1,022) $    1,992
                                ==========   ==========   ==========  ==========

December 31, 1999               $    1,992   $    1,734   $   (2,956) $      770
                                ==========   ==========   ==========  ==========

December 31, 2000               $      770   $      (38)  $     (389) $      349
                                ==========   ==========   ==========  ==========

                                      S-4