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

                                 FORM 10-KSB

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

                 For the fiscal year ended December 31, 1995

                       Commission file number 0-15938

                       FARMSTEAD TELEPHONE GROUP, INC.

               (Name of small business issuer in its charter)

              Delaware                               06-1205743
   (State or other jurisdiction of        (IRS Employer Identification No.)
    incorporation or organization)

  81 Church Street, East Hartford, CT                06108-3728
(Address of principal executive offices)             (Zip Code)

                  Issuer's telephone number: (860) 282-0010

      Securities registered under Section 12(b) of the Exchange Act: None

       Securities registered under Section 12(g) of the Exchange Act:
                       Common Stock, $0.001 Par Value
                              (Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section 
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been 
subject to such filing requirements for the past 90 days.  Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 
of Regulation S-B contained in this form, and no disclosure will be contained, 
to the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-KSB or any 
amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year: $15,317,000

As of February 26, 1996, the aggregate market value of the Common Stock of the 
registrant held by non-affiliates, based upon the last sale price of the 
registrant's Common Stock on such date, was approximately $ 8,228,700.

As of February 26, 1996, the registrant had 21,238,676 shares of its $0.001 
par value Common Stock outstanding.

Transitional Small Business Format:  Yes [ ]  No [X]




                      TABLE OF CONTENTS TO FORM 10-KSB

                                   PART I

                                                                           Page
                                                                           ----

Item 1.    Description of Business......................................   3

Item 2.    Description of Property......................................   11

Item 3.    Legal Proceedings............................................   12

Item 4.    Submission of Matters to a Vote of Security Holders..........   12

                                   PART II

Item 5.    Market for Common Equity and Related Stockholder Matters.....   12

Item 6.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations..........................   13

Item 7.    Financial Statements.........................................   17

Item 8.    Changes in and Disagreements With Accountants on
           Accounting and Financial Disclosures.........................   17

                                  PART III

Item 9.    Directors, Executive Officers, Promoters and Control
           Persons; Compliance with Section 16(a) of the Exchange Act...   17

Item 10.   Executive Compensation.......................................   20

Item 11.   Security Ownership of Certain Beneficial Owners
           and Management...............................................   20

Item 12.   Certain Relationships and Related Transactions...............   20

Item 13.   Exhibits and Reports on Form 8-K.............................   20

SIGNATURES..............................................................   21
INDEX TO EXHIBITS.......................................................   34



                                   PART I

Item 1.  Description of Business

General

      Farmstead Telephone Group, Inc. (the "Company") is engaged in the 
Customer Premise Equipment ("CPE") segment of the telecommunications industry, 
principally as a secondary market reseller of used and/or refurbished AT&T 
business telephone parts and systems, and as a designer, manufacturer and 
supplier of proprietary voice (or "call") processing systems that provide 
automated call handling, voice and fax messaging, interactive voice response, 
automated call distribution and message notification functionality. The 
Company also provides equipment repair and refurbishing, inventory management, 
and other related value-added services. The Company sells its products and 
services to corporate end users, and to other dealers and distributors. CPE 
refers to equipment which resides at the customer's premises.

      The Company was incorporated in Delaware in 1986 and became a public 
company in May 1987 following the completion of its initial public offering. 
In January 1994, the Company acquired certain operating assets of Cobotyx 
Corporation, Inc. ("CCI"), a designer, manufacturer and supplier of voice 
processing systems, and expanded its entry into this marketplace through the 
formation of a voice processing products division ("Cobotyx Division").

Customers and Target Markets

      Telephone parts, systems and services are marketed domestically through 
the Company's in-house sales staff to approximately 1,500 active customers 
ranging from small companies to large, multi-location corporations, and 
including equipment wholesalers, dealers, distributors and government agencies 
and municipalities. The Company believes its customers are generally (i) 
existing AT&T equipment users that require piece parts to upgrade, expand, or 
maintain their existing telephone system, (ii) cost-conscious businesses that 
desire to save money by purchasing used or refurbished equipment instead of 
new equipment, but still retain AT&T installation and maintenance support for 
these products, and (iii) businesses that may have no current need for AT&T's 
latest and most technically advanced product offerings. Businesses also look 
to the Company, and to other secondary market resellers, to meet their 
immediate equipment delivery requirements. The Company is also pursuing the 
sale of its products internationally, such as in the People's Republic of 
China ("PRC"), the Republic of the Philippines, and in other countries which 
have underdeveloped telecommunications systems and may have limited financial 
resources.

      The Company distributes its voice processing products domestically and 
internationally to approximately 500 customers, primarily independent dealers 
and distributors, end-users, and through arrangements with several 
manufacturers of telephone systems and business equipment.

      During the two years ended December 31, 1995, no single customer 
accounted for more than 5% of revenues, except for AT&T, which accounted for 
5.4% (6.6% in 1994). The Company's business is not considered seasonal, 
although historically revenues during the third quarter ended September 30 
have often (but not during 1995) been lower than the other quarters of the 
year, which the Company attributes to a slowdown of customer purchasing 
activity during the summer months of July and August.

Strategy

      The Company's objective is to significantly expand its revenues and 
profitability through a strategy based on:

      * Domestic Expansion - The Company is seeking to expand its revenues and 
        customer base in the domestic secondary telephone equipment 
        marketplace by increasing its sales force, establishing business in 
        other geographic areas of the U.S. and by continuing to provide 
        quality refurbished products, superior customer service and support, 
        and other value-added services as required by its customers. The 
        Company is also attempting to become a more strategic partner to 
        AT&T, by specializing in the resale of AT&T products and through the 
        establishment of distribution rights to new AT&T equipment as allowed 
        by AT&T. The Company may also seek to acquire similar businesses in 
        other geographic areas of the U.S., as opportunities arise, in order 
        to increase its share of this market.

      * New Voice Processing Products and Services - The Company plans to 
        continue its expansion into this marketplace by utilizing or 
        developing current technologies to produce state-of-the-art products 
        that provide basic voice and call processing functionality while also 
        providing flexibility and expandability. The Company plans to adapt 
        its technology to emerging industry standards, and plans to provide 
        custom computer telephone integration solutions for its customers.

      * International Expansion - The Company's strategy includes developing 
        and/or providing products and technologies to assist developing 
        countries which have inadequate telecommunications infrastructures by 
        providing low-cost, reliable telecommunications equipment and 
        services. The Company plans to seek and develop relationships with 
        internationally-based partners and enter into marketing and/or 
        distribution agreements with established overseas businesses in the 
        countries that the Company has targeted to penetrate, including the 
        PRC, the Republic of the Philippines, and other countries.

      Effective February 29, 1996, the Company purchased from AT&T Systems 
Leasing Corporation, a subsidiary of AT&T Capital Corporation, certain assets 
of its discontinued Asset Recovery Center ("ARC"). Prior to its closing in 
January 1996, the ARC primarily operated to service AT&T affiliates in the 
orderly disposition, by way of consignment sales arrangements, of excess, 
overstocked and end-of-life telecommunications, computer and data transmission 
equipment. The assets acquired consisted primarily of warehouse equipment, 
vehicles, computer and office equipment, and inventory. The Company 
concurrently formed a subsidiary corporation, Farmstead Asset Management 
Services, LLC ("FAMS"), which will use the purchased assets to start up a 
similar operation in Piscataway, New Jersey. The Company intends to attempt to 
re-establish certain of the relationships that the ARC enjoyed, however, no 
assurances can be given that it will be able to do so. The Company believes 
that the operations of FAMS will provide it with an opportunity to develop new 
sources of equipment for resale to its existing customers, as well as to other 
wholesalers in the telephone, data and computer secondary markets, and 
internationally.

Industry Background

      According to reports published in 1993 and 1994 (the latest available) 
by The Telecom Library, Inc., a communications industry publishing company, 
the telephone equipment secondary market is one of the fastest growing sectors 
of the telecommunications industry, with gross sales estimated to reach $704 
million in 1994, representing an increase of 22% from $577 million in 1993. Of 
the total 1994 gross sales, 66% represented sales of parts (as opposed to 
complete systems). In addition, sales to end-users represented 65% of total 
sales. AT&T equipment comprised the largest brand name segment of the 
marketplace, with 25% of 1994 sales (23% in 1993). The 1994 report forecasts 
an annual growth rate of 20% for 1995 and for 1996, and through the end of the 
decade, annual growth rates are estimated to be in the thirty percentile range 
and higher, driven by increases in the replacement rate of equipment in the 
installed base, due to technical innovations in the equipment.

      According to Vanguard Communications Corp., an independent consulting 
firm specializing in the voice processing industry, the domestic market for 
voice processing systems recorded aggregate end-user revenues of approximately 
$2.1 billion in 1994, with approximately 74,000 systems estimated to have been 
sold. The marketplace is further divided into two main categories: voice 
messaging equipment, in which the Company's products primarily compete (with 
1994 end user revenues of $1.3 billion, 63,000 systems shipped), and voice 
response equipment (with end user revenues of $853 million, 11,000 systems 
shipped). Major manufacturers of voice processing systems include switch 
suppliers (such as AT&T, Northern Telecom, Inc. and Rolm Co.), independent 
manufacturers of proprietary systems (such as Centigram Communications 
Corporation and Octel Communications Corporation), and independent 
manufacturers of personal computer ("PC") based, open architecture systems 
(such as Active Voice, Inc. and Applied Voice Technologies, Inc.). The open 
system, standard architecture suppliers often buy board level technology from 
a few core voice technology suppliers, and then use standard operating systems 
and programming languages, and PCs, to create proprietary voice processing 
solutions.

The Company's Telephone Equipment Products

      Product Description

      The Company sells used and/or refurbished telephone parts and systems 
manufactured by AT&T. Parts sold primarily include digital and analog 
telephone sets, circuit packs, and other system accessories, such as headsets, 
consoles, speakerphones and paging systems. Telephone systems are generally 
categorized as key systems and PBX systems. Key systems are generally used by 
small businesses, and are characterized by telephones which have multiple 
buttons permitting the user to select outgoing or incoming telephone lines 
directly. PBXs are private telephone switching systems usually located on a 
customer's premises, with an attendant console, and are designed for use by 
larger businesses. Because most of the features of a PBX are stored in the 
switch, and not on the telephone, a PBX can provide more features and 
flexibility than a key system.

      AT&T key systems sold by the Company, in both piece parts and complete 
systems, and their capacities include: Merlin[registered trademark] and Merlin 
Legend[registered trademark] (2 lines, 6 telephones to 80 lines, 144 
telephones); Spirit[registered trademark] (3 lines, 8 telephones to 24 lines, 
48 telephones) and Partner[registered trademark] (6 lines, 12 telephones to 24 
lines, 48 telephones).

      AT&T PBX equipment sold by the Company, primarily in piece parts, and 
their capacities include: System 25 (any combination of lines and telephones 
up to a maximum of 256), System 75 (200 lines, 800 telephones); System 85 
(16,000 lines, 50,000 telephones); Definity[registered trademark] G1 (400 
lines, 1,600 telephones); Definity[registered trademark] G2 (32,000 lines, 
100,000 telephones); Definity[registered trademark] G3 (4,000 lines, 10,000 
telephones); and Dimension[registered trademark] (2,968 lines, 7,232 
telephones), an older technology, manufacturer-discontinued product which the 
Company offers for sale in the PRC and other foreign countries.

      Telephone equipment sales and service revenues accounted for 79% of 
total Company revenues in 1995 (75% in 1994). Sales of PBX equipment and 
associated telephones and accessories comprised approximately 88% (77% in 
1994) of equipment sales, while key equipment parts and system sales comprised 
approximately 12% (17% in 1994) of equipment sales.

      Relationship with AT&T

      Since 1985, AT&T has provided support to the secondary market by 
continuing to offer installation, maintenance, repair, reconditioning and 
certification services for its products purchased by end-users through 
equipment resellers. Equipment resellers such as the Company may also, with 
various restrictions, utilize AT&T documentation, technical information and 
software. AT&T also generally provides a one year warranty for products 
purchased from AT&T for resale, provided that AT&T performs the installation.

      The installation and maintenance of AT&T equipment is generally provided 
by AT&T. The Company does, however, coordinate the installation scheduling 
directly with AT&T if requested to do so by its customer. The Company also has 
agreements with a number of installation and maintenance companies covering 
the New England and New York geographic areas who can also provide such 
services.

      Since 1991, the Company has been an "AT&T Authorized Distributor of 
Selected AT&T - Remanufactured Products" ("AT&T Agreement"), under a program 
with AT&T which currently includes only eight other secondary market 
companies in different geographic areas of the country. The AT&T Agreement 
does not provide the Company with an exclusive sales territory. Under the 
program, the Company is authorized to sell domestically specified AT&T 
remanufactured products, currently including certain Merlin[registered 
trademark], Spirit[registered trademark] and System 25 products. The Company 
is also required to purchase all of such included products directly from AT&T. 
On March 5, 1996, the AT&T Agreement was renewed for another one year term, 
although it can contractually be canceled by either party without cause upon 
90 days notice.

      In September, 1995, AT&T announced that it was to be split into three 
publicly-traded companies: a telecommunications equipment and technology 
company called Lucent Technologies, Inc. ("Lucent"), a business computing 
company called NCR, and a communications services company which will retain 
the name AT&T (for purposes of this report, all entities are collectively 
referred to as "AT&T"). On February 1, 1996, the AT&T Agreement was assigned 
to Lucent. The Company believes that its relationship with AT&T is 
satisfactory and has no indication that AT&T has any intention of canceling 
the AT&T Agreement with the Company or of severing its relationship with the 
Company when the current agreement expires. In the event that the AT&T 
Agreement is terminated, the Company does not believe that it would have a 
material effect on the Company's business, since it could acquire like 
products from other sources at comparable prices. The Company's business is 
not expected to be adversely impacted by AT&T's reorganization. It may, 
however, be materially adversely affected should AT&T decide to no longer 
provide installation and maintenance services on used and/or refurbished 
products sold by the Company.

      Marketing and Customers

      Telephone parts, systems and services are marketed domestically through 
the Company's in-house sales staff to more than 1500 active customers ranging 
from small companies to large, multi-location corporations, and including 
equipment wholesalers, dealers, distributors and government agencies and 
municipalities. Approximately 58% (56% in 1994) of the Company's 1995 
telephone equipment sales and service revenues were to customers located in 
New England, New York and New Jersey. End-user sales accounted for 
approximately 85% (88% in 1994) of telephone equipment sales in 1995, while 
sales to resellers accounted for approximately 15% (12% in 1994). The Company 
markets Dimension[registered trademark] PBX equipment in the People's Republic 
of China ("PRC") to businesses, government agencies and local telephone 
service providers through its 50% owned affiliate, Beijing Antai 
Communication Equipment Company, Ltd. ("ATC") located in Beijing, PRC.

      International Markets For Telephone Equipment

      The Company has been pursuing expansion of its business internationally, 
to date principally in the Asia-Pacific region. The Company has focused on the 
development of proprietary Chinese system software, proprietary digital and 
analog interfaces, and a proprietary billing system, the combination of which 
would allow the Company's refurbished PBX equipment to be reconfigured in the 
PRC to act as a central office (a telephone company facility where 
subscriber's lines are joined to switching equipment for connecting other 
subscribers to each other, locally and long distance). This product, which has 
been designed for use in the rural areas of the PRC, can also be used in other 
developing countries that require modern equipment but cannot afford the price 
of new, digital central office equipment being offered by the major telephone 
equipment manufacturers. In addition to the PRC, the Company plans, in the 
future, to market this equipment in the Republic of the Philippines, Eastern 
Europe, Mexico, Central and South America and other countries in the Asia-
Pacific region. Its ability to do so may be dependent, among other things, 
upon obtaining adequate financing for these projects, and satisfying technical 
and governmental certification and licensing requirements in such countries.

      On December 31, 1994, the Company entered into an agreement to purchase 
D.W. International, Ltd.'s ("DWI") 50% ownership interest in ATC for a 
purchase price of $100. The purchase transaction was completed effective 
May 30, 1995 upon receipt of Chinese government approvals. ATC was formed in 
October 1992 as a Joint Venture Enterprise, and is also owned 50% by Beijing 
Aquatic Product Inc., a registered company in the PRC. DWI is a Delaware 
Corporation owned 50% by Mr. Da Wei Wu, who serves as General Manager of 
ATC. ATC, previously a distributor for the Company in the PRC, markets, 
assembles, manufactures, installs and services the Company's central office, 
PBX and signaling interface products which have been developed for use in 
the PRC. ATC also distributes and installs local telecommunications 
transmission systems and home and business alarm systems, however their 
historical operations prior to the Company's acquisition have been 
insignificant. Under Chinese laws governing equity joint ventures, the Company 
also made a $390,000 capital contribution to ATC to complete the $500,000 
original capital contribution requirement of the foreign party to the joint 
venture.

      The Company's Voice Processing Products

      Product Description

      Voice (or "call") processing encompasses various types of computer 
assistance to facilitate interaction over the telephone, between a caller, one 
or more persons, and a computer. With call processing technology, telephone 
users can utilize voice and touchtones to manipulate calls, interact with 
computer databases, and access and respond to messages or data from voice or 
other electronic media, thereby making internal and external communications 
more efficient. The three most common call processing features are: (1) Voice 
Mail - allows a caller to store voice messages and replies in a computer, and 
thereby conduct a dialogue with any person without having to be on the same 
line at the same time; (2) Automated Attendant - allows a caller to direct the 
computer to switch the call to a telephone extension different from the one 
dialed, without the manual intervention of an operator; and (3) Interactive 
Voice Response - allows a caller to obtain information in voice form (for 
example, selecting announcements from a list of options) from a local or non-
local database.

      During 1993, the Company decided to expand its product offerings to its 
existing telephone equipment customers, and entered into distribution 
agreements with manufacturers of voice processing products. These agreements 
provided the Company with a basic voice processing product line enabling it to 
meet the system requirements of customers in the 2 to 8 port (i.e. capable 
of simultaneously handling from 2 to 8 telephone calls) segment of the CPE 
market. This sized system was typical of the "branch office" locations of many 
of the large corporations already served by the Company. In January 1994, the 
Company acquired certain assets of CCI, and established the Cobotyx Division 
to be responsible for ongoing voice processing equipment business and 
strategy. The assets acquired from CCI included technology and know-how, 
inventories, property and equipment, all trademarks, tradenames, and patents. 
Certain key engineering, technical and support personnel of CCI were 
subsequently hired by the Company to staff this operation. Through its Cobotyx 
Division, the Company designs, integrates, manufactures, distributes and 
supports a family of proprietary call processing systems. In addition to 
proprietary hardware design, software programs and applications procedures, 
the Company uses component technology licensed from other suppliers. Products 
currently marketed include:

        COBOT[TRADEMARK] Plus Receptionist - a single port, solid state, 
             fully-featured automated attendant with Rotary Dial Detection, 
             for PBXs, Key systems or Centrex (a business telephone service 
             offered by a local telephone company, providing custom calling 
             features such as call forwarding, call transfer, least cost 
             routing and speed calling) applications.

        COBOT[TRADEMARK] Plus Digital Announcer - a single port, solid 
             state, fully-featured announcer for PBXs, Key systems or 
             Centrex applications.

        COBOT[TRADEMARK] Plus Secretary - an automated attendant and voice 
             mail system, with a 2 - 8 port, 500 mailbox capacity.

        KASSIE - a PC-based automated attendant and voice mail system, with 
             a 2 - 24 port, 10,000 mailbox capacity, that can be optioned 
             to support advanced applications like fax and interactive voice   
             response.

        SOHO ("small office, home office") SECRETARY - a low cost, but 
             fully-featured automated attendant and voice mail system, with 
             a 2 - 4 port capacity, designed for the small office, branch 
             office market.

      Voice Processing Marketing and Customers

      The Company distributes its voice processing products domestically and 
internationally to approximately 500 customers, consisting primarily of a 
nationwide network of independent dealers and distributors, end-users, and 
through arrangements with several manufacturers of telephone systems and 
business equipment. A typical dealer is a small business operator who 
primarily sells telephone systems to small and medium size businesses. Most 
dealers also sell competing call processing systems. The Company attempts to 
maintain relationships with a large number of dealers and, because of the 
potential for dealer turnover, considers it advantageous not to become overly 
dependent upon a few dealers. Approximately 66% of the Company's voice 
processing sales and service revenues in 1995 were from dealers and 
distributors (51% in 1994), and 26% (28% in 1994) were from sales to AT&T 
pursuant to an OEM (Original Equipment Manufacturer) contract. Approximately 
30% (25% in 1994) of the Company's voice processing sales and service revenues 
in 1995 were international, principally to customers in Mexico, Central and 
South America. Voice processing sales and service revenues accounted for 21% 
of total revenues in 1995 (25% in 1994).

      Although the above OEM contract was not formally extended by its 
February 28, 1996 expiration date, under its terms the Company is obligated to 
supply product for an additional year, and parts for an additional five years, 
should AT&T request it. The Company cannot estimate the amount of future 
orders which may be generated from the post-expiration contract provisions, 
however, based upon projected growth in revenues from its other business 
activities, the Company believes that the non-renewal of the AT&T OEM contract 
will not have a material adverse impact on the Company.

      International Voice Processing Markets

      International voice processing product sales to date have primarily been 
in Mexico, Central and South America.

      On July 27, 1995 the Company entered into a Joint Venture Agreement ("JV 
Agreement") with Asia-Pacific Services, Inc. of Atlanta, Georgia ("APSI") and 
Beijing Taikang Telecommunications, Inc., owned and operated by the Planning 
and Research Institute of the Ministry of Posts and Telecommunications, PRC 
("Taikang"). The purpose of the joint venture ("JV") was the manufacture, 
assembly and marketing in the PRC and other international markets of voice 
processing equipment and software, including all of the Company's current 
voice processing products. On July 27, 1995 the Company also entered into an 
agreement ("Interim Agreement") with these same parties for the provision of 
product marketing and other business organization activities in advance of the 
startup of the JV. For the year ended December 31, 1995, the Company incurred 
expenses pursuant to these agreements of approximately $450,000, consisting of 
working capital provided, project management consulting fees, travel costs and 
demonstration products provided by the Company.

      As a result of the Company's inability to fund the $1 million initial 
capital contribution requested by Taikang in order to start the joint venture, 
on November 1, 1995 the Company and Taikang agreed to terminate both the JV 
Agreement and the Interim Agreement.

Customer Services

      The Company is committed to respond to its customers service or project-
oriented telecommunications needs. While each type of service is not material 
to the Company's operations as a whole, the Company believes they help 
differentiate the Company from its competitors, as well as contribute to 
longer-lasting customer relationships and incremental sales. The Company 
provides the following services:

      Repair and Refurbishing: The Company performs fee-based repair and 
refurbishing services for its customers through its in-house facilities and 
use of subcontract repair shops. For telephone equipment, the in-house work is 
generally limited to the cleaning, buffing and minor repair of single-line 
telephone sets. The Company outsources the repair of circuit boards and 
digital telephone sets locally. The Cobotyx Division has the technical 
equipment and personnel to repair voice processing equipment down to the 
circuit board level.

      Inventory Management: The Company provides inventory storage, 
accounting, and distribution services, acting as a centralized depot for its 
customers' idle telecommunications equipment.

      Other Services: The Company's technical staff currently provide 
engineering, configuration, technical "hot line" telephone support and limited 
on-site installation services. The Company rents out equipment on a month-to-
month basis, servicing those customers that have temporary, short-term 
equipment needs. For two companies in the television broadcast industry the 
Company provides telecommunications coordination services for broadcast sports 
and other events throughout the country. The Company's Cobotyx division also 
provides custom computer telephone interface solutions for its customers. 
During 1994 the Company performed a local plant distribution study in Romania 
under a contract with the Romanian Ministry of Communications and the U.S. 
Trade and Development Agency. The objective of the study was to identify 
available technologies to support the rapid growth of telephone service in 
Romania, and to perform cost analysis for these technologies.

      The Company's combined service revenues accounted for 4% of revenues in 
1995 and 6.7% of revenues in 1994.

Competition

      The marketplace for the Company's telephone equipment products is highly 
competitive. The Company competes with AT&T and other secondary market AT&T 
equipment resellers, of which the Company estimates there are approximately 
100 nationwide, principally on the basis of timeliness of delivery, customer 
service and price. The growth in the number of these dealers has resulted in 
more competitive sales pricing, and in higher equipment acquisition costs. The 
Company also competes with AT&T and other new equipment manufacturers and 
distributors as consumers decide whether to buy new versus used equipment.

      The portion of the industry that supplies call processing systems to 
small and medium sized businesses is extremely competitive. In the domestic 
dealer and original equipment manufacturer channels, the Company competes on 
the basis of price, system features, ease of installation and use, sales and 
technical support, and product reliability. Principal competitors at present 
fall into three categories: (a) telephone equipment manufacturers that offer 
their own call processing systems (for example, AT&T, Northern Telecom, Inc., 
Rolm Co. and Toshiba America Information Systems, Inc.); (b) independent call 
processing system manufacturers whose products integrate with multiple 
telephone systems and are either based on proprietary hardware (for example 
Centigram Communications Corporation, Comverse Technology, Inc. and Octel 
Communications Corporation), or are PC-based like the Company's products (for 
example, Active Voice, Inc., Applied Voice Technologies, Inc. and Compass 
Technology, Inc., now a division of Octel Communications Corporation) and (c) 
large telephone companies. For both telephone and voice processing products, 
the Company anticipates intensified competition from larger companies having 
substantially greater technical, financial and marketing resources, as well as 
larger customer bases and name recognition than the Company. As the industry 
evolves to further integrate telephones with PCs, the Company anticipates that 
it will encounter a broader variety of competitors, including new entrants 
from related computer and communication industries. There can be no assurance 
that the Company will be able to develop more technologically advanced 
products or that even if it is able to develop, or acquire rights to 
incorporate into its products, the next generation of technology, that such 
products will perform as well as competitor's products or that such products 
will be accepted by the market or that the Company will see any financial 
benefit therefrom.

Suppliers

      The Company obtains its telephone equipment parts for resale from a 
variety of sources, depending upon price and availability at the time of 
purchase. These sources include AT&T, other secondary market equipment dealers 
and distributors, leasing companies and end-users. In accordance with the AT&T 
Agreement, the Company is required to purchase certain products only from 
AT&T. On March 5, 1996, the AT&T Agreement was renewed for another one year 
term, although it can contractually be canceled by either party without cause 
upon 90 days notice. The Company believes that if the AT&T Agreement were to 
be canceled or not renewed, it could obtain similar product from other 
suppliers. The Company is not otherwise dependent upon any single supplier for 
telephone equipment. The Company believes that product availability in the 
marketplace is presently sufficient to allow the Company to meet its 
customers' delivery requirements.

      The Company's solid state call processing products, namely the 
COBOT[TRADEMARK] Plus Digital Announcer and the COBOT[TRADEMARK] Plus 
Receptionist are manufactured and assembled for the Company by DOVatron 
Manufacturing East, a division of DOVatron, Inc. ("DOVatron").  DOVatron, 
which is a contract electronics manufacturer, procures all of the materials, 
consisting of printed circuit boards, electronic components and cabinets. Once 
assembled and tested, the completed units are either shipped to the Company or 
directly to its customer. While the Company plans to continue using DOVatron 
in the manufacture and assembly of these products, management believes that it 
could readily engage other assembly houses if it were necessary to do so. For 
its other voice processing products, the Company purchases electronic 
components, IBM-compatible 486 PCs and voice and fax boards from multiple 
vendors. The products are assembled, configured to customer specifications, 
tested and/or installed by the Company or alternatively, the Company can 
purchase certain products complete to the Company's specifications. Because 
the Company's product platforms consist principally of standard electronic and 
PC components, the Company is not dependent upon any single supplier.

      The Company utilizes in certain of its products software obtained under 
license agreements with vendors. The Company believes that the functionality 
provided by the licensed software can be obtained from multiple software 
suppliers, and is therefore not dependent upon any single supplier.

Patents, Licenses and Trademarks

      No patent or trademark is considered material to the Company's overall 
operations. The manufacture and sale of certain of the Company's products 
involves the use of processes, products or information, the rights to certain 
of which are owned by others. Although the Company has obtained licenses with 
regard to the use of certain of such processes, products and information, 
there can be no assurance that such licenses will not be terminated or expire 
during critical periods, that the Company will be able to obtain licenses for 
other rights which may be important to it, or, if obtained, that such licenses 
will be obtained on commercially reasonable terms. If the Company is unable to 
obtain such licenses, the Company may have to develop alternatives to avoid 
infringing patents of others, potentially causing increased costs and delays 
in product development and introduction, or precluding the Company from 
developing, manufacturing or selling its proposed products. Additionally, 
there can be no assurance that the patents underlying any licenses will be 
valid and enforceable. To the extent any products sold by the Company are 
based on licensed technology, royalty payments on the licenses will reduce the 
Company's gross profit from such product sales and may render the sales of 
such products uneconomical.

      The Company also relies upon unpatented trade secrets, and no assurance 
can be given that others will not independently develop substantially 
equivalent proprietary information and techniques, or otherwise gain access to 
the Company's trade secrets or disclose such technology, or that the Company 
can meaningfully protect its rights to its unpatented trade secrets.

      The Company's ability to sell, through ATC, its central office and PBX 
products in certain provinces of the PRC will be dependent upon obtaining 
product certification from the provincial telephone service agencies, and may 
also be dependent upon the grant of a network license by the Ministry of Post 
and Telecommunications. The Company is presently attempting to obtain 
certification to sell its products in a certain province in the PRC, which it 
hopes to obtain within the next few months. At that time it also plans to 
apply for a national network license. No assurances can be given that the 
Company will achieve certification of its products, or a network license, and 
a failure to receive either may adversely impact the Company's ability to sell 
its products in the PRC, either directly or through ATC. Similar certification 
and licensing procedures may also apply in other foreign countries in which 
the Company is seeking to market its products.

      The Company was granted permission to utilize certain AT&T designated 
trademarks, insignia and symbols in the Company's advertising and promotion of 
products furnished under the AT&T Agreement.

Research and Development

      The Company's telephone equipment research and development ("R&D") 
activities have been principally focused on the PRC, for which marketplace the 
Company has been developing central office and PBX systems with proprietary 
software and interface capabilities to match the local digital and analog 
networks, and a Chinese character and currency billing system for use by local 
PRC telephone companies and businesses. The Company believes that certain of 
these technologies will also have uses in other international markets. R&D in 
connection with the development of proprietary software is principally 
conducted by an outside engineering firm on an as needed basis. R&D in 
connection with the development of interfaces and the billing system have been 
conducted through ATC. R&D expense related to the above projects was $44,000 
and $78,000 during 1995 and 1994, respectively.

      R&D expense in connection with the development of new voice processing 
products and technologies was $55,000 and $139,000 during 1995 and 1994, 
respectively, consisting principally of the salaries of in-house engineers and 
technicians.

Employees

      As of December 31, 1995, the Company had 53 full-time and 2 part-time 
employees, consisting of 5 executive officers, 23 in operations, 18 in sales 
and sales support, and 9 in administration. The Company believes that its 
relations with its employees are satisfactory. The Company's employees are not 
represented by any organized labor union and are not covered by any collective 
bargaining agreements.

Item 2. Description of Property

      The Company occupies approximately 29,000 square feet of office and 
warehouse space in East Hartford, Connecticut, which it uses for its principal 
executive and administrative offices and its telephone equipment operations, 
and 6,000 square feet of office space in Danbury, Connecticut, which it uses 
for its voice processing products division. These facilities are currently 
rented on a month-to-month basis for $ 12,100 and $5,000 per month, 
respectively. The Company believes that its facilities are adequate for its 
present needs and suitable for their intended uses. If new or additional space 
is required, the Company believes that adequate facilities are available at 
competitive prices in the immediate areas of current operations.

      On March 13, 1996, the Company's newly formed subsidiary, Farmstead 
Asset Management Services, LLC, entered into a two year lease for 
approximately 70,100 square feet of warehouse and office space in Piscataway, 
New Jersey at a monthly rent of $24,827 commencing in April 1996. This 
facility will be used for the remarketing of used AT&T telephone and computer 
equipment, and for the provision of asset storage and management services.

Item 3. Legal Proceedings

      The Company is not a party to any pending material proceedings and no 
such proceedings are known to be contemplated by others.

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

      None.


                                   PART II

Item 5. Market for Common Equity and Related Stockholder Matters

      The Company's Common Stock, Warrants and Units trade on The Nasdaq 
SmallCap Market[SM] ("Nasdaq") tier of The Nasdaq Stock Market[SM] under the 
symbols "FONE," "FONEW" and "FONEU," respectively. The following table sets 
forth the range of quarterly high and low sales prices for these securities, 
as reported by Nasdaq, for the two years ended December 31, 1995:

Common Stock:

<TABLE>
<CAPTION>

                                        1995         1994
                                     ----------   -------------
Quarter Ended                        High   Low   High     Low
-------------                        ----   ---   ----     ---

<C>                                  <C>    <C>    <C>     <C>
March 31.....................        $.63   $.34   $1.53   $ .72
June 30......................         .69    .38    1.03     .69
September 30.................         .56    .44    1.03     .56
December 31..................         .41    .28     .78     .50
</TABLE>

      There were 21,238,676 and 20,398,947 shares outstanding at December 31, 
1995 and 1994, respectively.

Warrants:

<TABLE>
<CAPTION>

                                        1995          1994
                                     ----------    -----------
Quarter Ended                        High   Low    High    Low
-------------                        ----   ---    ----    ---

<C>                                  <C>    <C>    <C>     <C>
March 31.....................        $.22   $.09   $ .94   $ .47
June 30......................         .19    .03     .56     .31
September 30.................         .13    .03     .53     .25
December 31..................         .03    .03     .31     .13
</TABLE>

      There were 1,835,727 and 2,675,456 public warrants outstanding at 
December 31, 1995 and 1994, respectively.

Units (1):

<TABLE>
<CAPTION>

                                        1995          1994
                                     ----------    -----------
Quarter Ended                        High   Low    High    Low
-------------                        ----   ---    ----    ---

<C>                                  <C>    <C>    <C>     <C>
March 31.....................        $.75   $.41   $2.38   $1.50
June 30......................         .81    .44    1.50    1.06
September 30.................         .69    .69    1.44     .84
December 31..................         .25    .25     .94     .75

-------------------
<F1> Units of the Company's securities consist of one share of common stock and
     a detachable warrant to purchase one share of common stock at an 
     exercise price of $2.00 per share. For further information see the Notes 
     to Financial Statements.
<Fb> There were 686 record holders of the common stock as of December 31, 1995,
     representing approximately 4,900 beneficial stockholders.
<Fc> The Company has paid no dividends and does not expect to pay dividends in 
     the foreseeable future as it intends to retain earnings to finance the 
     growth of its operations. Pursuant to a Commercial Loan and Security 
     Agreement with Affiliated Business Credit Corporation, the Company is 
     prohibited from declaring or paying any dividends or making any other 
     distribution on any of the shares of its capital stock, without the 
     prior consent of the lender.
</TABLE>

Item 6. Management's Discussion and Analysis of Financial
        Condition and Results of Operations

      The following discussion and analysis should be read in conjunction with 
the financial statements and notes thereto contained in Item 7 of this Report.

Results of Operations

      The following table sets forth the percentage of revenue represented by 
the following items for the years ended December 31, 1995 and 1994:

<TABLE>
<CAPTION>

                                                 1995       1994
                                                 ----       ----

<S>                                              <C>        <C>
Sales and service revenues....................   100.0%     100.0%
Cost of goods and services sold...............    69.5       69.8
Selling, general and administrative expenses..    31.6       27.0
Research and development expenses.............      .6        1.8
Interest expense..............................      .6         .3
Equity in unconsolidated subsidiary...........     1.3          -
Other income..................................     (.1)       (.4)
                                                 -----      -----
Income (loss) before income taxes.............    (3.5)       1.5
Provision for income taxes....................      .1          -
                                                 -----      -----
Net income (loss).............................    (3.6)%      1.5%
                                                 =====      =====
</TABLE>

Year ended December 31, 1995 as compared to the year ended December 31, 1994

      The Company recorded a net loss of $553,000 for the year ended December 
31, 1995, as compared to net income of $172,000 for the year ended December 
31, 1994. The loss for 1995 was primarily attributable to the Company's 
efforts to expand its business and products domestically and internationally. 
Domestically, the Company incurred approximately $645,000 of net expenses 
during 1995, arising from new sales and technical personnel, product marketing 
expenses, equipment and other overhead and operating costs, in connection with 
the new VTS 1000/2000 product line, and in the operation of an in-house 
service bureau. Due to insufficient revenues and a change in marketing 
strategy, these products were discontinued by the end of 1995.

      The Company's international business development activities, which were 
centered principally in the PRC, negatively impacted operating results by 
approximately $774,000 for the year ended December 31, 1995, and by 
approximately $541,000 for the year ended December 31, 1994. These activities, 
as also described in Notes 8 and 11 of the Notes to Financial Statements 
included herein, principally focused on (i) the acquisition of a 50% interest 
in ATC, which was completed in May 1995, and (ii) developing strategic 
business relationships in China for the marketing of its voice processing 
products through the contemplated formation of a second joint venture company. 
Included in the above amount for 1995 were expenses of approximately $450,000 
from the Company's funding of voice processing product development and 
marketing operations in China pursuant to its obligations under the Interim 
Agreement and JV Agreement, consisting of working capital provided, project 
management consulting fees, travel costs and demonstration products provided 
by the Company. These agreements were terminated in November, 1995 due to a 
lack of funds with which to capitalize the proposed joint venture. Also 
included were net expenses of approximately $244,000, consisting primarily of 
facility, personnel and other operating costs incurred in connection with the 
domestic acquisition, testing and storage of product slated for export to the 
PRC and other international markets.

      In conjunction with the termination of the Interim and JV Agreements, 
the Company reduced the scope of other international projects and, until such 
time as additional financing can be obtained, the Company expects to incur 
significantly reduced international business development expenditures.

      The Company's 1995 net loss also includes $81,000 of legal fees and 
related expenses incurred in connection with a proposed underwriting of 
securities which was terminated during the third quarter of 1995.

      Sales and service revenues for the year ended December 31, 1995 were 
$15,317,000, representing an increase of $3,530,000 or 30% from the comparable 
1994 period. Telephone equipment sales and service revenues increased by 
$3,372,000 or 38% over 1994, resulting from (i) increased end user and 
wholesale sales levels, attributable to wider acceptance of the Company's 
products, and a larger and more experienced sales force, and (ii) $475,000 in 
equipment sales to ATC. Voice processing product sales and service revenues 
increased by $158,000 or 5% from 1994.

      Gross profit for the year ended December 31, 1995 increased by 
$1,115,000 to $4,672,000 (30.5% of revenues) from $3,557,000 (30.2% of 
revenues) in 1994. The increase in gross profit dollars was attributable to 
the increase in sales and service revenues, while the increased gross profit 
margin was attributable to a combination of higher selling prices and lower 
product costs on certain products sold during the current period, increased 
international sales at higher than average profit margins, and the favorable 
economies of allocating overhead costs over a larger sales base.

      Selling, general and administrative expenses for the year ended December 
31, 1995 increased by $1,652,000 to $4,835,000 (32% of revenues) from 
$3,183,000 (27% of revenues) for the year ended December 31, 1994. 
Approximately 27% of the increase was attributable to international voice 
processing product market development activities pursuant to the JV and 
Interim Agreements (as more fully described in Note 11 of the Notes to 
Financial Statements), including working capital provided, monthly retainer 
fees and travel expenses of outside consultants for international project 
management services, and the cost of demonstration products contributed by the 
Company. Approximately 45% of the increase was related to personnel costs 
attributable to (i) increased personnel and related costs associated with the 
start up of the service bureau and VTS-1000/2000 product offerings which were 
discontinued by the end of 1995, and (ii) increased compensation expenses, 
including increased sales commissions as a result of higher sales levels. 
Product marketing expenses increased by 6% primarily due to expanded marketing 
of voice processing products, and the Company incurred higher depreciation 
expense, bad debt expense and other overhead costs associated with the 
Company's increased sales and operating levels. In connection with the 
termination of a proposed underwriting of additional securities (see Note 7), 
the Company also charged $81,000 of legal fees and related expenses to SG&A in 
1995. The Company currently projects that SG&A will represent a lower 
percentage of revenues in fiscal 1996.

      Research and development expenses ("R&D") for the year ended December 
31, 1995 were $99,000, down 54% from $217,000 incurred in 1994. During 1994
the Company was engaged more extensively in R&D in connection with telephone 
systems and central office products for China, and in the development of the 
KASSIE and VTS-2000 call processing products for both domestic and 
international applications. During 1995 the Company allocated a higher 
percentage of its in-house technical resources to product support functions.

      Interest expense for the year ended December 31, 1995 was $99,000, up 
148% from $40,000 incurred in 1994, due to higher average debt levels and 
higher weighted average interest rates on the Company's outstanding debt.

Year ended December 31, 1994 as compared to the year ended December 31, 1993

      Sales and service revenues for the year ended December 31, 1994 were 
$11,787,000, representing an increase of $5,496,000 or 87% from 1993 revenues.  
Sales of voice processing products accounted for $2,728,000 of the increase, 
attributable to the establishment of the Cobotyx Division. Telephone equipment 
sales revenues also increased by 44% over 1993 sales revenues, as end-user 
sales increased by $2,139,000 or 43%, and wholesale sales increased by 
$339,000 or 55%. The Company attributes these results to wider acceptance of 
the Company's products, a better trained sales force, and expanded wholesale 
sales efforts. Service revenues increased by $290,000 or 58%, primarily 
attributable to the Company's receipt of $204,000 from a local distribution 
plant study it conducted for the Romanian Ministry of Communications, under a 
grant from the U.S. Trade and Development Agency. Excluding revenues from this 
contract, service revenues otherwise increased by $86,000 or 17%, primarily 
attributable to increased repair and refurbishing revenues.

      Gross profit for the year ended December 31, 1994 increased by 
$2,136,000 to $3,557,000 (30.2% of revenues) from $1,421,000 (22.6% of 
revenues) for the year ended December 31, 1993. The increase was primarily 
attributable to the increase in voice processing product sales (which 
generate higher gross profit margins than telephone equipment sales) following 
the CCI acquisition, and the allocation of overhead costs over a larger 
revenue base. Excluding voice processing equipment sales, gross profit margins 
were otherwise 27% in 1994, up from 23% in 1993, principally due to the 
allocation of overhead costs over a larger sales base.

      Selling, general and administrative expenses ("SG&A") for the year ended 
December 31, 1994 were $3,183,000, representing an increase of $738,000 or 30% 
from 1993 SG&A. The increase consisted of (i) personnel, office and product 
marketing costs in the amount of $894,000 incurred in connection with the 
Company's entry into the voice processing products marketplace through the 
formation and staffing of the Cobotyx Division in January 1994 and (ii) 
$156,000 of incremental international market development costs, principally in 
personnel, consulting, and travel costs, partially offset by (iii) a $257,000 
reduction in investor relations expenses and (iv) a $55,000 net reduction in 
all other expense categories. Investor relations expense in 1993 included a 
$313,000 non-cash charge resulting from the issuance of discounted stock 
options to two investor relations service companies which were engaged to 
increase investor awareness of the Company's products and services. Excluding 
this non-cash expense, investor relations expenses were otherwise $56,000 
higher in 1994 than in 1993. SG&A decreased as a percentage of revenues to 27% 
in 1994 from 38.9% in 1993, due principally to the Company's 1994 revenue 
growth and resulting favorable operating economies of scale.

      Research and development expenses ("R&D") for the year ended December 
31, 1994 were $217,000, representing an increase of $126,000 or 138% from 1993 
R&D. The increase was attributable to the salaries of newly hired technicians 
and engineers and the costs of equipment to support the Cobotyx Division's 
product development efforts.

      Interest expense for the year ended December 31, 1994 was $40,000 
representing a $21,000 or 34% decrease from 1993 interest expense, as a result 
of lower average debt levels and lower weighted average interest rates.

      Net income for the year ended December 31, 1994 was, as a result of the 
foregoing, $172,000 as compared to a net loss of $1,166,000 in 1993.

Liquidity and Capital Resources

      Net working capital at December 31, 1995 was $2,495,000, a decrease of 
$278,000 from the $2,773,000 of net working capital at December 31, 1994. The 
working capital ratio at December 31, 1995 was 1.9 to 1 as compared to 2.2 to 
1 at December 31, 1994. The decrease in working capital and the related ratio 
was principally due to the operating loss and the increase in bank borrowings.

      Operating activities used $1,122,000 of cash in 1995, principally due to 
the operating loss, and increases in both accounts receivable and inventories 
in support of the Company's increased sales levels.

      Investing activities used $432,000 of cash in 1995, principally due to 
the Company's acquisition of a 50% ownership of ATC which required a $390,000 
capital contribution.

      Financing activities provided $1,272,000 of cash in 1995, principally 
due to borrowings under the Company's revolving loan facility, and to proceeds 
from the exercise of warrants. On June 5, 1995, the Company entered into a one 
year renewable Commercial Loan and Security Agreement (the "Loan Agreement") 
with Affiliated Business Credit Corporation, replacing the Fleet Agreement, 
which provided for a $1.5 million revolving line of credit.  Under the terms 
of the Loan Agreement, borrowings bear interest at the prime rate plus 1.5% on 
the greater of (i) the actual monthly loan balance or (ii) a minimum assumed 
monthly loan balance of $600,000. The Company may borrow against the aggregate 
of (i) 75% of eligible accounts receivable (domestic receivables less than 90 
days old) and (ii) 25% of eligible inventory (up to a maximum inventory 
advance of $300,000), up to the maximum amount of the facility. Borrowings 
under the Loan Agreement are repayable upon demand, and are secured by all of 
the Company's assets. As of December 31, 1995, the unused credit line was 
approximately $48,000. The average and highest amounts borrowed under all 
credit facilities during the year ended December 31, 1995 was $880,000 and 
$1,479,000, respectively. The Company's borrowings are dependent upon the 
continuing generation of collateral, subject to its credit limit.

      On March 11, 1996, the Loan Agreement was extended to May 31, 1997, and 
the amount of the credit line was increased from $1.5 million to $2.0 million. 
The Loan Agreement was further amended to (i) temporarily increase the 
Eligible Inventory advance rate from 25% to 40% until May 31, 1996, followed 
by a gradual decline ranging from 2% to 1% per month, to return to 25% by 
February 1, 1997, (ii) temporarily increase the maximum inventory advance 
amount to $425,000 through  May 31, 1996, followed by  a gradual decline 
ranging from $25,000 to $12,500 per month, to return to $300,000 by February 
1, 1997, and (iii) increase the minimum assumed monthly loan balance to 
$700,000.

      On March 13, 1996, the Company's newly formed subsidiary, Farmstead 
Asset Management Services, LLC, entered into a two year lease for 
approximately 70,100 square feet of warehouse and office space in Piscataway, 
New Jersey at a monthly rent of $24,827 commencing in April 1996. This 
facility will be used for the remarketing of used AT&T telephone and computer 
equipment, and for the provision of asset storage and management services. The 
Company estimates that the start-up costs of this new operation will 
approximate $350,000. See Note 12 of the Notes to Financial Statements.

      During 1995, the Company consumed a significant amount of its capital 
resources on the ATC acquisition, as well as on the pursuit of other 
international business development activities. As further described in Note 11 
of the Notes to Financial Statements, the Company expected to participate in 
the formation of another PRC joint venture company in connection with the JV 
Agreement and Interim Agreement, but agreed to terminate said agreements, due 
to a lack of sufficient capital resources. The Company believes that it has 
sufficient capital resources to satisfy the working capital requirements of 
its current operations. The Company's intent, however, is to continue to seek 
opportunities to expand its business and product lines both domestically and 
internationally. The Company has recently reduced the scope of certain 
international projects, as previously stated, in order to conserve its capital 
resources, and such international projects will most likely require external 
sources of financing in order for the Company to proceed on the scale that it 
had previously pursued. The Company may also require additional external 
sources of financing in order to further expand its domestic business.

      Inflation has not been a significant factor in the Company's operations.

Item 7. Financial Statements

      The following report and financial statements of the Company are 
contained on the pages indicated:

                                                                        Page
                                                                        ----

Report of Deloitte & Touche LLP......................................   22
Balance Sheets - December 31, 1995 and 1994..........................   23
Statements of Operations - Years Ended December 31, 1995 and 1994....   24
Statement of Changes in Stockholders' Equity - Years Ended
 December 31, 1995 and 1994..........................................   24
Statements of Cash Flows - Years Ended December 31, 1995 and 1994....   25
Notes to Financial Statements........................................   26

Item 8. Changes in and Disagreements with Accountants on Accounting and 
        Financial Disclosure.

      None.


                                  PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; 
        Compliance with Section 16 (a) of the Exchange Act

      Incorporated by reference to the Company's proxy statement which the 
Company intends to file with the Securities and Exchange Commission within 120 
days after the close of its fiscal year, except for the following:

<TABLE>
<CAPTION>

                                            Year First
Name                                  Age   Elected      Position(s) Held
----                                  ---   ----------   ----------------

<S>                                   <C>   <C>          <C>                          
Directors:
----------
George J. Taylor, Jr.(2)..........    53    1984         Chairman of the Board, President, Chief
                                                         Executive Officer and Director 

Robert G. LaVigne.................    44    1988         Vice President - Finance & Administration,
                                                         Chief Financial Officer, Secretary, Treasurer,
                                                         Director

Harold L. Hansen(1)(2)(3).........    66    1992         Director

Hugh M. Taylor(1)(2)(3)...........    52    1993         Director

Joseph J. Kelley(1)(2)(3).........    56    1995         Director

Other Executive Officers:
-------------------------

Alexander E. Capo.................    45    1987         Vice President - Marketing & Sales

Joseph A. Novak, Jr...............    53    1993         Vice President - Operations

Neil R. Sullivan..................    45    1994         Corporate Controller, General Manager,
                                                         Assistant Secretary

John G. Antonich..................    55    1996         General Manager, Cobotyx Division

-------------------
<F1> Member of the Audit Committee.
<F2> Member of the Compensation Committee.
<F3> Member of the Stock Option Committee. 
</TABLE>

      George J. Taylor, Jr. has been Chairman of the Board of Directors and 
Chief Executive Officer of the Company (including its predecessors) since 
1984, and President since 1989. He was a director of FIC Acquisition 
Corporation (formerly Farmstead International Corporation) from 1988 until 
1992, and was also the President of Lease Solutions, Inc. (formerly Farmstead 
Leasing, Inc.), a business products and automobile leasing company, from 1981 
until it was dissolved in 1993. From 1977 to 1981, Mr. Taylor was Vice 
President - Marketing and Sales for National Telephone Company. He was one of 
the founders of the National Association of Telecommunication Dealers, has 
been a member of, or advisor to, its Board of Directors since its inception in 
1986, and for two years served as its President and Chairman. Mr. Taylor is 
the brother of Mr. Hugh M. Taylor. Mr. Taylor is also a Director of ATC.

      Robert G. LaVigne was employed by the Company in March 1988 and has 
served in the capacities indicated above since July 1988. In addition, from 
January 1994 until October 1994 he served as General Manager of the domestic 
telephone equipment business unit. From 1985 to 1988 he was the Controller of 
Economy Electric Supply, Inc., a distributor of electrical supplies and 
fixtures. From 1982 to 1985 he was the Corporate Controller of Hi-G, Inc., a 
manufacturer of electronic and electromechanical components. Mr. LaVigne is a 
Certified Public Accountant, and was associated with the accounting firm of 
Arthur Young and Company from 1977 to 1982. Mr. LaVigne is also a Director of 
ATC.

      Harold L. Hansen, a director of the Company since 1992, is currently the 
President of Hansen Associates, a management and financial consulting firm 
founded by him in 1983.  From November 1994 to April 1995 he was the President 
of H2O Environmental, Inc., an environmental and geotechnical services 
company. During 1993 and 1994 he was the President of Hansen Associates. Prior 
to 1983 Mr. Hansen served in various corporate executive capacities including 
Executive Vice President and Chief Operating Officer of Gestetner Corporation, 
Vice President and General Manager of the Office Products Division of Royal 
Business Machines and Vice President and General Manager of the Business 
Products Group of Saxon Industries.

      Hugh M. Taylor has been a director of the Company since July 1993. Since 
June 1994 he has served as a Managing Director of Newbury, Piret & Co., an 
investment banking firm located in Boston, MA. From 1993 to June 1994 he was 
the CEO, President and a director of the Berlin City Bank, Berlin, New 
Hampshire. From 1992 to 1993 he was the Executive Vice President of Fleet Bank 
of Massachusetts. From 1990 to 1992 he was the Executive Vice President and 
Chief Operating Officer of Fleet Bank of Boston. From 1973 to 1990 he was 
employed by the New England Merchants Bank, later the Bank of New England, 
where he held various executive management positions within the Commercial 
Banking Division, and the bank's venture capital subsidiary. Mr. Taylor is the 
brother of Mr. George J. Taylor, Jr.

      Joseph J. Kelley  has been a director of the Company since April 1995. 
He has been involved in the telecommunications industry since 1963. He is 
currently President of East Haven Associates of Wellesley, in Wellesley, 
Massachusetts. The Company provides executive and technical support for 
European and Asian based communication companies seeking to expand market 
share in the U.S., as well as for U.S. companies seeking to expand 
internationally. During 1994, he was Group Vice President of NYNEX, 
responsible for the State of Massachusetts operations. From 1985 to 1994 he 
served in various executive level positions with NYNEX, or associated 
companies including Vice President - Operations of New England Telephone (1991 
- 1993), Vice President - New England Telephone, Network Department (1990 - 
1991), Corporate Director of Business Development, NYNEX Marketing (1988 - 
1990) and Vice President of New England Telephone - Maine (1985 - 1988).

      Alexander E. Capo has been involved in the telephone industry since 
1972. He has held the position of Vice President - Marketing and Sales since 
1987. From 1985 to 1987 he was the Director of Sales for The Farmstead Group, 
Inc. Prior thereto he was a Sales Manager with the National Telephone Company.

      Joseph A. Novak, Jr. was employed by the Company in January 1990. He was 
appointed Vice President - Operations in July 1993, and since August 1995 has 
been in charge of warehouse and technical operations for the Company's 
international telephone equipment business. From 1990 to 1993 he was in charge 
of warehouse and technical operations for the domestic telephone equipment 
business unit. Prior to 1990, he was employed by AT&T for 28 years, serving in 
various operational and sales management capacities. Mr. Novak is also Vice 
General Manager and a Director of ATC.

      Neil R. Sullivan was employed by the Company in October 1994 as 
Corporate Controller and as General Manager of the domestic telephone 
equipment business unit, and in December 1994 was also appointed Assistant 
Secretary of the Company. From 1981 to 1994 he was employed by Zero 
Corporation ("Zero"), a manufacturer of cabinets, cooling equipment and 
containers for the electronics industry. Mr. Sullivan was Controller of 
various divisions of Zero from 1981 to 1991, and was Vice President/General 
Manager of the Zero-East division from 1991 to 1994.

      John G. Antonich was employed by the Company as Director of Sales in 
July 1993. In February 1996, he was appointed General Manager of the Cobotyx 
voice processing products division. From January 1991 to April 1993 he was an 
Account Executive with Quodata, a software manufacturer. For two years prior 
thereto he was a part owner of Accurate Data, a computer systems dealer.

Item 10. Executive Compensation

      Incorporated by reference to the Company's proxy statement which the 
Company intends to file with the Securities and Exchange Commission within 120 
days after the close of its fiscal year.

Item 11. Security Ownership of Certain Beneficial Owners and Management

      Incorporated by reference to the Company's proxy statement which the 
Company intends to file with the Securities and Exchange Commission within 120 
days after the close of its fiscal year.

Item 12. Certain Relationships and Related Transactions 

      Incorporated by reference to the Company's proxy statement which the 
Company intends to file with the Securities and Exchange Commission within 120 
days after the close of its fiscal year.


                                   PART IV

Item 13. Exhibits and Reports on Form 8-K

Exhibits: See Index to Exhibits on page 34.

Reports on Form 8-K: The registrant did not file any reports on Form 8-K 
during the fourth quarter of 1995.


                                 SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the 
registrant caused this report to be signed on its behalf by the undersigned, 
thereunto duly authorized.

                                       FARMSTEAD TELEPHONE GROUP, INC.

                                   By: /s/ George J. Taylor, Jr.
                                       George J. Taylor, Jr.
                                       Chairman of the Board, Chief
                                       Executive Officer and President


                                 Date: March 18, 1996


In accordance with the Exchange Act, this report has been signed below by the 
following persons on behalf of the registrant and in the capacities and on the 
dates indicated.

<TABLE>
<CAPTION>

Signature                     Title                                Date
---------                     -----                                ----

<S>                           <C>                                  <C>
/s/ George J. Taylor, Jr.     Chairman of the Board,               March 18, 1996
-------------------------     Chief Executive Officer,
    George J. Taylor, Jr.     and President
                              (Principal Executive Officer)

/s/ Robert G. LaVigne
-------------------------     Vice President - Finance and         March 18, 1996
    Robert G. LaVigne         Administration, Chief Financial
                              Officer and Director (Principal
                              Financial and Accounting Officer)

/s/ Harold L. Hansen          Director                             March 18, 1996
-------------------------
    Harold L. Hansen

/s/ Hugh M. Taylor            Director                             March 18, 1996
-------------------------
    Hugh M. Taylor

/s/ Joseph J. Kelley          Director                             March 18, 1996
-------------------------
    Joseph J. Kelley
</TABLE>


                       REPORT OF DELOITTE & TOUCHE LLP

Deloitte &
  Touche LLP
------------              -----------------------------------------------------
                          City Place                  Telephone: (203) 280-3000
                          185 Asylum Street
                          Hartford, Connecticut 06103-3402

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Farmstead Telephone Group, Inc.
East Hartford, Connecticut

We have audited the accompanying balance sheets of Farmstead Telephone Group,
Inc. as of December 31, 1995 and 1994, and the related statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Farmstead Telephone Group, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

/s/ Deloitte & Touche LLP

March 8, 1996


                      FARMSTEAD TELEPHONE GROUP, INC.

                              BALANCE SHEETS
                        December 31, 1995 and 1994

<TABLE>
<CAPTION>
(In thousands, except number of shares)                       1995       1994
-----------------------------------------------------------------------------

                                  ASSETS

<S>                                                           <C>        <C>
Current assets:
  Cash and cash equivalents (Note 2)                          $  622     $  904
  Accounts receivable, less allowance for doubtful
   accounts of $121 in 1995 and $87 in 1994                    2,691      2,242
  Inventories                                                  1,946      1,696
  Other current assets                                           139        211
                                                              -----------------
      Total current assets                                     5,398      5,053
Property and equipment, net of accumulated depreciation and
 amortization of $326 in 1995 and $187 in 1994 (Note 3)          256        266
Investment in unconsolidated subsidiary (Note 8)                 201          -
Other assets                                                      54        105
                                                              -----------------
      Total assets                                            $5,909     $5,424
                                                              ================= 

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Bank borrowings (Note 4)                                    $1,452     $  578
  Accounts payable                                             1,053      1,406
  Accrued expenses and other current liabilities                 398        296
                                                              -----------------
      Total current liabilities                                2,903      2,280
Other liabilities                                                  -         10
                                                              ----------------- 
      Total liabilities                                        2,903      2,290
Commitments and contingencies (Note 9)
Stockholders' equity:
  Preferred stock, $0.001 par value; 2,000,000 shares 
   authorized; zero shares issued and outstanding                  -          -
  Common stock, $0.001 par value; 30,000,000 shares 
   authorized; 21,238,676 and 20,398,947 shares issued 
   and outstanding in 1995 and 1994, respectively                 21         20
  Additional paid-in capital                                   8,431      8,045
  Stock subscriptions receivable (Note 7)                          -        (38)
  Accumulated deficit                                         (5,446)    (4,893)
                                                              -----------------
      Total stockholders' equity                               3,006      3,134
                                                              -----------------
      Total liabilities and stockholders' equity              $5,909     $5,424
                                                              =================
</TABLE>

               See accompanying notes to financial statements.


                       FARMSTEAD TELEPHONE GROUP, INC.

                          STATEMENTS OF OPERATIONS
                   Years Ended December 31, 1995 and 1994

<TABLE>
<CAPTION>
(In thousands, except per share amounts)                      1995       1994
-----------------------------------------------------------------------------

<S>                                                           <C>        <C>
Sales and service revenues                                    $15,317    $11,787
                                                              ------------------
Costs and expenses:
  Cost of goods and services sold                              10,645      8,230
  Selling, general and administrative expenses                  4,835      3,183
  Research and development expenses                                99        217
  Interest expense                                                 99         40
  Equity in unconsolidated subsidiary (Note 8)                    197          -
  Other income                                                    (14)       (58)
                                                              ------------------ 
      Total costs and expenses                                 15,861     11,612
                                                              ------------------
Income (loss) before income taxes                                (544)       175
Provision for income taxes                                          9          3
                                                              ------------------
Net income (loss)                                             $  (553)   $   172
                                                              ==================

Net income (loss) per share                                   $  (.03)   $   .01
                                                              ==================
Weighted average common and common equivalent shares
 outstanding (000's)                                           20,842     21,608
                                                              ==================
</TABLE>


                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                   Years Ended December 31, 1995 and 1994

<TABLE>
<CAPTION>

                                     Common Stock        Additional   Stock sub-     Accum-
                                   -----------------     paid-in      scriptions     ulated
(In thousands)                     Shares     Amount     capital      receivable     deficit      Total
-------------------------------------------------------------------------------------------------------

<S>                                <C>        <C>        <C>          <C>            <C>          <C>
Balance at December 31, 1993       19,251     $19        $7,625       $  -           $(5,065)     $2,579
Stock options exercised                29       -             7          -                 -           7
Warrants exercised                    119       -            59          -                 -          59
Private placements of stock         1,000       1           354        (38)                -         317
Net income                              -       -             -          -               172         172
                                   ---------------------------------------------------------------------
Balance at December 31, 1994       20,399      20         8,045        (38)           (4,893)      3,134
Warrants exercised                    840       1           419          -                 -         420    
Private placements of stock             -       -           (33)        38                 -           5
Net loss                                -       -             -          -              (553)       (553)
                                   ---------------------------------------------------------------------
Balance at December 31, 1995       21,239     $21        $8,431       $  -           $(5,446)     $3,006
                                   =====================================================================
</TABLE>

                See accompanying notes to financial statements.


                       FARMSTEAD TELEPHONE GROUP, INC.

                          STATEMENTS OF CASH FLOWS
                   Years Ended December 31, 1995 and 1994

<TABLE>
<CAPTION>
(In thousands)                                                 1995       1994
------------------------------------------------------------------------------

<S>                                                            <C>        <C> 
Cash flows from operating activities:
  Net income (loss)                                            $  (553)   $   172
  Adjustments to reconcile net income (loss) to net 
   cash flows used in operating activities:
    Depreciation and amortization                                  158        114
    Gross profit deferred on sales to unconsolidated
     subsidiary                                                    171          -
    Equity in undistributed loss of unconsolidated
     subsidiary                                                     20          -
    Changes in operating assets and liabilities, net of
     effects from assets purchased from CCI in 1994:
      Increase in accounts receivable                             (449)    (1,420)
      Increase in inventories                                     (250)       (80)
      Decrease in other assets                                      16        140
      Increase (decrease) in accounts payable, accrued
       expenses and other current liabilities                     (235)       955
                                                               ------------------
    Net cash used in operating activities                       (1,122)      (119)
                                                               ------------------
Cash flows from investing activities:                     
  Purchases of property and equipment                             (108)      (194)
  (Increase) decrease in short-term investments                     75        (75)
  Investment in unconsolidated subsidiary (Note 8)                (399)         -
                                                               ------------------  
    Net cash used in investing activities                         (432)      (269)
                                                               ------------------ 
Cash flows from financing activities:
  Payment of asset purchase obligation (Note 5)                      -       (375)
  Proceeds from short-term and long-term borrowings                874          -
  Repayments of short-term and long-term borrowings and
   capital lease obligation                                        (27)      (189)
  Proceeds from exercise of stock options and warrants, net        420         66
  Proceeds from sales of common stock, net                           5        317
                                                               ------------------
    Net cash provided by (used in) financing activities          1,272       (181)
                                                               ------------------ 
Net decrease in cash and cash equivalents                         (282)      (569)
Cash and cash equivalents at beginning of period                   904      1,473
                                                               ------------------
Cash and cash equivalents at end of period                     $   622    $   904
                                                               ==================

Supplemental schedule of non-cash financing and investing
 activities:
  Sale of common stock for subscription receivable             $     -    $    38
  Allocation of asset purchase obligation to assets acquired:
    Inventories                                                      -        350
    Fixed assets                                                     -         25
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest                                                       102         36
    Income taxes                                                     4          3
</TABLE>

               See accompanying notes to financial statements.


                       FARMSTEAD TELEPHONE GROUP, INC.
                        NOTES TO FINANCIAL STATEMENTS

NOTE 1. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Operations

      Farmstead Telephone Group, Inc. (the "Company") is engaged in the 
Customer Premise Equipment ("CPE") segment of the telecommunications 
industry, principally as a secondary market reseller of used and/or 
refurbished AT&T business telephone parts and systems, and as a designer, 
manufacturer and supplier of proprietary voice (or "call") processing 
systems that provide automated call handling, voice and fax messaging, 
interactive voice response, automated call distribution and message 
notification functionality. The Company also provides equipment repair and 
refurbishing, inventory management, and other related value-added 
services. The Company sells its products and services to corporate end 
users, and to other dealers and distributors. CPE refers to equipment 
which resides at the customer's premises.

Accounting Estimates

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

Investment in Unconsolidated Subsidiary

      Investment in an unconsolidated 50% owned subsidiary is accounted 
for by the equity method. Under the equity method, the original investment 
is recorded at cost and subsequently increased or decreased by the 
Company's share of the subsidiary's undistributed earnings or losses, less 
distributions. The investment is also reduced by the amount of any 
deferred gross profits on sales to the subsidiary until such time as the 
related goods are resold by the subsidiary.

Revenue 

      Product sales revenues are recognized upon shipment. Revenues from 
other provided services are recognized as the service is provided.

Cash and Cash Equivalents

      The Company considers all highly liquid investments purchased with 
an initial maturity of three months or less to be cash equivalents.

Inventories

      Inventories are stated at the lower of cost or market. Cost is 
determined on an average basis, which approximates the first-in, first-out 
method. 

Property and Equipment

      Property and equipment are stated at cost. Depreciation is computed 
using the straight-line method over the estimated useful lives of the 
related assets which range from three to five years. Maintenance, repairs 
and minor renewals are charged to operations as incurred.

Income Taxes

      The Company provides for income taxes under the asset and liability 
method, under which deferred tax assets and liabilities are recognized for 
the future tax consequences attributable to differences between the 
financial statement carrying amounts of existing assets and liabilities 
and their respective tax bases. Deferred tax assets and liabilities are 
measured using enacted tax rates expected to apply to taxable income in 
the years in which those temporary differences are expected to be 
recovered or settled. The effect on deferred tax assets and liabilities of 
a change in tax rates is recognized in income in the period that includes 
the enactment date.

Net Income (Loss) Per Share

      Net income (loss) per share is based on the weighted average number 
of shares outstanding during each period. Fully diluted per share amounts 
are not shown for the periods in which the effect is immaterial or 
antidilutive.  In calculating weighted average shares outstanding, all 
securities convertible into common stock, such as stock options, warrants, 
and units, are excluded if their effect on net income (loss) per share is 
antidilutive.

Reclassifications

      Certain December 31, 1994 balance sheet accounts have been 
reclassified in order to conform with the December 31, 1995 presentation.

New Accounting Pronouncement

      The Company has not adopted the recently issued Statement of 
Financial Accounting Standards No. 123, "Accounting for Stock-based 
Compensation," ("SFAS 123") which is required to be adopted in the first 
quarter of 1996. The Company currently records compensation based on the 
provisions of Accounting Principles Board Opinion No. 25, "Accounting for 
Stock Issued to Employees," as allowed by SFAS 123. The Company is 
continuing to evaluate whether or not it will change to the recognition 
provisions of SFAS 123.

NOTE 2. CASH AND CASH EQUIVALENTS

      Cash and cash equivalents at December 31, 1995 and 1994 includes 
$100,000, invested in a money market fund, which has been pledged as 
collateral with Fleet Bank N.A. in connection with a letter of credit 
issued to one of the Company's vendors. The letter of credit expires March 
31, 1996.

NOTE 3. PROPERTY AND EQUIPMENT 

      As of December 31, the components of property and equipment were
as follows (in thousands):

<TABLE>
<CAPTION>

                                                   1995           1994
                                                   -------------------

<S>                                                <C>            <C>
At cost:
 Equipment                                         $ 402          $ 274
 Furniture and fixtures                               76             74
 Leasehold improvements                               46             47
 Leased equipment under capital lease (a)             58             58
                                                   --------------------
                                                     582            453
Less accumulated depreciation and amortization      (326)          (187)
                                                   --------------------
                                                   $ 256          $ 266
                                                   ====================

<Fa> The Company leased computer equipment under a noncancelable lease 
     contract which expired in February 1996.
</TABLE>

NOTE 4. BANK BORROWINGS 

      In August 1993, the Company entered into a $750,000 Revolving Credit 
and Security Agreement ("Fleet Agreement") with Fleet Bank, N.A. for an 
initial term of twenty-two months expiring June 1995.  Borrowings under 
the Fleet Agreement bore interest at 1% over the Prime Rate, were based 
upon 80% of eligible receivables (principally domestic receivables less 
than 90 days old) and 30% of eligible inventory (up to a maximum inventory 
advance of $225,000 or 30% of all outstanding borrowings). The Fleet 
Agreement was secured by the Company's assets and by the guarantee of the 
Connecticut Development Authority to the extent of 24% of the outstanding 
borrowings up to a maximum of $225,000. The Fleet Agreement contained 
covenants which, among other things, required the Company to maintain a 
minimum of $1 million of working capital, plus maintain specific liquidity 
and solvency ratios. The Company was in compliance with all covenants of 
the Credit Agreement at December 31, 1994, except that it did not meet its 
required debt service ratio of a minimum of 1.2 to 1, because it had 
negative cash flow from operations in 1994.  In March 1995, the Company 
was granted a waiver of this covenant by the Bank.  The Fleet Agreement 
also contained a $100,000 compensating balance requirement. 

      On June 5, 1995, the Company entered into a one year renewable 
Commercial Loan and Security Agreement (the "Loan Agreement") with 
Affiliated Business Credit Corporation, replacing the Fleet Agreement, 
which provided for a $1.5 million revolving line of credit.  Under the 
terms of the Loan Agreement, borrowings bear interest at the prime rate 
plus 1.5% on the greater of (i) the actual monthly loan balance or (ii) a 
minimum assumed monthly loan balance of $600,000. The Company may borrow 
against the aggregate of (i) 75% of eligible accounts receivable (domestic 
receivables less than 90 days old) and (ii) 25% of eligible inventory (up 
to a maximum inventory advance of $300,000), up to the maximum amount of 
the facility. Borrowings under the Loan Agreement are repayable upon 
demand, and are secured by all of the Company's assets.  As of December 
31, 1995, the unused credit line was approximately $48,000.  The average 
and highest amounts borrowed under all credit facilities during the year 
ended December 31, 1995 was $880,000 and $1,479,000, respectively, as 
compared to $406,000 and $686,000, respectively, for 1994.  The Company's 
borrowings are dependent upon the continuing generation of collateral, 
subject to its credit limit. The weighted average interest rate on the 
Company's outstanding debt was 11.0% for 1995 and 8.8% for 1994.

      On March 11, 1996, the Loan Agreement was extended to May 31, 1997, 
and the amount of the credit line was increased from $1.5 million to $2.0 
million. The Loan Agreement was further amended to (i) temporarily 
increase the Eligible Inventory advance rate  from 25% to 40% until May 
31, 1996, followed by a gradual decline ranging from 2% to 1% per month, 
to return to 25% by February 1, 1997, (ii) temporarily increase the 
maximum inventory advance amount to $425,000 through May 31, 1996, 
followed by a gradual decline  ranging from $25,000 to $12,500 per month, 
to return to $300,000 by February 1, 1997, and (iii) increase the minimum 
assumed monthly loan balance to $700,000.

NOTE 5. ACQUISITION

      As of January 24, 1994, the Company acquired certain assets of 
Cobotyx Corporation, Inc. ("CCI"), a designer, manufacturer and supplier 
of voice processing systems which was in proceedings for the 
reorganization of its business under Chapter 11 of the United States 
Bankruptcy Code, for a purchase price of $375,000. The assets acquired 
included technology and know-how, inventories, property and equipment, 
executory contract rights, the name "Cobotyx," and any other trademarks, 
tradenames, service marks, patents, patent applications, copyrights and 
other intangible property, and contractual rights relating thereto. 

      Under the purchase method of accounting, the Company assigned a 
value of $350,000 to the inventories acquired from CCI, and $72,000 (which 
amount includes $47,000 of other direct acquisition costs, principally 
legal and accounting costs) to fixed assets. The allocation of the 
acquisition costs was based upon the fair value of the assets acquired. 
Because this transaction was made close to the beginning of 1994, pro 
forma results for 1994 were not considered necessary.

NOTE 6. STOCK OPTIONS

      The 1986 Key Employees and Key Personnel Stock Option Plan (amended 
in June 1988) permits the granting of options to purchase up to 400,000 
shares of common stock. The options may be granted at no less than market 
value at the time of granting except, for a 10% or more stockholder, the 
exercise price shall not be less than 110% of market value. The plan 
terminates in October 1996. Options granted under this plan expire on 
various dates through 2002. 

      The 1987 Key Employees and Key Personnel Stock Option Plan permits 
the granting of options to purchase up to 750,000 shares of common stock. 
The terms of this plan are the same as the 1986 Plan. The 1987 Plan 
terminates in March 1997. Options granted expire on various dates through 
2000. 

      The 1992 Stock Option Plan permits the granting of options to 
purchase up to 3,500,000 shares of common stock. The terms of this plan 
are essentially the same as the 1986 Plan. The Plan terminates in 2002, 
and options currently granted expire on various dates through 2005. 

      A summary of transactions for these plans for each of the two years 
in the period ended December 31, 1995 is as follows:

<TABLE>
<CAPTION>

                                                    1986 Plan                                   1987 Plan
                                      ---------------------------------------     ---------------------------------------
                                      Number of Shares     Option Price Range     Number of Shares     Option Price Range
                                      -----------------------------------------------------------------------------------

<S>                                   <C>                  <C>                    <C>                  <C>  
Outstanding at December 31, 1993      43,000               $.18 - 1.00            116,000              $.16 - .17 
  Granted                                  -                         -                  -                       - 
  Exercised                           (5,000)                      .22            (16,000)                    .16 
  Canceled or lapsed                  (1,500)                      .18                  -                       - 
                                      ---------------------------------------------------------------------------
Outstanding at December 31, 1994      36,500               $.16 - 1.00            100,000              $      .16 
  Granted                                  -                         -                  -                       - 
  Exercised                                -                         -                  -                       - 
  Canceled or lapsed                  (5,000)                      .22                  -                       - 
                                      ---------------------------------------------------------------------------
Outstanding at December 31, 1995      31,500               $.16 - 1.00            100,000              $      .16 
                                      ===========================================================================

As of December 31, 1995:                                 
  Exercisable                         31,500               $.16 - 1.00            100,000              $      .16 
  Available for future grant          25,000                                       45,000           
</TABLE>

<TABLE>
<CAPTION>

                                                    1992 Plan                         
                                      ---------------------------------------
                                      Number of Shares     Option Price Range
                                      ---------------------------------------

<S>                                     <C>                <C>  
Outstanding at December 31, 1993        624,500            $.48 - 1.47
  Granted                               925,000             .63 - 1.61                
  Exercised                              (7,500)                   .48                
  Canceled or lapsed                    (40,000)            .86 - 1.47                
                                      --------------------------------
Outstanding at December 31, 1994      1,502,000             .48 - 1.61
  Granted                             1,160,000             .25 -  .52                
  Exercised                                   -                      -                
  Canceled or lapsed                   (145,000)            .38 - 1.34                
                                      --------------------------------
Outstanding at December 31, 1995      2,517,000            $.25 - 1.18                
                                      ================================

As of December 31, 1995:                                 
  Exercisable                           949,500            $.38 - 1.18                
  Available for future grant            955,917                           
</TABLE>

      On June 7, 1995, the Company's Board of Directors amended the 
exercise price of all outstanding options granted to employees and 
directors as of that date. The exercise prices, if higher, were reduced to 
$.42 per share, representing the fair market value of the common stock on 
that date. For owners of 10% or more of the common stock, the exercise 
price was reduced to 110% of the fair market value. 

      An officer of the Company has an exercisable option to purchase 
75,000 shares of common stock at $.156 per share pursuant to a 1990 grant 
outside of the above listed option plans. 

      In 1989, an option to purchase 100,000 shares of common stock at 
$1.00 per share was granted to Chancellor Corporation as consideration for 
entering into a lease financing and remarketing agreement. During 1993, 
options for 46,875 shares were exercised. The remaining options expired in 
March 1994.

      In June 1992, the Company granted a five year option to purchase up 
to 290,909 shares of common stock to The Wall Street Group, Inc. in 
conjunction with a public relations service agreement. The exercise price 
was $.34 per share, which represented the fair market value of the common 
stock at the grant date. No options have been exercised, and the options 
are fully exercisable as of December 31, 1995. 

NOTE 7. STOCKHOLDERS' EQUITY 

      In 1986, 416,663 warrants were issued in conjunction with the 
formation of the Company, each warrant entitling the holder to purchase 
one-half share of common stock at a price of $2.00 per share, expiring 
April 30, 1992 (which were further modified and extended as noted below).

      In May 1987, the Company sold 3,313,630 units in its initial public 
offering, each unit consisting of one share of common stock and a 
detachable unit warrant (together with the warrants issued in 1986, 
hereinafter referred to as "Public Warrants") entitling the holder to 
purchase one-half share of common stock at a price of $2.00 per share, 
expiring April 30, 1992. Pursuant to the underwriting agreement the 
Company issued to its underwriters options ("Underwriters Options") to 
purchase 331,363 of the Company's units, exercisable at $1.68 per unit 
through April 13, 1992. 

      Since May 1987, the Company has periodically extended and modified 
both the Public Warrants and the Underwriters Options. Currently, both are 
due to expire on June 30, 1996. The Public Warrants are exercisable at 
$2.00 per share, and entitle the holder to acquire one share of common 
stock for each warrant tendered. They are subject to redemption by the 
Company on thirty days written notice at a price of $.05 per warrant, if 
the bid price for the common stock is $3.00 or higher per share for ten 
consecutive business days.  The Underwriters Option is exercisable at 
$1.68 per unit, entitling the holder to acquire one share of common stock 
and a warrant, exercisable at $2.00 per share, to purchase one share of 
common stock.

      During the year ended December 31, 1995, 839,729 Public Warrants 
were exercised, raising approximately $420,000.  As of December 31, 1995, 
there were 1,835,727 Public Warrants outstanding.

      On April 18, 1994, the Company entered into agreements with 
Universal Solutions, Inc. ("USI") and Pyramid Holdings, Inc. ("PHI"), both 
of which are unaffiliated with the Company, pursuant to which each company 
subscribed for the purchase of 500,000 shares of the Company's common 
stock at a subscription price of $0.65 per share. By further agreement 
dated as of May 20, 1994, the subscription agreements were amended to fix 
the price per share at 57.8 percent of the average of the high and low bid 
price of the Company's common stock as of the date the registration of the 
purchased stock is declared effective by the Securities and Exchange 
Commission, subject to a minimum price of $0.45 and a maximum price of 
$0.75 per share. On February 3, 1995, the registration of these shares was 
declared effective, and a $0.45 per share subscription price was 
determined. As of December 31, 1994, the Company had received an aggregate 
of $375,000, and was holding the restricted shares in escrow, pending a 
determination of the final subscription price and full payment thereof.  
In March 1995 the Company made a business decision to reduce the $75,000 
balance owed for the shares by $37,500 in consideration of the length of 
the registration process, and the further deterioration of the Company's 
stock price. Included in stockholders' equity at December 31, 1994 is a 
subscriptions receivable balance of $37,500, representing the adjusted 
remaining subscription price receivable, which was paid in full in March 
1995.

      On October 31, 1995 the Company entered into an agreement 
("Financing Agreement") with the Robert S. Dorfman Company, Inc. 
("Dorfman") to provide investment banking services for the Company. In 
connection therewith, Dorfman was granted a warrant to purchase 20,000 
shares of common stock at $.01 per share. In addition, Dorfman will be 
issued warrants to purchase up to an additional 80,000 shares of common 
stock at $.01 per share contingent upon the completion of certain 
financing proposals as specified in the Financing Agreement. 

NOTE 8. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

      On December 31, 1994, the Company entered into an agreement to 
purchase D.W. International, Ltd.'s ("DWI") 50% ownership interest in 
Beijing Antai Communication Equipment Co., Ltd. ("ATC"), for a purchase 
price of $100.  The purchase transaction was completed effective May 30, 
1995 upon receipt of Chinese government approvals.  ATC, located in 
Beijing, Peoples Republic of China ("PRC"), was formed in October 1992 as 
a Joint Venture Enterprise , and is also owned 50% by Beijing Aquatic 
Product Inc., a registered company in the PRC. DWI is a Delaware 
Corporation owned 50% by Mr. Da Wei Wu, who serves as General Manager of 
ATC. ATC, previously a distributor for the Company in the PRC, markets, 
assembles, manufactures, installs and services the Company's central 
office, PBX and signaling interface products which have been developed for 
use in the PRC. ATC also distributes and installs local telecommunications 
transmission systems and home and business alarm systems, however their 
historical operations prior to the Company's acquisition have been 
insignificant. 

      Under Chinese laws governing equity joint ventures, the Company also 
made a $390,000 capital contribution to ATC to complete the $500,000 
original capital contribution requirement of the foreign party to the 
joint venture. The acquisition costs exceeded the underlying equity in the 
net assets of ATC by approximately $190,000 which will be amortized on a 
pro rata basis over the remaining 17 year term of the joint venture.

      Summarized financial information on ATC for 1995 from the date 
of the Company's acquisition is as follows ($000's):


<TABLE>

                       <S>                        <C>
                       Sales revenues             $ 15
                       Gross profit                  8
                       Net loss                    (41)
</TABLE>

      The following table shows the changes in the Company's investment in 
unconsolidated subsidiary ($000's):

<TABLE>

      <S>                                                                 <C> 
      Investment at December 31, 1994                                     $   -
      Capital contribution, including other direct acquisition costs        399    
      Equity in unconsolidated subsidiary:           
        Deferred gross profit on sales to subsidiary                       (171) 
        Equity in net losses                                                (20)
        Amortization of excess of cost over equity in net assets             (6)
                                                                          -----
     Investment at December 31, 1995                                      $ 201
                                                                          =====
</TABLE>

NOTE 9. LEASES AND OTHER COMMITMENTS AND CONTINGENCIES

      The Company leases, on a month-to-month basis, (i) approximately 
29,000 square feet of office and warehouse space in East Hartford, 
Connecticut which it uses for its principal executive and administrative 
offices and its telephone equipment operations and (ii) approximately 
6,000 square feet of office space in Danbury, Connecticut, which it uses 
for its voice processing products division. Rent expense was $ 201,000 in 
1995 and $185,000 in 1994. 

      On March 13, 1996, the Company's newly formed subsidiary, Farmstead 
Asset Management Services, LLC, entered into a two year lease for 
approximately 70,100 square feet of warehouse and office space in 
Piscataway, New Jersey at a monthly rent of $24,827 commencing in April 
1996. This facility will be used for the remarketing of used AT&T 
telephone and computer equipment, and for the provision of asset storage 
and management services.

NOTE 10. INCOME TAXES

      Current income tax expense attributable to income from continuing 
operations consists of state tax expense of $ 9,000 in 1995 and $3,000 in 
1994.  There was no deferred federal or state tax expense in either of 
those years.

      Income tax expense differed from the amounts computed by
applying the U.S. federal income tax rate of 34 percent to
pretax income from continuing operations as a result of the
following (in thousands):

<TABLE>
<CAPTION>

                                                          1995           1994
                                                          -------------------

<S>                                                       <C>            <C>
Computed "expected" tax expense (benefit)                 $(185)         $ 45
Increase (reduction) in income taxes resulting from:
  Amortization of goodwill                                   10            10
  State and local income taxes, net of federal 
   income tax benefit                                         6             2
  Unutilized loss of foreign subsidiary                       7            28
  (Realized) Unrealized benefit of operating loss
   carryforwards                                            164           (91)
  Other                                                       7             9
                                                          -------------------  
                                                          $   9          $  3
                                                          ===================
</TABLE>

      The tax effects of temporary differences that give rise to 
significant portions of the deferred tax assets and liabilities at 
December 31, 1995 and 1994 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                          1995          1994
                                                          ------------------

<S>                                                       <C>           <C>
Deferred tax assets:
  Accounts receivable, principally due to allowance 
   for doubtful accounts                                  $    65       $    27
  Inventories, principally due to additional costs
   inventoried for tax purposes pursuant to the 
   Tax Reform Act of 1986                                      77            19    
  Net operating loss and capital loss carryforwards         1,301         1,417
  Other                                                        32            28
                                                          ---------------------
    Total gross deferred tax assets                         1,475         1,491
    Less valuation allowance                               (1,475)       (1,491)
                                                          ---------------------
    Net deferred tax assets                               $     -       $     -
                                                          =====================    

Deferred tax liabilities                                  $     -       $     -
                                                          =====================
</TABLE>

      The valuation allowance is considered necessary due to the Company's 
past history of operating losses. The remaining net deferred tax assets 
have been reduced to the amount which management believes is more likely 
than not to be realized.

      The Company has net operating loss carryforwards for federal income 
tax purposes of approximately $3,594,000 of which approximately $550,000 
is subject to an annual limitation imposed by the Tax Reform Act of 1986, 
due to the change in ownership which occurred during 1987.  No federal 
income tax provision has been made in the accompanying financial 
statements because of the presence of net operating loss carryforwards. 
These carryforwards expire on various dates through 2009.

NOTE 11. BUSINESS DEVELOPMENTS 

      On July 27, 1995, the Company entered into a Joint Venture Agreement 
("JV Agreement") with Asia-Pacific Services, Inc. of Atlanta, Georgia 
("APSI") and Beijing Taikang Telecommunications, Inc., owned and operated 
by the Planning and Research Institute of the Ministry of Posts and 
Telecommunications, PRC ("Taikang"). The purpose of the joint venture 
("JV") was to be the assembly and marketing in the Chinese market and 
certain international markets of voice processing equipment and software, 
including all of the Company's current voice processing products. On July 
27, 1995 the Company also entered into an agreement ("Interim Agreement") 
with these same parties for the provision of product marketing and other 
business organization activities in advance of the startup of the JV. For 
the year ended December 31, 1995, the Company incurred expenses pursuant 
to these agreements of approximately $450,000, consisting of working 
capital provided, project management consulting fees, travel costs and 
demonstration products provided by the Company.

      As a result of the Company's inability to fund the $1 million 
initial capital contribution requested by Taikang, on November 1, 1995 the 
Company and Taikang agreed to terminate both the JV Agreement and the 
Interim Agreement.

NOTE 12. SUBSEQUENT EVENTS

      Effective February 29, 1996, the Company purchased from AT&T Systems 
Leasing Corporation, a subsidiary of AT&T Capital Corporation, certain 
assets of its discontinued Asset Recovery Center ("ARC") for a purchase 
price of $250,000. Prior to its closing in January 1996, the ARC primarily 
operated to service AT&T affiliates in the orderly disposition, by way of 
consignment sales arrangements, of excess, overstocked and end-of-life 
telecommunications, computer and data transmission equipment. The assets 
acquired consisted primarily of warehouse equipment, vehicles, computer 
and office equipment, and inventory. The Company concurrently formed a 
subsidiary corporation, Farmstead Asset Management Services, LLC (FAMS"), 
which will use the purchased assets to start up a similar operation in 
Piscataway, New Jersey. The Company intends to attempt to re-establish 
certain of the relationships that the ARC enjoyed, however, no assurances 
can be given that it will be able to do so.  The Company believes that the 
operations of FAMS will provide it with an opportunity to develop new 
sources of equipment for resale to its existing customers, as well as to 
other wholesalers in the telephone, data and computer secondary markets, 
and internationally.

                              INDEX TO EXHIBITS

      Registrant hereby incorporates by reference the following documents 
filed as part of the S-18 Registration Statement of the Company's 
securities declared effective on April 13, 1987 (File No. 3-9556B).

    3(a)   Certificate of Incorporation.

    3(b)   By-Laws.

    4(a)   Form of Unit Warrant.

    4(b)   Amended Form of Underwriter's Option.

    4(c)   1986 Key Employees and Key Personnel Stock Option Plan.

    4(d)   1987 Key Employees and Key Personnel Stock Option Plan.

   10(i)   Agreement between the Company and AT&T.

      Registrant hereby incorporates by reference the following exhibits 
filed with the Registrant's Annual Report for the year ended December 31, 
1988 on Form 10-K:

   10.5    Amendment to the 1986 Key Employees and Key Personnel
           Stock Option plan previously filed as Exhibit No. 4(c) in the
           Form S-18 Registration Statement of Farmstead Telephone Group,
           Inc. declared effective on April 3, 1987.

   10.6    Amendment to the 1987 Key Employees and Key Personnel
           Stock Option Plan previously filed as Exhibit No. 4(d) in the
           Form S-18 Registration Statement of Farmstead Telephone Group,
           Inc. declared effective on April 13, 1987.

      Registrant hereby incorporates by reference the following exhibits 
filed as part of the S-3 Registration Statement of the Company's 
securities declared effective on July 3, 1991 (File No. 33-41442)

    4      Form of Private Placement Warrant

      Registrant hereby incorporates by reference the following exhibits 
filed with the Registrant's Annual Report for the year ended December 31, 
1991 on Form 10-K:

   10.12   Certificate of Amendment of Certificate of Incorporation
           of Farmstead Telephone Group, Inc., dated July 10, 1991.

      Registrant hereby incorporates by reference the following exhibits 
filed with the Form S-3 Registration Statement of the Company's securities 
declared effective on October 29, 1992 (Registration No. 33-50432):

    4(a)   Resolutions adopted by Unanimous Written Consent of the
           Company's Board Of Directors dated as of July 9, 1992
           amending terms of Warrants and Underwriter's Options.

   10(e)   Agreement dated June 25, 1992 between the Company and The
           Wall Street Group, Inc.

      Registrant hereby incorporates by reference the following exhibit 
filed with the Registrant's Annual Report on Form 10-K for the year ended 
December 31, 1992:

    4(e)   1992 Stock Option Plan.

      Registrant hereby incorporates by reference the following exhibits 
filed as part of the Form S-8 Registration Statement filed May 13, 1993 
(Registration No. 33-62574):

    4.1    Consulting Agreement between Farmstead Telephone Group,
           Inc. and Universal Solutions, Inc. dated as of March 30, 1993.

    4.2    Consulting Agreement between Farmstead Telephone Group,
           Inc. and Investors Resource Services, Inc. dated as of March
           30, 1993.

      Registrant hereby incorporates by reference the following exhibits 
filed as part of Form 10-Q for the quarter ended September 30, 1993:

   10.16   Revolving Credit and Security Agreement between Fleet
           Bank, N.A. and Farmstead Telephone Group, Inc. dated August
           27, 1993.

   10.17   Revolving Credit Note dated August 27, 1993, in the
           principal amount of $750,000.

      Registrant hereby incorporates by reference the following exhibits 
filed as part of Form 8-K dated February 9, 1994:

    2.1    Asset Purchase Agreement dated January 24, 1994 by and
           between Farmstead Telephone Group, Inc. and Cobotyx
           Corporation, Inc.

    2.2    Promissory Note dated January 24, 1994, payable to Cobotyx
           Corporation, Inc.

      Registrant hereby incorporates by reference the following exhibit 
filed with the Registrant's Annual Report on Form 10-K for the year ended 
December 31, 1993:

   10.20   Summary compensation arrangements for named executives.1

      Registrant hereby incorporates by reference the following exhibits 
filed as part of Amendment No. 1, dated March 28, 1994, to Form 8-K dated 
February 9, 1994:

    2.3    Cobotyx Corporation, Inc. Financial Statements as of December
           31, 1992 and 1991 Together With Auditors' Report.

    2.4    Cobotyx Corporation, Inc. Financial Statements as of
           December 31, 1991 Together With Auditors' Report.

      Registrant hereby incorporates by reference the following exhibits 
filed as part of Form SB-2 , dated December 8, 1994 (Registration No. 33-
87134):

   10.1    Subscription Agreement between Farmstead Telephone Group,
           Inc. and Universal Solutions, Inc., dated April 18, 1994
           ("USI Agreement").

   10.1.1  Amendment No. 1 to USI Agreement.

   10.2    Subscription Agreement between Farmstead Telephone Group,
           Inc. and Pyramid Holdings, Inc., dated April 18,    1994 ("PHI
           Agreement").

   10.2.1  Amendment No. 1 to PHI Agreement.

   10.3    Agreement between Farmstead Telephone Group, Inc. and HIA
           Ltd., dated April 19, 1994. (Terminated)

   10.4    Employment Contract for George J. Taylor, Jr.

      Registrant hereby incorporates by reference the following exhibits 
filed as part of Form SB-2 , Amendment No. 1, dated January 21, 1995 
(Registration No. 33-87134):

   10.5    Consulting Agreements with Hansen Associates.

   10.6    Agreement between Farmstead Telephone Group, Inc. and
           Taikang Telecommunication Technology Company, dated November
           15, 1994. (Terminated)  

   10.7    Stock Purchase Agreement between Farmstead Telephone
           Group, Inc. and DW International Ltd., dated December 31,
           1994.

      Registrant hereby incorporates by reference the following exhibit 
filed with the Registrant's Annual Report on Form 10-KSB for the year 
ended December 31, 1994:

   10.1    Agreement dated March 8, 1995 by and among Farmstead
           Telephone Group, Inc., Taikang Telecommunication Technology
           Company of Planning and Research Institute of the Ministry
           of Posts and Telecommunications, Comprehensive Service
           Development Center of the Great Hall of the People, and
           Asia-Pacific Services, Inc. (Terminated)

   10.2    Letter of Intent dated March 8, 1995 by and among
           Farmstead Telephone Group, Inc., Taikang Telecommunication
           Technology Company of Planning and Research Institute of the
           Ministry of Posts and Telecommunications, Comprehensive Service
           Development Center of the Great Hall of the People, and
           Asia-Pacific Services, Inc. (Terminated)

   10.3    Summary compensation arrangements for Named Executive.

      Registrant hereby incorporates by reference the following exhibits 
filed with the Registrant's Quarterly Report on Form 10-QSB for the 
quarter ended June 30, 1995:

   10.1    Employment Agreement dated May 19, 1995, between Farmstead
           Telephone Group, Inc. and Peter Buswell

   10.2    Commercial Revolving Loan and Security Agreement dated
           June 5, 1995, between Farmstead Telephone Group, Inc. and
           Affiliated Business Credit Corporation

   10.3    Contract for Beijing Antai Communication Equipment Company
           Ltd., dated September 23, 1992

      The following exhibits are filed herewith:

   10.1    Letter agreement dated March 11, 1996, amending the
           Commercial Revolving Loan and Security Agreement dated June
           5, 1995 between Farmstead Telephone Group, Inc. and Affiliated
           Business Credit Corporation. 

   11      Statement re: Computation of per share earnings.

   21      Subsidiaries of Small Business Issuer