<PAGE>
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-K


                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [FEE REQUIRED]
     For the fiscal year ended June 30, 1997.

                                      OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
     For the transition period from            to 
                                    ----------    ----------

                       Commission File Number:  0-22730
                                                -------

                          Communications Central Inc.
                          ---------------------------
            (Exact name of registrant as specified in its charter)


          GEORGIA                                           58-1804173
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

1150 NORTHMEADOW PARKWAY, SUITE 118, ROSWELL, GEORGIA            30076
--------------------------------------------------------------------------------
(Address of principal executive offices)                      (Zip Code)


      Registrant's telephone number, including area code: (770) 442-7300
                                                          --------------

       Securities registered pursuant to Section 12(b) of the Act:  NONE
                                                                    ----

          Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.01 par value
                         ----------------------------
                               (Title of Class)


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

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

  Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of  September 25, 1997:  $51,866,817.75.

  Number of shares of Common Stock outstanding as of  September 20, 1997:
6,285,987.
<PAGE>
 
                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------
                                        

None, except as otherwise indicated in the list of exhibits set forth in Item 14
hereof.
<PAGE>
 
                                    PART I

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:

        Certain of the statements contained in the body of this Report are
forward-looking statements (rather than historical facts) that are subject to
risks and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. In the preparation of
this Report, where such forward-looking statements appear, the Company has
sought to accompany such statements with meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those described in the forward-looking statements. An additional
statement summarizing the principal risks and uncertainties inherent in the
Company's business is included herein under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Safe Harbor
Statement." Readers of this Report are encouraged to read these cautionary
statements carefully.
 
        See the Glossary included as Appendix A hereto for the definitions of
certain terms used in this Report.

ITEM 1. BUSINESS.
---------------- 

BACKGROUND

        Communications Central Inc. ("CCI" or the "Company") owns and operates a
network of over 26,000 coin-operated payphones and inmate phones located in 42
states and the District of Columbia and believes it is the third largest
independent operator of payphones and the second largest independent provider of
inmate phones in the country.  The Company's payphones are located where there
is significant demand for payphone services, such as convenience stores, service
stations, grocery stores, hospitals, shopping centers and truck stops, and
generate revenue from both coin calls and "non-coin" calls, such as collect
calls, third-party calls and credit card or calling card calls.  The Company's
inmate phones are installed in approximately 560 correctional institutions, most
of which are operated at the county and local government level.  All inmate
phone revenue is generated from non-coin calls.  Substantially all of CCI's
payphones and inmate phones are electronically linked to the Company's
centralized, proprietary management information systems that permit the Company
to monitor phone usage patterns and address potential service and maintenance
needs before they cause significant downtime or come to the attention of the
site operator or correctional institution. 

                                       2
<PAGE>
 
        The Company was founded in June 1986 and grew rapidly, primarily through
acquisitions, to revenues of $29.9 million for the fiscal year ended June 30,
1993.  In December 1993, the Company successfully completed its initial public
offering of 2.5 million shares of Common Stock and raised over $23 million in
capital.  Since the initial public offering, the Company has used such capital
and bank borrowings to acquire the businesses and operations of 15 companies
that added more than 7,700 payphones and over 4,300 inmate phones to the
Company's operations.  This Report covers the Company's fiscal year ended June
30, 1997 ("fiscal 1997").

        On September 20, 1996, the Federal Communications Commission ("FCC")
issued its Report and Order implementing the payphone-specific provisions of the
           ----------------
Telecom Act. Among its directives, the FCC prescribed dial around compensation
for all access code and 800 subscriber calls from payphones at a flat rate of
$45.85 per payphone per month for the first year, with a per-call compensation
system to be implemented by October 7, 1997 under which compensation was
required to be paid at a default rate of $.35 per call. Based on appeals filed
challenging various aspects of the FCC's orders, on July 1, 1997, the United
States Court of Appeals for the District of Columbia Circuit ("Court") issued an
opinion which, among other things, affirmed the deregulation of the local coin
rate on October 7, 1997 and remanded both the interim dial around compensation
rate of $45.85 per payphone per month and the default compensation rate of $.35
per call to the FCC for further review. Following the release of the Court's
opinion, a number of interested parties filed motions for rehearing and/or
clarification of the July 1, 1997 decision. On September 16, 1997, the Court
clarified that it had, in fact, intended that the dial around compensation
provisions of the FCC's orders be vacated. On the same day, the Court denied
motions for rehearing on the local coin rate, thus affirming that the rate will
be deregulated on October 7, 1997. These and other regulatory changes could
significantly impact the Company's operations for the foreseeable future. See
"Regulation."

        In January 1997, the Company began to reassume responsibility for tasks
relating to the payphone division that were previously assigned to Perot Systems
Field Services Corporation ("Perot") pursuant to an outsourcing agreement
entered into in July 1995.  Under the outsourcing agreement, as amended (the
"Services Agreement"), the Company is again responsible for the field operations
of the payphone division. Perot will continue to handle the management
information services function of the payphone division and complete final
documentation and enhancements to the Perot/CCI Oracle based payphone
information system.

        On March 16, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with PhoneTel Technologies, Inc. ("PhoneTel")
and PhoneTel Acquisition Corp. ("Acquisition") pursuant to which Acquisition
commenced a tender offer to purchase all of the outstanding shares of Common
Stock of the Company (including the associated rights to purchase shares of the
Company's Common Stock). The Merger Agreement, as amended by First Amendment to
Agreement and Plan of Merger dated as of May 15, 1997 was terminated effective
August 21, 1997 without any shares of the Company's Common Stock being
purchased.

                                       3
<PAGE>
 
        On August 21, 1997, the Company, InVision Telecom, Inc. (a wholly owned
subsidiary  of the Company), and Talton Holdings, Inc. ("Talton") entered into
an Asset Purchase Agreement (the "Purchase Agreement") whereby Talton agreed to
purchase substantially all of the assets of the Company's inmate phone business
for approximately $42 million (subject to adjustment as provided in the Purchase
Agreement). The Purchase Agreement is scheduled to close on or about October 31,
1997 and is subject to certain closing conditions including the consent of the
Company's principal lender and the execution of satisfactory employment
agreements with certain members of InVision's management team. Upon consummation
of the Purchase Agreement and the transactions contemplated thereby, the Company
will not own any inmate phones or have any inmate phone operations.

INDUSTRY

        PUBLIC PAYPHONES

        In June 1984, AT&T Corporation ("AT&T") was required to divest itself of
the seven Regional Bell Operating Companies ("RBOCs"). That development,
combined with the ruling of the FCC that parties other than local exchange
carriers ("LECs") could own payphones connected to the interstate telephone
network, marked the beginning of the independent payphone industry. At that
time, the FCC also authorized state regulation of local and intrastate calls.
Since June 1984, almost all states have authorized the installation and use of
independent payphones.

        Prior to the AT&T divestiture, the RBOCs could refuse to provide
payphone service to a business operator or, if service was installed, would
typically only pay minimal commissions for the right to place a payphone on the
business premises. Following the AT&T divestiture and the FCC's authorization of
payphone competition, independent payphone operators began to pay property
owners competitive commissions on coin calls made from the payphones in order to
obtain the contractual right to install the equipment on their premises.
Initially, coin revenue was the only source of revenue from these payphones
because independent operators were unable to participate in revenues from non-
coin calls. However, the operator service provider ("OSP") industry emerged and
enabled independent payphone providers to compete more effectively with the
regulated telephone companies by paying commissions to payphone owners for non-
coin calls. For the first time, independent payphone operators were able to
participate in a portion of non-coin call revenue from their payphones. With
this incremental source of revenue from non-coin calls, independent payphone
operators were able to compete more vigorously with RBOCs for site location
agreements by paying more competitive commissions to business operators.

                                       4
<PAGE>
 
PAYPHONE AND INMATE PHONE OPERATIONS

        As of the end of fiscal 1997, CCI owned and operated over 26,000
payphones and inmate phones. The following table sets forth the number of phones
installed in each state as of June 30, 1997:

<TABLE>
<CAPTION>
--------------------------------------------------------
       State         Payphones   Inmate Phones   Total
--------------------------------------------------------
<S>                 <C>          <C>             <C> 
Alabama                  1,488        19          1,507 
Arizona                      -        74             74 
Arkansas                   396        70            466 
California                   -       523            523 
Colorado                   407         6            413
Delaware                    16         -             16 
District of Columbia        69         -             69 
Florida                  3,471       185          3,656 
Georgia                  2,248       211          2,459
Idaho                        -        59             59
Illinois                   955       862          1,817
Indiana                    208       413            621
Iowa                        16         -             16
Kansas                       6         -              6
Kentucky                   125       495            620
Louisiana                  775        96            871
Maryland                   144       124            268
Massachusetts                -       432            432
Michigan                   251       139            390
Minnesota                  366        45            411
Mississippi                831         -            831
Missouri                   146         7            153
Montana                      -       145            145
Nebraska                     -        18             18
Nevada                       -       103            103
New Jersey                   7         -              7
New Mexico                   -        30             30
New York                     -        18             18
North Carolina             968       165          1,133
North Dakota                 6         -              6
Ohio                       433       381            814
Oklahoma                    82         -             82
Oregon                       -         4              4
Pennsylvania               428        34            462
South Carolina             500        16            516
Tennessee                2,049       606          2,655 
Texas                    2,260       196          2,456
Utah                        11         2             13
Virginia                 1,389       283          1,672
Washington                   2        31             33
West Virginia               68        72            140
Wisconsin                  132        28            160
Wyoming                      -        32             32
                       ---------------------------------
   TOTALS               20,253     5,924         26,177 
                       =================================
</TABLE> 

Upon consummation of the Purchase Agreement with Talton,
the Company will not own any inmate phones or have any
inmate phone operations.

                                       5
<PAGE>
 
        CCI's payphones generate revenue from both coin and non-coin calls. Coin
calls include traditional local calls at 10 cents, 25 cents or 35 cents (the FCC
has ordered that the local coin rate be deregulated as of October 7, 1997: See
"Regulation") and "1+" long distance calls which the Company markets at a rate
of four-minute increments for $1.00 at most of the Company's payphones. Non-coin
calls include calling card, credit card, collect and third-party billed calls
made from CCI's phones. Non-coin calls generate revenue from intrastate and
interstate calls placed through arrangements with various long distance or
"interexchange carriers" ("IXCs") selected by CCI. The Company considers a
variety of factors when selecting a specific long distance carrier for use at
its payphones. These factors include the financial and other contractual
arrangements between CCI and the long distance carrier, the financial stability
of the carrier, the quality of service, the location of the payphone, the types
of calls made from the location, the profitability of each type of call under
each calling alternative, the requirements of the property owners, and
applicable regulatory restrictions.

        The Company has also received revenues from IXCs through "dial around
compensation."  Dial around compensation is revenue derived from the use of the
Company's payphones in two methods.  The first method is when an "access code"
is dialed by an end user for the purpose of placing a call using an alternative
billing method, such as a calling card.  For example, a caller may dial "102880"
or "1-800-CALL-ATT" to obtain entrance into the AT&T network to place a call
that will be handled and billed by AT&T, thus "dialing around" the Company's
presubscribed carrier.  Previously, the Company was paid dial around
compensation for access code calls (using 10XXX, 950 or "800" carrier access
numbers) at a rate of $6.00 per phone per month.  During 1995, the Company
experienced a change in compensation payments from AT&T and Sprint, who received
authority from the FCC to begin paying at a rate of 25 cents per call in lieu of
their share of the $6.00 flat rate in the areas where access calls could be
tracked. More recently, the FCC determined that dial around compensation also
included a second method of payphone use when end users place "subscriber calls"
to a toll-free number for purposes other than to access a carrier's network.
The FCC also recognized that existing regulations do not prohibit an IXC from
blocking subscriber "800" numbers from payphones if the IXC wants to avoid
paying per-call compensation on these calls.  Examples of these calls include 1-
800-FLOWERS and toll-free "800" or "888" numbers to an end user's business
office.  The FCC increased the compensation level and revised the method for
calculating dial around compensation for both types of dial around calls in a
ruling on September 20, 1996.  Effective November 7, 1996, the Company was
entitled to receive dial around compensation at a flat rate of $45.85 per phone
per month for the first year, with a per call compensation system to be
implemented by October 7, 1997 under which compensation would be paid at a
default rate of $.35 per call.   On July 1, 1997, the United States Court of
Appeals for the District of Columbia Circuit ("Court"), remanded the interim
dial-around compensation plan and the default per call compensation rate to the
FCC for further review.  However, on September 16, 1997, the Court clarified
that the existing dial around compensation system was vacated, pending further
FCC review.   See "Regulation."  Dial around compensation has not been paid on
inmate calls since inmate phone providers are not required 

                                       6
<PAGE>
 
under applicable laws to allow access to all long distance carriers.

        CCI's inmate phones generate non-coin revenue only. Calls originating
from inmate facilities are handled by the Company through the use of automated
call processing technology which permits collect-only calling. The Company has
witnessed an increase in the amount of bad debt for its inmate phone revenue
over the past year to approximately 30%. To address the issue of bad debt, the
Company implemented a program for direct billing that enabled it to bill the
called number directly and set parameters for blocking calls based on collection
results. As of June 30, 1997, the Company had successfully implemented the
direct billing program in conjunction with a strengthened credit policy in all
but 3 states in which it operates. The combination of the direct billing program
and the new credit policy resulted in approximately a 20% reduction in call
volumes in the fourth fiscal quarter. Although the Company implemented the
direct billing program with the belief that it will reduce the amount of bad
debt attributable to its inmate phones, no assurance can be given as to the
success of the direct billing program in reducing the level of bad debt. 

MARKETING AND SALES

        The Company's marketing and sales efforts in its payphone operations are
divided into sales for independent and key accounts and corporate accounts.
Corporate accounts generally provide payphone growth and call volume, while
independent and key accounts generally provide better gross margins, are less
susceptible to turnover when the contract expires and have longer contractual
terms.

        INDEPENDENT AND KEY PAYPHONE ACCOUNTS

        As of June 30, 1997, approximately 59% of the Company's payphone base
was represented by independent and key accounts. Independent accounts are
defined by the Company as those businesses with fewer than ten payphones. Key
accounts are those with 10 to 20 payphones. The Company selects locations for
its payphones where it believes there is a demonstrated high demand for payphone
service and where the phones may be easily serviced. The Company generally does
not install a payphone unless it estimates that the location will generate
minimum levels of coin and non-coin revenue per month. For the majority of
payphone locations, the Company bases its estimates on the historical revenue
from each site. When available, CCI obtains the historical data of existing
locations from the business operator. When historical data is unavailable for a
prospective location, CCI examines store hours, other payphones in the area,
traffic patterns, data from payphones in comparable locations and other factors
to determine whether to install a payphone at a particular site.

        The Company negotiates site location agreements at desirable locations
by offering commissions to business operators typically based upon percentages
of revenue. Site location 

                                       7
<PAGE>
 
agreements for independent accounts usually have five to ten-year terms. Under
the Company's current form of site location agreement, CCI can generally
terminate a site location agreement if it determines that a payphone is not
profitable.

        CCI markets its payphones to independent accounts on a commission basis
through a network of independent marketing representatives who represent the
Company under the supervision of the Vice President, Sales and Marketing, and
CCI's field sales and operating managers.

        CORPORATE PAYPHONE ACCOUNTS

        As of June 30, 1997, corporate payphone accounts represented
approximately 41% of CCI's payphone base. The Company's marketing efforts to
corporate accounts are directed to large, multi-location entities, such as
restaurant chains, grocery stores, property management companies, hospitals,
convenience store operators, franchisers, shopping mall developers, department
store chains and oil service companies. CCI's marketing campaign to corporate
accounts emphasizes the Company's ability to offer complete coverage of all of
the customer's payphone needs, including standardized reporting, broad
geographical coverage and extensive service. Contracts with corporate account
customers are negotiated on an account-by-account basis and typically have three
to seven-year contract terms. Previously, regulatory limitations prevented RBOCs
from being able to provide this breadth of service to corporate account
customers who, by definition, tend to have operations that cross RBOCs operating
territories. However, a 1996 FCC ruling lifted certain of these limitations to
allow RBOCs to provide such service. See "Regulation." Among major oil
companies, CCI's corporate accounts include Conoco Inc., Crown Central Petroleum
Corporation and Racetrac Petroleum, Inc. In the convenience store industry,
CCI's corporate accounts include, among others, Country Cupboard Food Stores,
Inc. and E-Z Serve Corp. As of June 30, 1997, the Company's largest corporate
account customer represented approximately 3.8% of its payphone base (exclusive
of inmate phones) and the four largest corporate accounts represented
approximately 12.1% of its payphone base.

TECHNOLOGY

        Historically, when a call was initiated at most payphones owned by a
LEC, the call was processed through one of the LEC's central offices which
communicated with the caller, if necessary, and controlled the payphone by
external means. By contrast, the Company's payphones are "smart" terminals and
process the functions associated with a call using a microprocessor located
within the payphone.

        In addition to the microprocessor, the Company's payphones contain non-
volatile, electrically erasable, programmable read-only memory chips ("EEProm")
permitting CCI to 

                                       8
<PAGE>
 
"download" rates and option selections from its corporate office in Atlanta,
using software provided and periodically updated by the Company's principal
payphone vendors. The information stored on the chip includes the local,
intrastate and interstate coin rates that can be charged through CCI's
payphones. The payphones are also programmed for other available options, such
as free calls for emergency numbers, special charges for certain calls and speed
dial numbers. All programmable features of CCI's payphones may be altered by the
Company on a secure basis from a remote location by means of a personal
computer. Specifically, each of CCI's payphones may be monitored daily from
computers at the corporate office to determine the amount of money in the cash
box, the number and types of calls made and the service condition of the
payphone.
 
        Operations are monitored by a series of computerized communications
between the payphones, operating centers and databases located at the Company's
headquarters. The Company utilizes two different non-proprietary, third-party
software systems in its payphones, Payphone Network Manager ("PNM") and
Xpressnet, to detect operating problems, remotely update rates and determine the
amount of coin collected. During its monthly processing procedures, the system
calculates the commissions payable to the various property owners and prints the
appropriate checks. The system produces an analysis of each site, including
profitability and service calls, and acts as an additional internal check on
coin collection.

        Inmate telephone service is also provided with microprocessor-based
technology.  The actual telephone instruments are "dumb" coinless phones that
are connected to a "smart" controller.  Each instrument has the programmable
options of a payphone, as well as additional controls programmed into the inmate
systems that determine who can originate calls, the numbers that can be dialed,
when calls can be placed, and the maximum duration of the calls.  Inmate calls
are typically processed as collect calls paid for by the recipient of the call.
The inmate phone technology utilized by the Company automatically forwards
inmate calls directly to a validation service which may block the call if the
call is to an unauthorized number or if the recipient is not current on his or
her local telephone bill.  All of the Company's inmate systems are monitored
daily from the Company's inmate control center in Louisville, Kentucky to ensure
operability of the phones.

        The telecommunications industry has been characterized by steady
technological change, frequent new service introductions and evolving industry
standards.  The Company believes that its future success will depend on its
ability to anticipate such changes and offer responsive services on a timely
basis that meet these evolving industry standards.

                                       9
<PAGE>
 
SUPPLIERS

        The Company's principal suppliers provide phones, housings, local line
access and long distance services.  In addition, pursuant to the Services
Agreement, Perot provides certain outsourcing services and software related to
the management information services of the Company's payphone operations.

        CCI generally purchases its payphone equipment from domestic
manufacturers and obtains its payphones and electronic boards primarily from
Protel, Inc. and Elcotel, Inc. Management believes there are an adequate number
of vendors to supply the industry and CCI has identified alternative sources if
supply is interrupted from any of its primary vendors, although transitioning
from the Company's existing primary vendors to new vendors on short notice, if
necessary, could be difficult and could involve unforeseen additional expenses.
Management is not aware that any of the Company's primary vendors of phone
equipment and related parts and services are currently experiencing financial
difficulties.

        The Company currently purchases local line access from various major
LECs including BellSouth, Ameritech, Bell Atlantic, Southwestern Bell, US West,
and GTE. Long distance service is generally provided to CCI by U.S. Long
Distance Corp. ("USLD") and Sprint. Operator services are generally provided by
USLD and AT&T as well as certain LECs in the territories in which they operate.
CCI believes that it has access to several providers of long distance services
and operator services at competitive rates and expects to have such access in
the foreseeable future. In addition, new sources of local line access are
emerging as competition is authorized for local service. However, the continuing
availability of these new sources cannot be assured.

COMPETITION

        Competition on the payphone side of the Company's business consists of
(i) competition with RBOCs, LECs and other independent payphone operators for
profitable payphone locations and (ii) competition with long distance carriers
such as AT&T, MCI and Sprint (the primary providers of dial around services) for
non-coin revenue. Competition on the inmate side of the Company's business
consists primarily of competition with other inmate phone service providers,
including LECs and IXCs, for the right to provide service to correctional
facilities. Upon consummation of the Purchase Agreement and the transactions
contemplated thereby, the Company will not own any inmate phones or have any
inmate phone operations.

        Management believes the principal competitive factors in the payphone
business in terms of obtaining payphone locations are the (i) level of
commission payments to property owners, (ii) ability to serve accounts with
locations in multiple states and territories, (iii) quality of service and the
availability of specialized services provided to property owners and payphone
users, and (iv) responsiveness to customer service needs.  CCI believes it is
competitive in each of these areas.  

                                       10
<PAGE>
 
Independent providers such as CCI have historically maintained an advantage over
RBOCs in that they can offer business operators commissions on coin and non-
coin, local and long distance calls. Previously, RBOCs were prohibited from
obtaining revenues or commissions on interLATA calls. However, a 1996 FCC ruling
will now allow RBOCs to choose the interLATA carrier at their payphones in
conjunction with the location owner, and participate in the revenue streams from
this traffic. See "Regulation." In addition, while long distance carriers can
currently pay commissions to property owners for long distance calls, they
usually do not install payphone equipment at a property owner's location and,
therefore, cannot obtain revenues from coin calls, the majority of which are
local calls.

        The competition for non-coin revenue by the major IXCs has had a major
adverse effect upon the revenue and profitability of the Company's payphone
division.  AT&T, Sprint and MCI have undertaken substantial marketing efforts in
establishing their dial around platforms.  The 1-800 CALL ATT and 1-800 COLLECT
(MCI) access code dialing patterns have, in the Company's two most recent fiscal
years, caused a dramatic reduction in the number of non-coin calls that the
Company generates through its payphones.  The financial impact to CCI has been
significant and adverse.  Non-coin revenue from the Company's payphone
operations has declined from approximately $120.00 per phone per month in fiscal
1993 to approximately $88.70 per phone per month in  fiscal 1997.  Of this
$88.70 amount, approximately $33.00 can be attributed to dial around
compensation as prescribed by the FCC order dated September 20, 1996, which has
been vacated by the Court of Appeals. (See Regulation)

        The payphone markets in which the Company operates are highly
competitive. Certain of the Company's competitors have greater financial and
other resources than CCI. In addition, implementation of various aspects of the
Telecom Act, particularly the payphone-specific provisions, could have material
positive and negative effects on the Company's payphone business and results of
operations. See "Regulation."

REGULATION

        The Company's operations are significantly influenced by federal and
state regulation of payphone and inmate phone services, as well as the
regulation of related telecommunications services. Traditionally, regulation of
these services has been governed by state regulatory bodies or the FCC, based on
the intrastate or interstate nature of the service. However, in early 1996, the
Telecom Act was enacted. The Telecom Act substantially restructured the
telecommunications industry and included specific provisions regarding changes
in the regulation of payphone and inmate phone service to be implemented and
administered by the FCC on both an interstate and intrastate basis. For example,
under the Telecom Act, the FCC has the power to preempt state regulations that
are inconsistent with the FCC's legislative mandates.

        The FCC's broadened authority under the Telecom Act has expanded its
participation in payphone and inmate phone issues. In 1992, the FCC first
recognized the impact of dial around 

                                       11
<PAGE>
 
calling on independent payphones by enacting a flat rate of $6.00 per payphone
per month to be paid by the IXCs, based on their pro-rata share of the long
distance market. On September 20, 1996, the FCC released an order establishing a
new flat rate of $45.85 per phone per month to be paid by certain IXCs to
independent payphone providers. The flat rate was ordered to be in effect until
October 7, 1997, when all IXCs were required to transition to a per call payment
system at a rate of 35 cents per call for one year. Beginning October 7, 1998,
per call compensation was ordered to be based on the local rate charged at the
individual payphone or at a rate agreed to between the payphone provider and the
carrier. On July 1, 1997, the United States Court of Appeals for the District of
Columbia Circuit ("Court") issued an opinion which, among other things, affirmed
the deregulation of the local coin rate on October 7, 1997, and remanded both
the interim dial around compensation rate of $45.85 per month per payphone and
the default compensation rate of $.35 per call to the FCC for further review.
Following the release of the Court's opinion, a number of interested parties
filed motions for rehearing and/or clarification of the July 1, 1997 decision.
On September 16, 1997, the Court clarified that it had, in fact, intended that
the dial around compensation provisions of the FCC's orders be vacated, pending
further FCC action. On the same day, the Court denied motions for rehearing on
the local coin rate, thus affirming that the rate will be deregulated on October
7, 1997. Upon completion of the FCC's review, Management anticipates that the
revised dial around compensation plan will provide equitable compensation for
the calls that originate at its payphones. However, there can be no assurances
that such a decision will actually be forthcoming. The Company continues to be
governed by both federal and state regulatory requirements as applicable.

        STATE REGULATION

        State public service commissions ("PSCs") have traditionally maintained
primary responsibility for regulating the rates, terms and conditions for
intrastate independent payphone services.  The states generally permit
independent payphone providers to supply local and long distance payphone
service in accordance with a variety of state-specific regulations that govern
rates charged for certain coin and non-coin calls, as well as a broad range of
technical and operational requirements.  In addition, PSC-approved tariffs
establish charges for the purchase of access lines from the LECs and the rates
paid by the Company for local and intrastate usage that may be resold to the end
user through the payphone.  As a result of the implementation of the Telecom
Act, all states are now required to allow payphone competition.

        Operator services rates for non-coin local and intrastate toll calls
placed from payphones are also typically capped by state PSCs. Most states that
permit competition for intrastate operator services regulate operational aspects
of the provision of those services in a manner similar or identical to
regulations adopted by the FCC pursuant to the Telephone Operator Consumer
Services Improvement Act of 1990 ("TOCSIA").

        The Company's inmate operations are also governed by state-specific
regulations.  Similar to payphone and/or operator services, the PSCs often
regulate the rates charged for intrastate 

                                       12
<PAGE>
 
calls placed from confinement facilities. The operational characteristics of
inmate communications systems must also comply with the PSCs' rules.

        In accordance with the FCC's requirements under the Telecom Act, state
PSCs are currently reviewing the charges that independent payphone providers are
required to pay for local access lines and associated services from the LECs.
The FCC's mandate requires state PSCs to ensure that such access line rates are
"cost based". State PSCs are also authorizing competition in local service. As
local competition emerges, more options should become available to the Company
to obtain local access service at competitive rates. No assurance can be given,
however, that viable options will actually become available.

        FEDERAL REGULATION

        Although the FCC historically has been less active than the state PSCs
in regulating the provision of independent payphone service, the passage of the
payphone-specific provisions of the Telecom Act signaled a significant change in
the FCC's role in the regulation of payphones and inmate phones. Specifically,
Section 276 of the Act required the FCC to implement rules that accomplished the
following:

        (1) Establish a per call compensation system to ensure payphone
providers are fairly compensated for every intrastate and interstate call made
from their payphones (excluding 911 and Telecommunications Relay Services
("TRS") calls for hearing-impaired individuals);
        (2) Cease traditional interstate and intrastate subsidies for LEC
payphones from LEC regulated rate base operations;
        (3) Establish nonstructural safeguards to eliminate discrimination
between RBOC and independent payphone providers;
        (4) Consider the RBOCs' right to select and contract with interLATA
carriers for their own payphones, subject to: a)  the FCC's finding that such
presubscription rights are in the public interest; and b) maintaining existing
contracts between location owners and interLATA carriers until their expiration;
        (5) Authorize all payphone providers to choose the intraLATA carrier of
choice subject to requirements of, and contractual rights negotiated with,
location owners;
        (6) Determine whether "public interest" payphones should be maintained
and under what conditions; and
        (7) Preempt any state regulations which are inconsistent with the FCC's
rules adopted under Section 276.

        On September 20, 1996 the FCC released its Report and Order adopting
                                                   ----------------         
regulations to implement the above section of the Telecom Act.  First, the FCC
prescribed new interim dial around compensation for independent payphone
providers for both "access code" and "subscriber 800" dial around calls, on a
flat rate basis, at a rate of $45.85 per payphone per month to be paid by
certain long distance carriers.  The $45.85 per month was based on an estimated
industry-wide 

                                       13
<PAGE>
 
average of 131 calls per month at $.35 per call. This interim flat-rate
compensation was to be effective until October 7, 1997, and replaced all other
dial around compensation currently existing at the federal or state level. The
new compensation was effective November 8, 1996 and was scheduled to remain in
effect until October 7, 1997. At that time, all payphones (including LEC and
independent provider payphones) were to transition to a per-call compensation
system, with the rate initially set at $.35 per call. The FCC determined that
after October 7, 1998, the per call rate for dial around would be the same as
the local rate charged at the payphone or at a rate negotiated between the
payphone provider and the IXC. However, on July 1, 1997, the United States Court
of Appeals for the District of Columbia Circuit ("Court") issued an opinion
which, among other things, affirmed the deregulation of the local coin rate on
October 7, 1997, and remanded the both the interim dial around compensation plan
and $.35 as the default per call compensation rate to the FCC for further
review. Following release of the Court's opinion, a number of interested parties
filed motions for rehearing and/or clarification of the July 1, 1997 decision.
On September 16, 1997, the Court clarified that it had, in fact, intended that
the dial around compensation provisions of the FCC's orders be vacated, pending
further FCC action. On the same day, the Court denied motions for rehearing on
the local coin rate, thus affirming that the rate will be deregulated on October
7, 1997. The FCC also recognized that existing regulations did not prohibit an
IXC from blocking subscriber 800 numbers from payphones if the IXC wanted to
avoid paying per call compensation on these calls. Dial around compensation was
not to be paid on inmate calls since inmate phone providers are not required
under TOCSIA to allow access to all long distance carriers or other toll-free
numbers.

        Second, the FCC decided that local coin rates should generally be
deregulated no later than October 7, 1997.  Thus, the Company should be able to
set an appropriate market-based rate for its local coin calls from its payphones
at that time, subject to competitive issues.  State PSCs remained free to order
deregulation of local coin rates at an earlier date and were also permitted to
obtain an exemption from deregulation by demonstrating market failures within
their state that would not allow the development of market-based rates for local
coin calls.  The FCC's Order was unclear regarding the specific showing states
must make to obtain an exemption.

        Third, by October 7, 1997, state PSCs were required to take any
additional action necessary to ensure that payphone competition is promoted.
These actions include modification or elimination of existing payphone
regulations that impose market entry or exit barriers.

        Fourth, the FCC required LEC payphone operations to be removed from the
regulated rate base no later than April 15, 1997.  A key effect of this process
is that the LECs' regulated ratepayers are "repaid" by the deregulated payphone
business for the value of the payphones on which the LECs are no longer entitled
to earn a rate of return.   The FCC determined that this repayment must be based
on the "net book value" of the LEC payphone equipment, which is the original
cost of the physical equipment, minus accumulated depreciation.  Further, the
FCC required all RBOCs to file "Comparably Efficient Interconnection" ("CEI")
plans to describe their methods of compliance with nondiscrimination and
accounting requirements, as well as other 

                                       14
<PAGE>
 
safeguards against subsidies and discrimination in favor of their own payphone
operations. The LECs were also required to ensure that access lines provided to
their own payphones must be available to independent payphone providers on an
equal basis.

        Fifth, the FCC's order authorized RBOCs to select the interLATA carrier
to serve their payphones, with the selection to be made in conjunction with
location providers. This right was effective upon FCC approval of the individual
RBOC's "CEI" plans as described above. Existing contracts between location
providers and payphone providers or long distance carriers which were in effect
as of February 8, 1996 are grandfathered and will remain in force.

        Sixth, the FCC mandated that all payphone providers be allowed to select
their intraLATA carrier of choice, and that such selection authority preempts
state regulation that may require independent providers to route intraLATA calls
to the LEC.  However, the FCC did not preempt state regulations that, for public
safety reasons, require routing of "0-" calls to the LEC, provided that the
state does not direct that the LEC carry such calls when the call is determined
to be a non-emergency call.

        Seventh, the FCC determined that state PSCs should administer programs
for maintaining "public interest payphones" within certain guidelines. "Public
interest payphone" is defined as "a payphone which (1) fulfills a public policy
objective in health, safety, or public welfare, (2) is not provided for a
location provider with an existing contract for the provision of a payphone, and
(3) would not otherwise exist as a result of the operation of the competitive
marketplace." Each PSC is required to complete a review of whether such
payphones are adequately provided in its state by September 20, 1998.

        The above summary of pertinent provisions of the FCC's Report and Order
                                                               ----------------
is not intended to be exhaustive, but illustrative in nature to describe
particular elements that the Company believes will have a material impact upon
its operations.

        Many requests for reconsideration of specific elements of the Report and
                                                                      ----------
Order were presented to the FCC following its September 20, 1996 ruling.  On
-----                                                                       
November 8, 1996, the FCC released its Order On Reconsideration which denied all
                                       ------------------------                 
but two of the reconsideration petitions, concluding they contained no new
evidence or arguments not contemplated in the original order.  Certain
clarifications were made regarding the requirements for LEC tariffing of
payphone services and unbundled network functionalities, as well as the method
of transfer of LEC payphones to a deregulated status.   Importantly, the Order
restated that the LECs' intrastate tariffs for payphone services must be cost-
based, nondiscriminatory, and comply with the "new services test," which
requires such services to be priced at no more than direct cost plus a
reasonable allocation of overhead expense.

        The Company believes that the FCC's implementation of this legislation
will address certain fundamental inequities in the payphone and inmate phone
markets and lead to a more 

                                       15
<PAGE>
 
equitable competitive environment for all providers. However, there can be no
assurance that the FCC's actions, as they are implemented and effected in the
business environment, will actually result in overall positive results.
Moreover, any improvement in the competitive environment may be offset by the
potential for increased competitive pressures by RBOC and LEC payphone
divisions, which may also benefit from the deregulation mandated by the Telecom
Act. Specifically, the ability of the RBOCs to participate in choosing an
interLATA carrier, the appropriate valuation of RBOC asset transfers from the
regulated rate base to a nonstructural subsidiary, and the effectiveness of
actual safeguards against cross-subsidization and discrimination are crucial
issues which will affect the Company's ability to effectively compete in the
future.

        While the provisions of the Telecom Act and the rules implementing those
provisions are anticipated to most significantly affect the Company's
operations, other pending FCC matters may also have a substantial impact.
 
        The FCC has also issued a Second Notice of Proposed Rulemaking regarding
"Billed Party Preference" ("BPP") and associated call rating issues.  Currently,
0+ and 0- interstate calls from payphones are sent to the long distance carrier
selected by the independent payphone provider.  Under BPP, these calls would be
sent instead to the long distance carrier chosen by the party paying for the
call.  The billed party would bypass the Company's selected long distance
carrier network entirely and, without the ability to capture and control the
call, the Company would not be in a position to offer location owners
commissions on operator services revenues.  Previously, the FCC tentatively
concluded that a nationwide system of BPP for interstate operator-assisted calls
was in the public interest, but requested further comments specifically
addressing the costs versus the benefits of BPP.  The Second Notice proposes
"rate benchmarks" and/or caller notification, such as oral rate disclosures, as
potential alternatives to BPP implementation.  Comments have been filed and
remain under consideration by the FCC.

        If implemented, BPP could have an adverse impact on the Company's
business. The Company believes that implementation of BPP is not likely to be
achieved, since it would involve significant expense and technical changes as
evidenced by the record in the FCC proceeding. However, rate benchmarks or
caller notification of charges could be implemented by the FCC for interstate
operator assisted calls. Such a ruling could impact the financial performance of
the Company, depending on the specific level of the benchmark or the particular
notification requirements. There is no mandated schedule for a decision in this
docket. Therefore, without further FCC action, the Company is unable to
reasonably assess any potential impact that BPP, rate benchmarks or
notifications, if implemented, might have on its payphone and inmate phone
operations.

        Actions by agencies on both the state and federal level have had, and
are expected to continue to have, both positive and negative effects on the
Company. In particular, the FCC's decisions regarding dial around compensation
(and the decisions of the United States Court of 

                                       16
<PAGE>
 
Appeals for the District of Columbia Circuit with respect to such compensation)
impact the Company's cash flow and, correspondingly, CCI's ability to meet its
financial obligations as they mature. See "Management's Discussion and 
Analysis - Liquidity." Although management is not presently aware of any action
contemplated by any state or federal agency which would have a material adverse
effect on the Company (other than those discussed above), there is no guarantee
that such an action will not be taken.

EMPLOYEES

        At June 30, 1997, CCI had 325 full-time employees, including 34
executive and administrative personnel, 79 sales and customer service personnel
and 212 field and operations personnel, of which 19 employees are dedicated to
providing installations, maintenance and repair services to the Company's inmate
phones. Upon consummation of the Purchase Agreement with Talton and the 
transactions contemplated thereby, employees dedicated to the Company's inmate
phone business will transition over to Talton Holdings, Inc. within 90 days.
None of the Company's employees are represented by a union. Certain of the
Company's management information systems functions are handled on an outsourced
basis by Perot and its employees. See "Business-Background."

                                       17
<PAGE>
 
                                   APPENDIX A
                                        
                                    GLOSSARY

     Access Charges -- The charges paid to the LECs for the use of the local
network.

     Bad Debt -- Charges incurred by the  consumer and billed in good faith by
the Company that are not paid due to the unwillingness or the inability of the
consumer to pay such charges.

     Business Operators -- Owners of pay telephones, owners of premises on which
pay telephones are located and multi-telephone facilities such as hotels and
hospitals with which an OSP contracts to process and transmit operator assisted
long distance telephone calls.  Also known as subscribers.

     FCC -- Federal Communications Commission.

     IXC--Interexchange Carrier  -- A company that provides long distance
services between exchanges.

     LATA-Local Access and Transport Area -- Geographical area defined in the
AT&T divestiture decree between which the Bell System Operating Companies are
precluded from providing service.

     LEC-Local Exchange Carrier -- A company (including a Bell System Operating
Company) providing local telephone services and intraLATA long distance service.

     OSP--Operator Service Provider -- A company providing operator assisted
calls.

     Operator Assisted -- "0-" and "0+" telephone service.

     PSC--Public Service Commission -- A state regulatory body empowered to
establish and enforce rules and regulations pertinent to public utility
companies and others.

     RBOC--Regional Bell Operating Company -- Any of seven regional Bell holding
companies that the AT&T divestiture decree established to serve as parent
companies for the Bell System Operating Companies.

     Tariff -- The schedule of rates and regulations set by communications
companies and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing provision
of a specific communications service or facility, which functions in lieu of a
contract between the Business Operator or user and the supplier or carrier.

                                       18
<PAGE>
 
     0 - telephone call -- A long distance telephone call made by dialing 0 and
using a live operator to receive the billing information and complete the call.

     0 + telephone call -- A long distance telephone call made by dialing 0 plus
the telephone number, and using an operator, either live or automated, to
collect billing information and to complete the call.

     1 + telephone call -- A long distance telephone call made by dialing 1 plus
the area code and telephone number which is billed directly to the owner of the
telephone from which the originating call is made.

                                       19
<PAGE>
 
ITEM 2.  PROPERTIES.
------------------- 

        The Company leases approximately 17,500 square feet in Roswell, Georgia,
which houses its executive offices, payphone operations, accounting, data
processing and warehouse space.  The term of the lease extends through December
31, 1997, at an annual rent of approximately $122,000.  In addition, the Company
leases approximately 9,900 square feet in Louisville, Kentucky, at which its
inmate phone operations are based. The term of this lease extends through April
30, 1999, at an annual rent of approximately $104,000. The Company leases
additional office and warehouse space in other locations in its operating areas.
The Company believes that its facilities are adequate to meet its needs for the
foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS.
-------------------------- 

        From time to time, the Company is a party to routine litigation
incidental to its business. As of the date of this Report, the Company was not
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.

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

     None.

                                    PART II
                                    -------

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

        The Common Stock of the Company is traded on the NASDAQ National Market
under the symbol "CCIX."  The Company has never declared or paid any cash
dividends on its capital stock.  The Company anticipates that all of its
earnings will be retained for the development and expansion of the Company's
business and does not anticipate paying any cash dividends in the foreseeable
future.  The Company's 1996 Credit Agreement contains certain restrictive
covenants which, among other things, require the Company to maintain certain
financial ratios and prohibit the payment of dividends.  The chart below sets
forth the high and low stock prices for each quarter for the two most recent
fiscal years.
<TABLE>
<CAPTION>
 
               Quarter Ended          High    Low
               -------------          ----    --- 
               <S>                    <C>     <C>
 
               September 30, 1995     9 1/2  6 1/2
               December 31, 1995      7      4 1/4
               March 31, 1996         7 1/2  4 1/2
               June 30, 1996          8 1/2  6 5/8
               September 30, 1996     8      5    
               December 31, 1996      8 3/8  6
               March 31, 1997         12     7 1/2
               June 30, 1997         11 5/8  8 1/2
</TABLE>

                                       20
<PAGE>
 
        The closing sales price for the Company's Common Stock on September 25,
1997 was $8.25 per share. As of September 20, 1997, the Company had
approximately 45 shareholders of record not including approximately 4,075,000
shares held by 1,300 shareholders in "street name."

        In connection with the Company's 1996 Credit Agreement, on April 17,
1997 First Union National Bank, the Company's secured lender, exercised Warrants
to purchase 225,000 unregistered shares of the Company's Common Stock.

                                       21
<PAGE>
 
Item 6.  Selected Financial Data.
---------------------------------

     The following selected financial data are derived from the consolidated
financial statements of the Company.  The data should be read in conjunction
with the consolidated financial statements, related notes and other financial
information included herein:

<TABLE>
<CAPTION>
                                                                                   Fiscal Year ended June 30,
                                                            ----------------------------------------------------------------------
                                                              1997             1996          1995           1994             1993
                                                            --------         --------      --------        -------         -------
                                                                            (In thousands, except per share amounts)
<S>                                                         <C>              <C>           <C>             <C>             <C> 
Revenue:
     Coin calls                                             $ 34,575         $ 35,509      $ 33,326        $22,296         $17,429 
     Non coin calls                                           65,895 5/        66,645        47,951         23,572          12,238 
     Other                                                     3,378 8/         3,186           145            256             211 
                                                            --------         --------      --------        -------         -------
                                                             103,848          105,340        81,422 1/      46,124          29,878 
Costs and expenses:                                                                                                                
     Line access charges                                      31,533           35,924        27,411         15,790           9,734 
     Commissions                                              20,839           22,299        15,112          7,001           4,957 
     Service and collection                                   19,219           19,362        12,002          6,908           5,640 
     Selling, general and administrative                       5,868            4,779         4,634          3,929           3,000 
     Bad debt expense                                         17,208            8,575         4,640          1,768             412 
     Depreciation and amortization                            12,374           11,742         9,795          5,209           3,649 
     Impairment loss on assets held for sale  6/               2,400                -             -              -               - 
     Impairment loss  3/                                           -           14,184             -              -               - 
                                                            --------         --------      --------        -------         -------
                                                             109,441          116,865        73,594         40,605          27,392 
                                                                                                                                   
Operating income (loss)                                       (5,593)         (11,525)        7,828          5,519           2,486 
Other Income, net  4/                                          5,473                -             -              -               - 
Impairment loss of loan origination fees  7/                  (1,156)               -             -              -               - 
Interest expense                                              (7,130)          (6,343)       (3,528)        (1,013)         (1,362)
                                                            --------         --------      --------        -------         -------
Income (loss) before income tax expense and                                                                                        
  extraordinary item                                          (8,406)         (17,868)        4,300          4,506           1,124 
Income tax expense                                                 -               78         1,128            938              40 
                                                            --------         --------      --------        -------         -------
Income (loss) before extraordinary item                       (8,406)         (17,946)        3,172          3,568           1,084 
Extraordinary charge from early retirement of debt                 -                -             -           (789)              - 
                                                            --------         --------      --------        -------         -------
Net income (loss)                                           $ (8,406)        $(17,946)     $  3,172        $ 2,779         $ 1,084 
                                                            ========         ========      ========        =======         =======
                                                                                                                                   
Historical net income (loss) per share                      $  (1.38)        $  (2.96)     $   0.52        $  0.28         $ (1.41)
                                                            ========         ========      ========        =======         =======
     Weighted average shares outstanding                       6,101            6,055         6,064          3,634             993
                                                            ========         ========      ========        =======         =======
                                                                                                                                   
Operating Data:                                                                                                                    
     EBITDA  2/                                             $ 14,654         $ 14,401      $ 17,623        $10,728         $ 6,135 
Balance Sheet Data:                                                                                                                
     Total assets                                           $104,333         $109,728      $122,967        $63,643         $30,157 
     Current portion of notes payable and                                                                                          
       long-term debt                                         71,697            3,088         1,271            671           2,608 
     Notes payable and long-term debt, less                                                                                        
       current portion                                             -           70,197        70,197         18,557          13,500 
     Total shareholders' equity (deficit)                     19,550           26,537        44,275         40,037          (3,017)
                                                                                                                            
                                                                                                                            
</TABLE>

                                       22
<PAGE>
 
-----------------------------
1/   Revenues are shown after giving effect to a $817,000 charge for sales and
     use taxes and federal excise taxes assessed for prior periods.  See
     "Management's Discussion and Analysis of Financial Condition - Tax
     Matters."

2/   EBITDA represents earnings before interest, taxes, depreciation and
     amortization and is a commonly used measure of performance in the
     telecommunications industry.  EBITDA also excludes impairment losses and
     extraordinary charges realized.  EBITDA is not determined in accordance
     with Generally Accepted Accounting Principles ("GAAP") nor, as a result, is
     it included as a line item in the Company's consolidated financial
     statements.  EBITDA should not be construed as an alternative to operating
     income or cash provided by operating activities.

3/   An impairment loss of $14.2 million was recognized during the third quarter
     of fiscal 1996 in accordance with SFAS No. 21 where the sum of undiscounted
     cash flows for certain long-lived assets was less than their recorded book
     value.

4/   In the fourth quarter of fiscal 1997, the Company recognized approximately
     $5.5 million in payments, net of related expenses,  forfeited by PhoneTel
     Technologies, Inc. ("PhoneTel") as a result of the termination of a
     proposed merger between  PhoneTel and the Company.

5/   Included in Non-Coin Revenue in fiscal 1997 is dial-around compensation
     accrued at the rate of $45.85 per phone per month for the period from
     November, 1996 through June, 1997.  While the $45.85 rate was recorded
     pursuant to an Federal Communications Commission ("FCC") order, the U.S.
     District Court Of Appeals for the District of Columbia Circuit on July 1,
     1997 and September 16, 1997 remanded and then vacated the FCC's dial around
     compensation rate for further review by the FCC.  If the FCC fails to
     implement a dial around compensation amount that approximates at least
     $45.85 per phone per month or $.35 per call, then the impact of such a
     ruling could have a material adverse effect on the Company's financial
     position.

6/   An impairment loss of $2.4  was realized in fiscal 1997 in accordance with
     SFAS No. 121.  The impairment loss was determined based on the estimated
     fair value to be received for long-lived assets to be disposed of under the
     August 21, 1997 Asset Purchase Agreement with Talton Holdings, Inc.

7/   In the fourth quarter of fiscal 1997, the Company recognized an impairment
     loss of loan origination fees in an approximate amount of $1.2 million.
     (as the 1996 Credit Agreement is in default).

8/   The company recognized realized gains of $1.2 million and an unrealized
     gain of $1.4 million in fiscal 1997 on its trading securities.

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

RESULTS OF OPERATIONS

        The Company derives substantially all of its revenue from calls placed
from its payphone and inmate phone network. Coin revenue is derived from calls
made by depositing coins in the telephone. Non-coin revenue is derived from
calls that are placed using either a calling card or credit card or as a collect
call where the called party will be charged for the call. The call may 

                                       23
<PAGE>
 
also be billed to a third party. Additionally the Company has realized revenue
from long distance carriers pursuant to federal and state regulation as
compensation for dial around calls made from its payphones. However, the Court
of Appeals for the District of Columbia Circuit recently released an opinion
vacating the FCC's decision on the amount of dial around compensation payable to
payphone providers. The FCC must reevaluate available information and establish
a new amount and method of payment to assure fair compensation for dial around
calls. See "Regulation."

        The Company's operating expenses include line access charges,
commissions, field service and collection expenses and selling, general and
administrative expenses. Line access charges include interconnection and local
measured usage charges paid to LECs, long distance transmission charges,
billing, collection and validation costs and operator services charges.
Commissions are fees paid regularly to business operators and inmate facilities
generally based on a percentage of revenue generated by the Company's payphones
and inmate phones and have increased over prior years as competition among
payphone operators for attractive payphone locations and among inmate phone
providers for facilities has increased. Field service and collection expenses
include the costs of collecting and processing coins, maintaining and repairing
the telephones and technical support for polling, software maintenance and
diagnostics performed on the Company's payphones. Service and collection
functions for the Company's payphone operations were outsourced to Perot in July
1995 pursuant to the Services Agreement. However, the Company and Perot amended
the Services Agreement, and in January 1997, the Company began to reassume
responsibilities for tasks that were previously assigned to Perot under the
Services Agreement including responsibility for field operations. Under the
Services Agreement, Perot will continue to handle the management information
services function of the Company's payphone division and complete the final
documentation and enhancements to the Perot/CCI Oracle based payphone
information system.

        After completing its initial public offering in December 1993, the
Company embarked on an acquisition program, acquiring the businesses and
operations of 15 companies that added over 7,700 payphones and more than 4,300
inmate phones to CCI's operations. The Company discontinued its acquisition
program in fiscal 1996 and 1997, focusing instead on consolidating its
operations and enhancing the profitability of its existing payphone and inmate
phone bases. The reduction in acquisition activity in fiscal 1996 reduced the
Company's year-to-year growth in terms of its weighted average number of
installed payphones and inmate phones, which in turn reduced revenue in fiscal
1997. This reduction in revenue, however, was partially offset by changes
in the Company's regulatory environment, including increases in the Company's
local coin rate charges and dial around compensation amounts. See "Regulation."

        Changes in regulation are ongoing for the Company with the passage of
the Telecom Act. On September 20, 1996, the FCC issued a Report and Order
                                                         ----------------
implementing the payphone-specific provisions of the Telecom Act. Among its
directives, the FCC prescribed dial around compensation for all access code and
800 subscriber calls from payphones at a flat rate of $45.85 per payphone per
month for the first year, with a per call compensation system to be implemented
by October 7, 1997 under which compensation was to be paid at a rate of $.35 per
call.

                                       24
<PAGE>
 
However, on July 1, 1997, the United States Court of Appeals for the District of
Columbia Circuit ("Court") issued an opinion which, among other things, affirmed
the deregulation of the local coin rate on October 7, 1997, and remanded both
the interim dial around compensation rate of $45.85 per payphone per month and
the default rate of $.35 per call to the FCC for further review. Following
release of the Court's opinion, a number of interested parties filed motions for
rehearing and/or clarification of the July 1, 1997 decision. On September 16,
1997, the Court clarified that it had, in fact, intended that the dial around
compensation provisions of the FCC's orders be vacated. On the same day, the
Court denied motions for rehearing on the local coin rate, thus affirming that
the rate will be deregulated on October 7, 1997. These and other regulatory
changes will significantly impact the Company's operations for the foreseeable
future. See "Regulation."

        On March 16, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger") with PhoneTel Technologies, Inc. ("PhoneTel") and PhoneTel
Acquisition Corp. ("Acquisition") pursuant to which Acquisition commenced a
tender offer to purchase all of the outstanding shares of Common Stock of the
Company (including the associated rights to purchase shares of Common Stock).
The Merger Agreement, as amended by First Amendment to Agreement and Plan of
Merger dated as of May 15, 1997 was terminated without any shares of the
Company's Common Stock being purchased effective August 21, 1997.
 
        On August 21, 1997, the Company, InVision Telecom, Inc. (a wholly owned
subsidiary  of the Company), and Talton Holdings, Inc. ("Talton") entered into
an Asset Purchase Agreement (the "Purchase Agreement") whereby Talton agreed to
purchase substantially all of the assets of the Company's inmate phone business
for approximately $42 million (subject to adjustment as provided in the Purchase
Agreement). The Purchase Agreement is scheduled to close on or about 
October 31, 1997 and is subject to certain closing conditions including the 
consent of the Company's principal lender and the execution of satisfactory 
employment agreements with certain members of InVision's management team.  Upon 
consummation of the Purchase Agreement and the transactions contemplated 
thereby, the Company will not own any inmate phones or have any inmate phone 
operations.

FISCAL 1997 COMPARED TO FISCAL 1996

        Total revenues for fiscal 1997 decreased to $103.8  million from $105.3
million for fiscal 1996, a decrease of 1.4%   The decrease in total revenues
reflects decreases of  2.6% in revenues derived from coin calls and 1.1% in
revenues from non-coin calls.  Coin revenue decreased primarily because of a
decreased number of payphones in fiscal 1997.  Management believes that non-coin
revenue from the Company's payphones was adversely affected in fiscal 1996 and
1997 by increases in dial around calls influenced by national advertising
promotions of long distance operator service providers.  In addition, non-coin
revenue from its inmate lines was adversely affected by the implementation of a
direct billing program and new credit policy. (See Bad Debt Expense) These
decreases in non-coin revenues were substantially offset by increased
compensation for dial-around calls. (See Regulation)

                                       25
<PAGE>
 
        In fiscal 1997, the Company installed 2,905 new payphones up from 2,423
in fiscal 1996. Net of removals, incremental net growth from internal sales
declined by 479 payphones in fiscal 1997 compared to an decline of 1,174
payphones in fiscal 1996. Additionally, net inmate lines decreased by 358 lines
in fiscal 1997 compared to 11 net new inmate lines in fiscal 1996. A continuing
program of removing unprofitable payphones decreased the weighted average number
of installed payphones to 20,493 in fiscal 1997 from 21,319 in fiscal 1996, a
decrease of 3.9%. Management does not currently anticipate that the Company's
weighted average number of installed payphones will substantially increase in
fiscal 1998, and the consummation of the pending sale to Talton of the Company's
inmate phone operations will eliminate all of the Company's inmate phones from
its installed base.

        Line access charges decreased to $31.5 million in fiscal 1997 from $35.9
million in fiscal 1996 due a reduced number of payphones comprising the
Company's network and lower negotiated rates.  These charges decreased to 30.4%
of total revenues in fiscal 1997 as compared to 34.1% in fiscal 1996.

        Commissions paid to customers decreased to $20.8 million in fiscal 1997
compared to $22.3 million in fiscal 1996.  These amounts represented 20.1% of
total revenues in fiscal 1997 compared to 21.2% in fiscal 1996.  The dollar
decrease was primarily due to the decreased number of phones on the Company's
network.  The percentage decrease (as well as a portion of the dollar decrease)
was attributable to a change in revenue mix .

        Service and collection expenses decreased to $19.2 million or 18.5% of
total revenues from $19.3 million or 18.4% of total revenues in fiscal 1996.
The dollar decrease was primarily due to the decreased number of phones on the
Company's network.

        Selling, general and administrative expense increased to $5.9 million in
fiscal 1997 compared to $4.8 million in fiscal 1996, and increased as a
percentage of total revenues to 5.7% from 4.5%.  The increases reflect the
Company's investment in an infrastructure to allow for future internal growth
and to complement any possible acquisition growth plans.

        Bad debt expense in fiscal 1997 increased to $17.2 million or 16.6% of
total revenues from $8.6 million or 8.1% of total revenues in fiscal 1996.  The
increase was primarily due to the greater uncollectible revenues attributable to
the Company's inmate phones related to an increased level of LEC chargebacks
from prior periods received in the current year.  The Company's inmate phone
revenue, which is generated entirely by non-coin calls, is subject to
chargebacks by these collecting agencies for up to 24 months. During the second
and third quarters of fiscal 1997, certain LECs that the Company uses for
billing inmate calls changed from allocated to specific bad debt chargebacks
resulting in higher levels of bad debt expense.

        Depreciation and amortization expense increased to $12.4 million in
fiscal 1997 from $11.7 million in fiscal 1996. Depreciation expense was $7.3
million in fiscal 1997 and $7.7 in 1996. Amortization expense was $5.1 in fiscal
1997 and $4.0 in 1996.

                                       26
<PAGE>
 
        In the fourth quarter of fiscal 1997, the Company recognized an
impairment loss on assets held for sale of $2.4 million in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
related to the potential sale of inmate assets to Talton Holdings, Inc., as
described above. Where the potential purchase price was less than the book value
of inmate assets, an impairment was recognized.

        In the fourth quarter of fiscal 1997, the Company recognized payments
from PhoneTel Technologies, Inc. ("PhoneTel") of approximately $5.5 million as
other income. The amount was paid to the Company during fiscal 1997 pursuant to
a Plan of Merger between PhoneTel and the Company. Upon termination of the Plan
of Merger, Phonetel forfeited these payments to the Company. The forfeited
amount was recorded net of associated expenses.

        The preceding factors combined to produce an operating loss of $5.6
million or 5.4% of total revenues in fiscal 1997, compared to an operating loss
of $11.5 million or 10.9% in fiscal 1996. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") increased 2.1% to $14.7 million in
fiscal 1997 compared to $14.4 million in fiscal 1996. EBITDA is not determined
in accordance with Generally Accepted Accounting Principles ("GAAP") nor, as a
result, is it included as a line item in the Company's consolidated financial
statements. EBITDA is not presented as an alternative to GAAP operating income
or cash flows from operations as shown on the Company's statements of cash
flows. However, it is a commonly accepted measure of performance in the
telecommunications industry.

        In the fourth quarter of fiscal 1997, the Company recognized an
impairment loss of loan origination fees in an amount of approximately $1.2
million (as the 1996 Credit Agreement is in default).

        Interest expense increased to $7.1 million in fiscal 1997 compared to
$6.3 million in fiscal 1996, primarily due to increases in the interest rate on
the Company's floating rate debt.

        As a result of the foregoing, the Company reported a net loss of $8.4
million or $1.38 per share on 6.1 million shares outstanding in fiscal 1997,
compared to a net loss of $17.9 million or $2.96 per share on 6.1 million shares
outstanding in fiscal 1996.

FISCAL 1996 COMPARED TO FISCAL 1995

        Total revenues for fiscal 1996 increased to $105.3 million from $81.4
million for fiscal 1995, an increase of 29.4%  The increase in total revenues
resulted primarily from the increased number of weighted average phones added to
the Company's phone network during fiscal 1996 from acquisitions completed prior
to fiscal 1996.  The increase in total revenues reflects increases of 6.5% in
revenues derived from coin calls and 39.1% in revenues from non-coin calls.
Non-coin revenue was proportionately higher in fiscal 1996 due to the increase
in the weighted average number of the Company's inmate phones, which generate
non-coin revenue only.  However, management believes that non-coin revenue from
the Company's payphones continued to be adversely affected in fiscal 1996 by
increases in dial around calls influenced by national advertising 

                                       27
<PAGE>
 
promotions of long distance operator service providers.

        In fiscal 1996, the Company installed 2,423 new payphones (unrelated to
acquisitions) down from 3,996 in fiscal 1995.  Net of removals, incremental net
growth from internal sales declined by 1,174 payphones in fiscal 1996 compared
to an increase of 797 payphones in fiscal 1995.  Additionally, 11 net new inmate
lines were installed that were attributable to the Company's sales and marketing
efforts during fiscal 1996 compared to 748 in fiscal 1995.  An aggressive
program of removing unprofitable payphones and inmate lines decreased the
weighted average number of installed payphones to 21,319 in fiscal 1996 from
23,230 in fiscal 1995, a decrease of 8.23%.

        Line access charges increased to $35.9 million in fiscal 1996 from $27.4
million in fiscal 1995 due to the increased number of average phones in the
Company's inmate division.  These charges increased to 34.1% of total revenues
in fiscal 1996 as compared to 33.3% in fiscal 1995.

        Commissions paid to customers increased to $22.3 million in fiscal 1996
compared to $15.1 million in fiscal 1995.  These amounts represented 21.3% of
total revenues in fiscal 1996 compared to 18.6% in fiscal 1995.  The dollar
increase was primarily due to the increased number of average phones in the
Company's inmate division.  The percentage increase (as well as a portion of the
dollar increase) was attributable to higher commission rates paid on revenues
derived primarily from the Company's inmate phones, which comprised a larger
portion of the Company's total phone base in fiscal 1996 as compared to fiscal
1995.

        Service and collection expenses increased to $19.3 million or 18.3% of
total revenues from $12.0 million or 14.7% of total revenues in fiscal 1995.
The dollar increase was due to the increased number of average phones in the
Company's inmate division.

        Selling, general and administrative expenses increased to $4.7 million
in fiscal 1996 compared to $4.6 million in fiscal 1995, a decrease as a
percentage of total revenues to 4.5% from 5.7%. The percentage decrease
primarily reflects a decrease in the internal marketing efforts in first half of
fiscal 1996.

        Bad debt expense in fiscal 1996 increased to $8.6 million or 8.1% of
total revenues from $4.6 million or 5.7% of total revenues in fiscal 1995. The
increase was primarily due to the increase in the revenues attributable to
inmate phones verses payphones. The bad debt associated with the Company's
payphones has historically averaged between 6% and 8% of the affected revenue.
The Company's inmate phones, whose entire revenue is generated by non-coin
calls, is subject to bad debt which has historically averaged between 12% and
15%.

        Depreciation and amortization expenses increased to $11.7 million in
fiscal 1996 from $9.8 million in fiscal 1995. This increase was primarily due to
an additional depreciation expense of $2.8 million associated with the addition
of phones and related property and equipment pursuant to acquisitions made in
prior fiscal years. Also contributing to the increase was additional
amortization expenses of $1.8 million related to the amortization of goodwill
and other 

                                       28
<PAGE>
 
intangible costs associated with these acquisitions.

        In the third quarter of fiscal 1996, the Company recognized an
impairment loss of $14.2 million in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Cash flows generated by
payphones and inmate lines on an acquisition by acquisition basis was determined
based on the Company's best estimates of future income and expenses including
the impact of a continued reduction in operator service provider revenue as a
result of "dial around." Where the sum of future undiscounted cash flows of
these long-lived assets were less than their recorded book values, an impairment
was recognized. Approximately $12.4 million was for related operating equipment
and approximately $1.8 million was for related intangible assets.

        The preceding factors combined to produce an operating loss of $11.5
million or 10.9% of total revenues in fiscal 1996, compared to operating income
of $7.8 million or 9.6% in fiscal 1995.  Earnings before interest, taxes,
depreciation and amortization ("EBITDA") declined 18.2% to $14.4 million in
fiscal 1996 compared to $17.6 million in fiscal 1995.  EBITDA is not determined
in accordance with Generally Accepted Accounting Principles ("GAAP") nor, as a
result, is it included as a line item in the Company's consolidated financial
statements.  EBITDA is not presented as an alternative to GAAP operating income
or cash flows from operations as shown on the Company's statements of cash
flows.  However, it is a commonly accepted measure of performance in the
telecommunications industry.

        Interest expense increased to $6.3 million in fiscal 1996 compared to
$3.5 million in fiscal 1995 primarily due to increases in the level of debt
associated with the acquisitions discussed above, as well as increases in the
interest rate on floating rate debt.

        As a result of the foregoing, the Company reported a net loss of $17.9
million or $2.96 per share on 6.1 million shares outstanding in fiscal 1996,
compared to net income of $3.2 million or $.52 per share on 6.1 million shares
outstanding in fiscal 1995.

NEW ACCOUNTING PRONOUNCEMENTS

        In February 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings Per Share", which will change
the current method of computing earnings per share.  The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined.  SFAS No. 128 will be effective for the Company's quarter
ending December 31, 1997, and, upon adoption, all prior period earnings per
share data presented shall be restated to conform with the provisions of the new
pronouncement.  Application earlier than the Company's quarter ending December
31, 1997 is not permitted.  The Company does not expect adoption of the new
pronouncement will have a material impact on the Company's results of
operations.

                                       29
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

        During fiscal 1997, the Company primarily financed its operations from
operating cash flow.  The Company has a 1996 Credit Agreement ("1996 Credit
Agreement") with principal outstanding borrowings of $71.7 million at June 30,
1997, compared to $73.2 million at June 30, 1996.  Net cash provided by
operating activities for fiscal 1997 was approximately $10.3 million compared to
$9.4 million for fiscal 1996.

        The Company's working capital was approximately $(28.2) million with a
current ratio of .7  to 1 as of  June 30, 1997.  This compares to a working
capital balance of $1.5 million and a current ratio of 1.1 to 1 as of June 30,
1996.  The change in the Company's working capital is primarily a result of the
$71.7 million debt of the 1996 Credit Agreement being classified as a current
liability as of June 30, 1997 and the reclassification of inmate long-lived
assets to assets held for sale.  The Company's principal commitments as of June
30, 1997 consisted of a commitment under the Services Agreement to purchase
approximately $500,000 in equipment from Perot, and a commitment to satisfy the
1996 Credit Agreement.  With the exception of the 1996 Credit Agreement, which
is in default, the Company believes that its current cash balances, cash flow
from operations, and proceeds from the sale of substantially all of its inmate
assets will be sufficient to meet its working capital and capital expenditure
requirements for fiscal 1998.  The Company further believes that it will be able
to further amend the 1996 Credit Agreement subsequent to the sale of the inmate
assets.  However, no assurance can be given as to the likelihood of the Company
further amending the 1996 Credit Agreement or as an alternative obtaining
another secured lender.

        In August 1996, the Company entered into the 1996 Credit Agreement with
its principal lender and amended the 1996 Credit Agreement on October 8, 1996
and on July 1, 1997. The July 1, 1997 amendment extended the maturity date of
the $12 million payment due until September 1, 1997. In connection with this
extension, the Company paid $1.5 million of the $12 million due. On September 1,
1997, the Company did not make the $10.5 million payment due under the 1996
Credit Agreement. Accordingly, the Company is in default under the 1996 Credit
Agreement by virtue of this payment not being made, and as a result of breaching
certain financial covenants contained in the 1996 Credit Agreement. Management
of the Company believes that if the sale of substantially all of the assets of
its inmate phone business can be consummated (as to which no assurance can be
given), the Company will be able to repay scheduled amounts due under the 1996
Credit Agreement. However, the Company believes that it will remain in default
under the 1996 Credit Agreement as a result of continuing to breach certain
financial covenants unless the Company can negotiate an agreement with its
principal lender as to which no assurance can be given.

        The report of the Company's independent certified public accountants
contains an explanatory paragraph as to the Company's ability to continue as a
going concern.  According to the report, the Company has experienced operating
losses, has a working capital deficiency and has not complied with certain
covenants of the 1996 Credit Agreement.  Certain of the Company's assets might
be worth substantially less than the amounts shown on the Company's balance
sheet if the Company is unable to continue as a going concern.  The financial
statements 

                                       30
<PAGE>
 
have not been adjusted to reflect the outcome of this uncertainty.

INFLATION

        Although the Company cannot determine the precise effects of inflation,
it does not believe that inflation has had a material effect on its revenues or
results from operations during any of the periods reported.

"SAFE HARBOR STATEMENT"

        The following "Safe Harbor Statement" is made pursuant to the Private
Securities Litigation Reform Act of 1995.  Certain of the statements contained
in the body of this Report are forward-looking statements (rather than
historical facts) that are subject to risks and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements.  With respect to such forward-looking statements, the Company seeks
the protections afforded by the Private Securities Litigation Reform Act of
1995.  The list set forth below is intended to identify certain of the principal
factors that could cause actual results to differ materially from those
described in the forward-looking statements included elsewhere herein.  These
factors are not intended to represent a complete list of all risks and
uncertainties inherent in the Company's business, and should be read in
conjunction with the more detailed cautionary statements included elsewhere
herein.

        Liquidity:  Pursuant to the 1996 Credit Agreement, the Company owed the
        ---------                                                              
principal balance of approximately $71.7  million as of June 30, 1997, and the
principal balance of $68.7 million as of September 23, 1997.  The Company is
presently in default under the Credit Agreement.  The Company expects to realize
proceeds from the sale of substantially all of its inmate assets in the
approximate amount of approximately $42 million, subject to adjustment as set
forth in the Purchase Agreement.  A significant portion of these proceeds will
be used to repay a portion of the balance due under the 1996 Credit Agreement.
The Company also expects to retain part of the proceeds for working capital.
The amount of working capital retained will directly depend upon the FCC's
further ruling on dial around compensation and the timing on the collection
thereto.  If the implementation of the FCC's new dial around compensation rules
are further delayed or if the net impact of the rules on the prospective results
of operations and financial condition of the Company is adverse, the ability of
the Company to raise additional capital and meet its payment obligations under
the 1996 Credit Agreement may be materially adversely affected.

        Bad Debt Expense:  The Company has witnessed an increase in the amount
        ----------------
of bad debt for its inmate phone revenue over the past year to approximately
30%. To address the issue of bad debt, the Company implemented a program for
direct billing that enabled it to bill the called number directly and set
parameters for blocking calls based on collection results. The combination of
the direct billing program and the new credit policy resulted in approximately a
20% reduction in call volume in the fourth fiscal quarter. Although the Company
implemented the direct billing program with the belief that it will reduce the
amount of bad debt attributable to

                                       31
<PAGE>
 
its inmate phones, no assurance can be given as to the success of the direct
billing program. Subsequent to June 30, 1997, the Company, in consultation with 
Talton, decided to increase its credit limits and discontinued much of it's 
direct billing program in favor of using Talton to bill and collect its call 
records. If the pending sale of substantially all of the assets to Talton is not
successfully consummated, the Company may experience higher inmate bad debt 
expenses as a result of this change.

        Dial Around Compensation:  The FCC's implementation of the payphone-
        ------------------------                                           
specific provisions of the Telecom Act began with the issuance of a Report and
                                                                    ----------
Order on September 20, 1996, with one of the most important elements being the
-----                                                                         
assurance of "fair compensation" for virtually all calls from payphones.  In
this regard, the FCC decision initially mandated dial around compensation for
both access code calls and 800 subscriber calls at a flat rate of $45.85 per
payphone per month, with a transition to a per-call system at the rate of $.35
per call beginning October 7, 1997.  The Order stated that on October 7, 1998,
this rate was either to be adjusted to equal the local coin rate being charged
at the particular payphone, or to a higher or lower dial around compensation
rate negotiated between the Company and the carriers who were required to pay.
The initial flat-rate payment level significantly increased dial around
compensation revenues, and the Company believed that a per-call system at a $.35
level would further increase these revenues, despite market forces and factors
outside the Company's control which could substantially affect the resulting
revenue impact.  These factors include, but are not limited to, the FCC's
recognition that existing regulations do not prohibit an IXC from blocking
subscriber 800 numbers from payphones if the IXC wants to avoid paying per-call
compensation.  However, on July 1, 1997, the United States Court of Appeals for
the District of Columbia Circuit ("Court") issued an opinion which, among other
things, affirmed the deregulation of the local coin rate on October 7, 1997, and
remanded both the interim dial around compensation rate of $45.85 per payphone
per month and the default compensation rate of $.35 per call to the FCC for
further review.  On September 16, 1997, the Court clarified that it had, in
fact, intended that the dial around compensation provisions of the FCC's orders
be vacated..  The Company has entered its cost data for dial around calls into
the record at the FCC and is awaiting a further FCC ruling on this issue.   If
the FCC fails to implement a dial around compensation amount that approximates
at least $45.85 per phone per month or $.35 per call, the impact of such a
ruling would have a material adverse effect on the Company's financial position.

        Local Coin Rate:  In ensuring "fair compensation" for all calls, the FCC
        ---------------                                                         
also determined that local coin rates from payphones should be generally
deregulated by October 7, 1997, but provided for possible modifications or
exemptions from deregulation upon a detailed showing by an individual state.
The states could move to deregulation earlier than one year, but a state may
also obtain an exemption from deregulation by "demonstrat[ing] to the Commission
that there are market failures within the state that would not allow market-
based rates."  Where deregulation is implemented, management believes the
Company is likely to experience increases in its coin revenue per phone.
However, given the FCC's failure to specify particular requirements for
obtaining an exemption, the Company is unable to adequately predict the

                                       32
<PAGE>
 
responses of individual states or the market and thus, the ultimate revenue
impact of local coin rate deregulation.  The Company intends to price its local
coin calls as appropriate in each market. On July 1, 1997, the United States
Court of Appeals for the District of Columbia Circuit ("Court") issued an
opinion which, among other things, affirmed the deregulation of the local coin
rate on October 7, 1997.  On September 16, 1997, the Court denied motions for
rehearing on the local coin rate, thus affirming that the rate will be
deregulated effective October 7, 1997.  While local coin rates will be
determined by the LECs in their individual market areas, the Company could raise
its local coin rates without the LECs changing their rates. Such actions could
result in a decreased number of local calls placed which could offset the
revenue increase from a higher coin rate.

        Other Telecom Act Provisions:  There are a significant number of Telecom
        ------------- ---------------
Act provisions, as implemented by the FCC, that may substantially impact the
Company.  See "Regulation."  Among the most important are the cessation of
subsidies upon the removal of LEC payphones from the regulated rate base by
April 15, 1997, the RBOCs development of specific plans detailing their
compliance with nondiscrimination and accounting requirements and other
safeguards against subsidies and discrimination, and the RBOCs authority to
select interLATA carriers serving their payphones in conjunction with location
owners.   As a whole, the Telecom Act provisions should significantly change the
competitive framework of the public communications industry.  The Company
believes that the FCC's orders will address certain of the fundamental
inequities in the payphone industry and will, over time, lead to a more
equitable competitive environment for all providers.  However, since
implementation will be ongoing for a number of years, there can be no assurance
that the FCC's actions will actually result in positive results for the Company.

        Billed Party Preference Proceeding:  The FCC has issued a Second Notice
        ----------------------------------
of Proposed Rulemaking regarding "Billed Party Preference" ("BPP") and
associated call rating issues, including potential "rate benchmarks" and caller
notification requirements for 0+ and 0- interstate long distance calls. If BPP
is implemented, the billed party would bypass CCI's selected long distance
carrier and the Company would fail to receive any commissions from the carrier.
See "Regulation." The Company believes that the implementation of BPP is not
likely to be achieved, since it would involve significant expense and
technological changes as evidenced by the record in the FCC proceeding. However,
should the "rate benchmark" or caller notification requirements be implemented
by the FCC for such operator-assisted calling, the Company could be negatively
impacted, depending upon the specific level of the benchmark or the particular
notification requirements. Without further FCC action, for which a timetable is
not mandated, the Company is unable to reasonably assess any potential impact
that BPP, rate benchmarks or notifications, if implemented, might have on its
payphone and inmate phone operations.

                                       33
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
---------------------------------------------------- 

        The financial statements and supplementary financial information
required by this item are filed as part of this Report on pages F-1 through F-23
and page S-1 immediately preceding the signature page to this Report.


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

        None.

                                    PART III
                                    --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
------------------------------------------------------------ 

        To be included in a subsequent amendment to this Form 10-K Report.

ITEM 11.  EXECUTIVE COMPENSATION.
-------------------------------- 

        To be included in a subsequent amendment to this Form 10-K Report.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
------------------------------------------------------------------------ 

        To be included in a subsequent amendment to this Form 10-K Report.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-------------------------------------------------------- 

        To be included in a subsequent amendment to this Form 10-K Report.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------------------

        (a)  The following documents are filed as part of this Report:

             1.  Financial Statements

                  * Report of Independent Auditors
                  * Consolidated Balance Sheets as of June 30, 1997 and 1996
                  * Consolidated Statements of Operations for the Years Ended
                    June 30, 1997, 1996 and 1995
                  * Consolidated Statements of Shareholders' Equity for the
                    Years Ended June 30, 1997, 1996 and 1995
                  * Consolidated Statements of Cash Flows for the Years Ended
                    June 30, 1997, 1996 and 1995
                  * Notes to Consolidated Financial Statements

                                       34
<PAGE>
 
          2.  Financial Statement Schedules:

                  * Schedule II - Valuation and Qualifying Accounts

              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.  Exhibits:

            Exhibit
             Number                      Description
            -------                      -----------
              2.1              Agreement and Plan of Merger dated March 14,
                               1997 by and between the Company, PhoneTel
                               Technologies, Inc. and PhoneTel Acquisition
                               Corp./10/
 
              2.2              Asset Purchase Agreement dated August 21, 1997
                               by and between the Company, InVision Telecom,
                               Inc., and Talton Holdings, Inc./11/
 
              3.1              Amended and Restated Articles of 
                               Incorporation./1/
 
              3.2              Amended and Restated Bylaws of the Company./1/
 
              4.1              Shareholders Rights Agreement dated as of July
                               25, 1995 between the Company and First Union
                               National Bank of North Carolina, as Rights Agent.
                               /2/
              4.1(a)           Amendment No. 1 to Shareholders Rights
                               Agreement dated as of March 13, 1997 by and
                               between the Company and First Union Bank of
                               North Carolina, as Rights Agent. /10/

              10.1             Second Amended and Restated Credit Agreement
                               dated as of August 15, 1996 by and among the
                               Company, Communications Central of Georgia, Inc.,
                               and InVision Telecom, Inc., as borrowers, and
                               First Union National Bank of Georgia.
 
              10.1(a)          First Amendment to the Second Amended and
                               Restated Credit Agreement, dated as of October 8,
                               1996, by and among the Company,
                               Communications Central of Georgia, Inc., and
                               InVision Telecom, Inc., as borrowers, and First
                               Union National Bank of Georgia./13/

                                       35
<PAGE>
 
              10.1(b)          Second Amendment to the Second Amended and
                               Restated Credit Agreement by and among the
                               Company, Communications Central of Georgia, Inc.,
                               and InVision Telecom, Inc., as borrowers, and
                               First Union National Bank of Georgia./12/
                               
              10.2(a)          First Warrant Agreement dated as of August 15,
                               1996, between the Company and First Union./13/

              10.2(b)          First Amendment to First Warrant Agreement dated
                               as of October 8, 1996, between the Company and
                               First Union./13/
 
              10.4*            Communications Central Inc. 1993 Stock Option
                               Plan./1/

              10.4(c)*         Communications Central Inc. Stock Option Plan
                               Amended and Restated as of October 11, 1995 /9/

              10.5             Communications Central Inc. Stock Option Plan for
                               Directors./8/

              10.6             Lease between Northmeadow Associates Joint
                               Venture and the Company dated July 25, 1988 for
                               the business premises located at 1150 Northmeadow
                               Parkway, Suite 118, Roswell, Georgia 30076./1/

              10.6(a)          Second Amendment to Lease between
                               Northmeadow Associates Joint Venture and the
                               Company dated October 1, 1993 for the Company
                               Headquarters./3/

              10.6(b)          Third Amendment to Lease between Northmeadow
                               Associates Joint Venture and the Company dated
                               July 15, 1994  for the Company Headquarters./3/

              10.6(c)          Letter Amendment from Weeks Corporation to
                               the Company dated July 3, 1997 for the Company
                               Headquarters.

                                       36
<PAGE>
 
              10.7             Registration Rights Agreement dated as of August
                               15, 1996, between the Company and First 
                               Union./13/
 
              10.8             Registration Rights Agreement between the
                               Company and certain other parties dated April 15,
                               1991 as amended by First Amendment to
                               Registration Rights Agreement dated June 18,
                               1992, as amended by Second Amendment to
                               Registration Rights Agreement dated November 25,
                               1992 as amended by Third Amendment to
                               Registration Rights Agreement dated April 16,
                               1993./1/

              10.8(a)          Fourth Amendment to Registration Rights
                               Agreement dated February 28, 1994./4/
 
              10.8(b)          Fifth Amendment to Registration Rights Agreement
                               dated July 27, 1994./3/

              10.12*           Employment Agreement dated November 6, 1995,
                               between Communications Central of Georgia, Inc.
                               and Rodger L. Johnson./6/

              10.13*           Stock Option Agreement dated as of November 6,
                               1995, between the Company and Rodger L.
                               Johnson./7/

              10.14*           Stock Option Agreement dated as of January 2,
                               1996, between the Company and Anthony J.
                               Palermo./13/

              10.15*           Stock Option Agreement dated as of January 15,
                               1996, between the Company and C. Douglas
                               McKeever./13/

              10.16*           Stock Option Agreement dated as of August 15,
                               1996, between the Company and Robert E.
                               Bowling.
 
              11.1             Computation of Historical Earnings Per Share.

              21.0             List of Subsidiaries of the Company.

              23.1             Consent of Ernst & Young LLP.
 
              27               Summary Financial Data.

                                       37
<PAGE>
 
* Compensatory plan or arrangement or management contract required to be filed
  as an exhibit pursuant to Item 14(c) of Form 10-K.

(1) Incorporated herein by reference to the exhibit of the same number in the
    Company's Registration Statement on Form S-1 (Registration No. 33-57984).

(2) Incorporated herein by reference to exhibit of the same number in the
    Company's Registration Statement on Form 8-A registering certain "Rights to
    Purchase Common Stock," as filed on August 7, 1995.

(3) Incorporated herein by reference to exhibit of the same number in the
    Company's Annual Report on Form 10-K for the year ended June 30, 1994.

(4) Incorporated herein by reference to Exhibit 10(a) of Amendment No. 1 to the
    Company's Current Report on Form 8-K/A filed April 14, 1994 (File No. 0-
    22730).

(5) Incorporated herein by reference to Exhibit 99.1 of Amendment No. 1 on Form
    8-K/A to the Company's Current Report on Form 8-K, date of earliest event
    reported July 21, 1995, filed on August 25, 1995 (File No. 0-22730).

(6) Incorporated herein by reference to Exhibit 99.1 on Form 8-K, date of event
    reported November 6, 1995 (File No. 0-22730).

(7) Incorporated herein by reference to Exhibit 99.2 on Form 8-K, date of event
    reported November 6, 1995 (File No. 0-22730).

(8) Incorporated herein by reference to Appendix A of the Company's definitive
    Proxy Statement for its fiscal 1994 Annual Meeting of Shareholders.

(9) Incorporated herein by reference to Appendix B of the Company's definitive
    Proxy Statement for its fiscal 1995 Annual Meeting of Shareholders.

(10) Incorporated herein by reference to Exhibit (c)(11) in the Company's
     Schedule 14D-9 filed on March 20, 1997.

(11) Incorporated herein by reference to Exhibit 99.1 in the Company's Current
     Report on Form 8-K, date of event reported August 21, 1997.

(12) Incorporated herein by reference to Exhibit 99.1 in the Company's Current
     Report on Form 8-K, date of event reported July 1, 1997.

(13) Incorporated herein by reference to exhibit of the same number in the
     Company's Annual Report on Form 10-K for the year ended June 30, 1996.

                                       38
<PAGE>
 
(b)  Forms 8-K:

     The Company filed a Current Report on Form 8-K, date of event reported
     March 14, 1997.  The above mentioned Report on Form 8-K was filed to
     report the Company's execution of an Agreement and Plan of Merger with
     PhoneTel Technologies, Inc. ("PhoneTel"), and the commencement of a
     Tender Offer by a wholly-owned subsidiary of PhoneTel pursuant to the
     Agreement and Plan of Merger Agreement.

                                       39
<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.

                              Communications Central Inc.


Date: October 3, 1997            By: /s/ Rodger L. Johnson
                                    --------------------------
                                         Rodger L. Johnson
                                         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 dates indicated.


Date: October 3, 1997               /s/ Rodger L. Johnson
                                    --------------------------
                                      Rodger L. Johnson
                                      Chief Executive Officer and Director
                                      (principal executive officer)


Date: October 3, 1997               /s/ C. Douglas McKeever
                                    --------------------------
                                      C. Douglas McKeever
                                      Vice President of Finance
                                      (principal financial and accounting
                                      officer)


Date: September 24, 1997            /s/ Robert C. Fisher, Jr.
                                    --------------------------
                                      Robert C. Fisher, Jr.
                                      Director


Date: October 3, 1997               /s/ Richard W. Oliver
                                    --------------------------
                                      Richard W. Oliver
                                      Director


Date: September 25, 1997            /s/ Ronald C. Warrington
                                    --------------------------
                                      Ronald C. Warrington
                                      Director


Date: September 26, 1997            /s/ Peter A. Schober
                                    --------------------------
                                      Peter A. Schober
                                      Director

                                       40