ITEM 1. 	BUSINESS
GENERAL: Micros-to-Mainframes, Inc.
	Micros-to-Mainframes, Inc. and its subsidiaries, MTM Advanced Technology, Inc., PTI Corporation (formerly known as Pivot Technologies, Inc.)("Pivot"), and Data.Com RESULTS, Inc. ("Data.Com") (collectively, the "Company" or "MTM") serve as a single source provider of advanced technology solutions, including design and consulting services, communication services and products, internet/Intranet development services, and Network and Security Managed Services. In addition, the Company delivers a total processing solution by providing computer hardware and software sales, systems design, installation, consulting, maintenance and integration of microcomputer products, including the design and implementation of wide area networks ("WAN's") and local area networks ("LANs"). The Company sells, installs and services microcomputers, microcomputer software products, supplies, accessories and custom designed microcomputer systems. MTM is an authorized direct dealer and value added reseller. The Company also serves as a systems integrator, by integrating into a single working system, for a client, a group of hardware and software products from more than 40 major computer vendors including Compaq Computer Corporation, Hewlett Packard Company, IBM Corporation, Dell Computer Corporation, NEC Technologies, Inc., Seagate Technology Inc., Citrix Systems, Inc., Cisco Systems, Inc., Canon USA, Inc., Novell, Inc., Microsoft Corporation, Toshiba American Information, Inc., 3COM Corporation, Cubix Corporation, Fore Systems, Inc. and Madge Development Corp. The Company also serves as a Managed Service Provider (MSP) providing automated remote network, system and security management solutions and related consulting and engineering.
	MTM provides its customers, which consists of certain Fortune 500 corporations and others which the Company believes are mostly in the Fortune 2000 category (hereinafter referred to as "Fortune 2000 corporations") in the tri-state New York Metropolitan area, with a wide range of related outsourced customer support services, including network analysis and design, systems configuration, physical installation, software loading, application training, continuing education, maintenance and repair services. A network is the integration of two or more computers and their components into a system that allows multiple users to share the same information, communicate with the mainframe (a computer with large capacity used primarily for massive data storage and processing) or central networking system and all other computers and peripheral equipment.
	The outsourcing of computer services is a rapidly growing trend whereby a client company obtains all or a portion of its data processing requirements from a systems integrator, such as MTM, that specializes in the computer service, product or application required by the client. Outsourcing is a fast growing component of the data processing industry. The focus of the Company's growth revolves around the Company's outsourced support services, which include contract programming, network consulting and staff leasing in addition to systems integration. Since 1991, the Company has been providing customer managed services and is focusing its current marketing efforts in such areas. Such services account for about 28% of the Company's current revenues, including a small amount of revenues derived from maintenance and repair services.
	The Company's software support services include network and mainframe connectivity (communication between computers and networks) consulting, hardware and software maintenance, network management, videoconferencing consulting and trouble-shooting support. The Company's clients have access to person-to-person support services administered by a staff of highly trained support engineers, generally via a toll-free 800 telephone call. The Company's clients also have access to MTM's consulting services for LAN and WAN planning, detailed systems design, gateway (a device which allows computer users to access data from networks to the mainframes or by telephone), bridge (a device which allows computer users to communicate between networks and provides an expansion route for the existing network) and security/disaster recovery.
	On February 8, 1999, the Company opened two E-Commerce web sites to enable the Company's clients to purchase the Company's products and/or services on-line. E-Commerce complements the Company's existing business by giving access to old and new clients to purchase the Company's products and/or services through the site. The site became fully operational on February 26, 1999.
	The Company reorganized its operations in Fiscal 2000. All of the services previously offered by the Company, including those provided by MTM, Pivot, the Advanced Technologies Group and Data.Com, are now reported as one unit. The service business represents over $22,367,000 in revenue for Fiscal 2001. The Company is presently reviewing options with its financial advisors for additional financing, subject to market conditions, to increase the sales and profitability of these operations. Although the Company believes that these operations will continue to grow, there can be no assurance that the Company will be able to obtain the financing necessary to fund this growth or that the service operations will obtain the business to increase its sales and profitability.
	The Company was incorporated on May 12, 1986 in the State of New York.
INDUSTRY
	The microcomputer industry has become a multi-billion dollar industry since its development in the late 1970's. Management believes that this is attributable to rapid technological advances leading to the development of significantly more powerful microcomputers at substantially lower prices than larger minicomputers. The use of microcomputers has become widespread throughout the workplace due to the smaller size of microcomputers, as compared to minicomputers, and the microcomputer's versatility and ability to connect to and share information with mainframe systems. The Company believes, based on its knowledge of the industry and industry data, that the microcomputer industry experienced a compound annual growth rate of almost 50% from 1984 to 1988 and a more modest annual rate of growth ranging from 10% to 17% since 1988. The Company believes that the industry will continue to grow at a modest rate in the future, although there can be no assurance that it will.
	Corporations purchase their computer hardware from a number of sources, including manufacturer authorized dealers and value-added resellers, such as MTM, retail stores and, with increasing importance, directly from manufacturers through direct telemarketing and mail order organizations. Direct sales have benefited from microcomputer users becoming more computer literate, the emergence of industry standards and increased inter-changeability of peripherals. As a result of the foregoing, the microcomputer dealer distribution channel is currently undergoing additional market segmentation into dealers such as the Company, which are systems integrators which offer a one-stop total solution for outsourcing.
PRODUCTS
	The Company markets microcomputers, printers, displays, video conferencing products, LAN and WAN products, plotters, software and other peripheral products. MTM is an authorized sales and service dealership of microcomputer equipment and related products supplied primarily by major manufacturers, including, but not limited to, Compaq Computer Corporation, IBM Corporation, Dell Computer Corporation, Hewlett-Packard Company, Seagate Technology, Inc., Cisco Systems, Inc., Fore Systems, Inc., Canon USA, Inc., Novell, Inc. and Toshiba American Information. The Company offers a variety of products manufactured by other companies, including Cisco Systems, Inc., Citrix Systems, Inc., NEC Technologies, Inc., 3COM Corporation, Cubix Corporation, Madge Development Corp. and others, and software products from major suppliers, including Microsoft Corporation and IBM.
	MTM purchases certain products from distributors selling to other dealers at prices generally lower than the Company could obtain directly from suppliers. The Company also obtains products from a number of suppliers, including independent distributors, on an individual purchase order basis rather than through dealership agreements. MTM will also order specific products from other manufacturers to satisfy a particular customer requirement. The Company regularly evaluates new products, both internally and through evaluations with its customers. See "Business - Suppliers."
	The microcomputer industry is characterized by numerous hardware systems that utilize different and often incompatible standards for hardware and software. The Company has the capability to design systems and support services which include products or components manufactured by numerous manufacturers that address most applicable industry standards.
	The Company is an authorized dealership for the various standardized LAN systems, including Cisco, Citrix, Novell, 3COM, Microsoft LAN Manager, the IBM Networking Internet Routers and compatible alternatives. In addition, the Company sells and services LAN and WAN products produced by the various manufacturers which it represents. LAN and WAN systems allow various microcomputers to communicate with other computers in a group and with other microcomputers in other LANs and WANs. The Company's clients have access to the Company's Connectivity and Communication Laboratory described below where they can test, design and create LANs and WANs.
OUTSOURCED SUPPORT SERVICES
	MTM support services include a wide range of services designed for its customers' corporate planners and management needing a single source for technical support issues, such as local and wide area networks, gateways, routers, bridges, system conversion planning, hardware and software specifications, database and database server development and implementation, videoconferencing, disaster recovery, network system management and security monitoring and management.
	The outsourcing of computer services is a rapidly growing trend in which a client company obtains all or a portion of its data processing requirements from a systems integrator, such as the Company, that specializes in the computer service, product or application required by the client.
	The Company believes that it is generally more cost-effective and more efficient for its clients to purchase outsourcing services from the Company than for them to provide equivalent services by hiring their own service and support personnel.
	The following services provide the Company's clients with the ability to outsource virtually all of their support requriements with one company for a wide variety of microcomputer hardware and software products. These services generally provide the Company's clients with access via an 800 telephone call to person-to-person support services administered by a staff of highly trained support engineers in the Company's Advanced Technology Group. There are presently 115 technical support persons under the supervision of a Data Communications Manager working in this area. This group is responsible for systems design and the implementation of technology and the management of advanced technology projects including LANs, WANs and data communications problem solving for clients.
NETWORK AND MAINFRAME CONNECTIVITY CONSULTING
	MTM and its staff of networking consultants offer experience at all levels of computers to provide management information services (MIS) departments with consulting services ranging from connectivity to enhancements, feasibility and implementation. These services address critical issues such as performance, reliability and compatibility with proven strategies and products. MTM offers research and planning insight at all levels of information flow from mainframes to minis to micros and within each system. These consulting services provide clients with access to a variety of options in designing and maintaining systems.
CONNECTIVITY AND COMMUNICATION LABORATORY
	The Company's Advanced Technology Group seeks to serve customers' increasing communications requirements, including their need to share data and resources using LANs and WANs. The Company offers an array of connectivity services, including LAN and WAN system design and configuration, videoconferencing consulting, user training and installation. In addition, the Company has established a Connectivity and Communication Laboratory in its executive offices. This state-of-the-art facility provides a multi-vendor environment to test connectivity networks, create multi-vendor LANs and WANs and solution prototypes, perform feasibility studies, perform pre-release and new connectivity product testing, perform product compatibility testing, product bulletproofing, procedures development, product evaluation and optimization, replication, diagnosis and solution of service problems and to generally provide a basis to address support issues.
	The Company's lab features several different LAN and WAN operating systems from such manufacturers as Novell, IBM, SCO, Microsoft Lan Manager and 3COM and includes the entire spectrum of computer sizes.
NETWORK MANAGEMENT AND FINE-TUNING
	The Company's Advanced Technology Group provides services designed to resolve complex network and data communications management issues for clients with existing multiple networks and/or sites currently utilizing communication servers, gateways to host computers and bridges linking multiple servers (a primary storage device, normally a PC in a network). These services include network security planning and implementation, data integrity and redundancy, network fine-tuning and auditing, performance testing, evaluation and optimization, corporate electronic mail and site management. Pivot provides automated remote network services, security, and systems monitoring and management on both a proactive and reactive basis.
1-800-PRODUCT SUPPORT
	The Company's experienced support engineers provide product support to resolve specific operating system and application problems. The Company's toll-free 800 telephone support line can be used for such problems as application software, installation assistance, error message handling or shared device problems. The applications supported include spreadsheets, word processing packages, communications, network and PC operating systems, graphics, databases and various utilities.
	The Company provides its clients with instant access to the latest product support resources for known problems and resolutions, updates and release information.
NETWORK TRAINING AND CONSULTING
	The Company's Advanced Technology Group provides the Company's clients and their corporate management, as well as its own engineering and sales personnel, with technical support and training. The Company's support engineers have generally been trained by major computer vendors and receive additional training from courses given by computer vendors, as well as by the Company's Data Communications Manager, on an as needed basis and also in order to maintain their certifications with the respective vendors. The Company offers comprehensive training sessions for its customers featuring instruction by manufacturer-trained customer support representatives. This department assists in post-sale customer inquiries and network consultation and support via a toll-free 800 telephone number. The Company offers customer training seminars for various microcomputer hardware and software products at its own facilities and at customer sites.
PRODUCT MAINTENANCE
	The Company offers contracts to its customers for both on-site and off-site complete product maintenance and repair services. These maintenance contracts generally provide for the Company to maintain microcomputer equipment at the customer's location during regular business hours. Most maintenance contracts are renewable annually. In addition, the Company provides authorized warranty service and repair for equipment sold by it and by others. The service department fulfills warranty requirements and offers extended maintenance and repair agreements after the expiration of manufacturers' warranties. The service department maintains complete parts inventories for the products distributed by the Company and is staffed by manufacturer-certified field engineers.
REMOTE NETWORK SERVICES
	The Company, through Pivot, provides remote network services to its clients. Remote network services are designed to monitor local wide area and private virtual networks remotely from Pivot's offices at 614 Corporate Way in Valley Cottage, New York.
DIAGNOSTICS
	The Company ships one of its trouble-shooting tools (e.g., HP Advisor, Novell LANalyzer or Network Analyzer) to a client to allow dial-in access for trouble-shooting network hardware and software related problems. By displaying and capturing network traffic, the Company's experienced systems engineers can analyze and determine the network problem. In addition, through a remote dial-in system, the Company's systems engineers can access a client's network problems. Diagnostics is also provided utilizing the Pivot remote network management system.
DATABASE
	MTM has access to state-of-the-art technical databases which provide it with information concerning technological advances from major vendors. This assists the Company in trouble-shooting as it receives up-to-date product information from a wide variety of vendors. The Company has either been licensed, contracted or authorized to use the following databases: Novell's technical database which Novell engineers use for research and network diagnosis, as well as technical information from IBM, Compaq, Cisco, Microsoft, NEC, 3COM, and Fore Systems, Inc. These databases provide the Company with technological advances from major vendors as soon as the information is published. These, in turn, allow the Company its flexibility to shift rapidly to vendors whose products are expected to increase in demand as a result of technological advances.
INSTALLATION SERVICE PROVIDER
	The Company entered into a Master Services Agreement (the "Services Agreement") with Dell Marketing L.P. ("Dell") on April 15, 1999 to become a designated Dell installation service provider. Under the Services Agreement, the Company became Dell's subcontractor for the purpose of providing certain services to Dell customers, including, among other things, installation services for workstations, desktops and notebooks, systems upgrades, customer orientation and virus checks in exchange for a fee to be paid by Dell for such services. The Services Agreement is for a three year term, unless otherwise terminated pursuant to the Service Agreement, and is automatically renewable for additional one year terms on each expiration date unless a written notice of termination is given by either party at least one hundred twenty days prior to the expiration date of the then current term.
ACCESSORY PRODUCTS
	The Company has formed new purchasing relationships with several computer supply vendors, through which it resells diskettes, data tape, compact disks, toner, ribbons and other related computer supplies. The Company does not believe that it is dependent on any one vendor of computer supplies, and the loss of any such vendor would not have a material adverse impact on the Company.
MARKETING AND SALES
	The Company's marketing efforts are focused on Fortune 500 corporations and, to a greater degree, on what may be categorized as Fortune 2000 corporations, professional firms and governmental and educational institutions. Except for major corporate accounts, these customers generally do not have internal computer support personnel. Management believes that the increasing complexity of microcomputer systems, increased usage of microcomputers in the workplace and the trend toward network interconnecting will cause business and institutional customers to require significant levels of outsourced customer support services, such as those provided by the Company. The Company believes that these customers are increasingly relying on their dealers and suppliers to provide, in addition to competitive pricing, a one-stop solution-based approach to their data processing requirements. The Company uses such an approach which addresses purchasing, compatibility, maintenance, support, training and obsolescence.
	The Company has approximately 525 active clients. The Company's customers are well diversified in such industries as securities, financial institutions, pharmaceuticals, manufacturing, distribution, law and accounting firms. For the fiscal years ended March 31, 2001,("Fiscal 2001") 2000 ("Fiscal 2000") and 1999 ( "Fiscal 1999"), approximately 19%, 19% and 21%, respectively, of the Company's total revenues were derived from sales to PaineWebber, Incorporated ("PaineWebber"). Even though the Company's agreement with PaineWebber terminated on February 28, 1998, the Company is continuing to do business with PaineWebber on generally the same terms as the expired agreement. The Company is continuing its efforts to negotiate an agreement with PaineWebber. In Fiscal 2001 and 2000, A.I. Credit Corp.("A.I. Credit") accounted for 17% and 19%, respectively, of the Company's revenue. The Company has been working under an oral agreement with A.I. Credit to purchase computer hardware and services. While the Company believes it will be able to maintain its relationship with PaineWebber and A.I. Credit, no assurance thereof can be given. In any event, sales to PaineWebber and A.I. Credit are negotiated on a case by case basis. Although the Company's customer base has increased, the loss of PaineWebber or A.I. Credit, would be expected to have a material adverse effect on the Company's operations during the short term until the Company is able to generate replacement business, although there can be no assurance of obtaining such business.
	As of June 19, 2001, the Company employed 19 salespersons who are paid salaries, commissions and/or a combination of both. The Company's sales executives regularly call on management at companies seeking solutions for their computer problems. While the Company's marketing activities are focused on Fortune 2000 corporations located in the tri-state Metropolitan New York area and throughout New England, the Company sells its products and services to branch offices of its customers, including Fortune 500 corporations, throughout the United States. The Company also relies on customer referrals from its major suppliers and manufacturers who often receive requests for a systems integrator to design and install their systems.
	The Company's sales executives generally participate in weekly training concerning various topics, including product knowledge, industry information and sales techniques. The Company's ability to successfully expand its business will depend, in part, on its ability to attract, hire and retain highly skilled and motivated marketing and sales personnel, of which there can be no assurance.
	MTM also makes joint sales presentations with certain of the Company's major suppliers to existing and prospective customers. Certain of these suppliers' customer fulfillment option programs allow customers who purchase directly from the supplier to apply purchases from MTM to their purchase obligations under those agreements. As a result, these customers have the flexibility of purchasing products from the Company to take advantage of MTM's added services and its ability to integrate multiple manufacturers' products. Most major manufacturers have instituted either a moratorium or a selective authorization procedure on the approval of additional authorized dealership locations. While in effect, such policies may preclude the Company and certain of its competitors from becoming authorized dealers for new vendors.
SUPPLIERS
	The Company purchases microcomputers and related products directly from numerous suppliers as either an authorized dealer or a value added reseller. The Company has entered into authorization agreements with its major suppliers. Typically, these agreements provide that MTM has been appointed, on a non-exclusive basis, as an authorized dealer and systems integrator of specified products of the supplier at specified locations. Most of the authorization agreements provide that the supplier may terminate the agreement with or without cause upon 30 to 90 days notice or immediately upon the occurrence of certain events. In addition, although each agreement is generally subject to renewal on an annual basis, there can be no assurance that such agreements will be renewed. The Company believes that its relationships with its major suppliers are good.
	Sales of Dell Computer ("Dell") products have accounted for approximately 22%, 30% and 27% of the Company's revenues during Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively, All or substantially all of such products were purchased directly from Dell. Sales of Compaq products accounted for approximately 18%, 11% and 13% of the Company's revenues during Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively. Purchases related to these sales were substantially, if not all, made through distributors. No other supplier's products accounted for 10% or more of the Company's revenue during Fiscal 2001, Fiscal 2000 or Fiscal 1999. The Company's sales of products purchased through Tech Data Corporation ("Tech Data") accounted for approximately 33%, 25% and 25% during Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively. The Company's sales of products purchased through Ingram Micro, Inc.("Ingram") accounted for approximately 32%, 29% and 15% during Fiscal 2001, Fiscal 2000 and
Fiscal 1999, respectively. Management does not believe that a termination of any one supplier's agreement or distributor's agreement other than Dell or Compaq would have a material adverse effect on the Company.
	The Company's future results of operations are dependent upon continued demand for microcomputer products. Distributors in the microcomputer industry currently face a number of adverse business conditions, including price and gross profit margin pressures and market consolidation. During the past five years, all major hardware vendors have instituted extremely aggressive price reductions in response to lower component costs and discount pricing by certain microcomputer manufacturers. The increased price competition among major hardware vendors has resulted in declining gross margins for many microcomputer distributors and may result in a reduction in existing vendor subsidies. Management of the Company believes that these current conditions, which are forcing certain of the Company's direct competitors out of business, may present the Company with opportunities to expand its business. There can be no assurance, however, that the Company will be able to continue to compete effectively in this industry, given the intense price reductions and competition currently existing in the microcomputer industry.
	Pursuant to the terms of most of its authorized dealership agreements, the Company furnishes firm purchase orders 30 to 90 days in advance of shipment. Under the terms of these agreements, the Company is generally liable for up to a 5% restocking fee to many manufacturers for the return of previously received merchandise. The Company has not experienced any significant cancellation penalties or restocking fees.
	The Company receives certain discretionary cost subsidies, typical for the industry, from certain major suppliers to promote sales and support activities relating to their products. It has used these funds to subsidize marketing, advertising and its Connectivity and Communication Laboratory, where the Company has been able to expand into areas relating to these suppliers' products and sales, such as LAN/WAN sales and support.
	MTM's current arrangements with major suppliers generally provide protection for up to two months against declines in the wholesale price of microcomputers and related products in the Company's inventory. These arrangements typically take the form of a cash payment or a credit against future purchases in an amount equal to the difference between the price actually paid by the Company for its inventory of that supplier's products and the new dealer price.
	The Company's suppliers permit the Company to pass through to its customers all warranties and return policies applicable to the suppliers' products. To date, the Company has experienced little return of product and has been reimbursed by the suppliers for most warranty work done for its customers. All service work after the expiration of the warranty period is at the customer's expense. The Company offers service contracts of varying lengths under which the Company agrees to be responsible for all service costs for a fixed term in exchange for a set fee paid by the customer.
	Software and other related products are purchased from numerous industry suppliers. As is customary, the Company does not have any long-term agreements or commitments with these suppliers, because competitive sources of supply are generally available for such products.
	In response to discounted pricing by certain microcomputer manufacturers, all major CPU hardware suppliers have instituted aggressive price reductions. The heightened price competition among hardware suppliers has resulted in declining gross margins for many microcomputer resellers. Although discounted prices have enabled the Company to increase its sales volume in recent years, it has resulted in lower gross margins for some of the Company's product lines. Network services and service-related hardware products, however, have had improving margins. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
TECH DATA CORPORATION AND INGRAM MICRO, INC.
	The Company entered into a Program Agreement with Ingram as of December 5, 1997. Such agreement incorporated therein interim agreements between the parties. Either party may terminate such agreement without cause upon thirty (30) days prior notice. Pursuant
to the agreement, Ingram provides a supplemental program to provide the Company (and other similarly situated companies contracting with Ingram) with services designed to assist the reseller in marketing and distributing its product. The Company also agreed to name Ingram as its primary supplier and to purchase from Ingram at least 65% of its total product purchased from wholesale distributors. No assurance can be given that such agreement will not be terminated by Ingram.
	The Company's agreement with Tech Data was for a one year term commencing January 15, 1997, subject to an automatic three month renewal. Such agreement was terminable upon 30 day prior notice. Even though the term has expired, the Company continues to conduct business with Tech Data on substantially the same terms as the original agreement. Such agreement generally sets forth the price to be charged the Company for purchases based on a percentage above Tech Data's landed cost. Even though the Company has no reason to believe that Tech Data will not continue to do business on substantially similar terms as provided in the agreement referred to above, no assurance thereof can be given.
DELL COMPUTER
	The Company entered into a Service Agreement with Dell on April 15, 1999. Under the Service Agreement, the Company became Dell's subcontractor for the purpose of providing certain services to Dell customers, including, among other things, installation services for workstations, desktops and notebooks, systems upgrades, customer orientation and virus checks in exchange for a fee to be paid by Dell for such services. The Service Agreement is for a three year term, or unless otherwise terminated pursuant to the Service Agreement, and is automatically renewed for additional one year terms on each expiration date unless a written notice of termination is given by either party at least one hundred twenty days prior to the expiration date of the then current term.
PIVOT
	On May 18, 1998, the Company acquired 19.9% of Pivot, an automated remote network service provider, and an Option to cause the merger of Pivot into a wholly-owned subsidiary of the Company or to increase its ownership in Pivot to 33.4%. The Company exercised its right to increase its ownership in Pivot to 33.4% on February 22, 1999. As of June 2, 1999, the Company entered into an agreement with Pivot and merged Pivot into a wholly-owned subsidiary of the Company. As of the date hereof, Pivot has a limited number of customers and its revenues are not significant to the Company. However, the Company intends to further integrate its client base for the use of services provided by Pivot.
COMPETITION
	The microcomputer market is highly competitive. The Company is in direct competition with local, regional and national distributors of microcomputer products and related services. Several of these competitors offer most of the same basic products as does the Company. The Company competes with other resellers and believes its prices and delivery terms are competitive. Many competitors may sell their products at lower prices than the Company, but generally do not offer the same range of support services after installation of equipment that the Company offers to its customers.
	In addition, the tri-state Metropolitan New York area and New England, to which the Company markets its products and services, are particularly characterized by highly discounted pricing on microcomputer products from various sources of competition. The Company faces competition from microcomputer suppliers that sell their products through direct sales forces and from manufacturers and distributors that emphasize mail order and telemarketing.
	Depending on the customer, the principal areas of competition may include price, pre-sales and post-sales technical support and service, availability of inventory and breadth of product line. The Company has an insignificant market share of sales in the microcomputer industry and the service markets which the Company serves. Certain of the Company's competitors at the regional and national level are substantially larger, have more personnel, have materially greater financial and marketing resources than the Company and operate within a larger geographic area than does the Company.
	Management believes that the Company will continue to be able to compete effectively against its various competitors by combining fair
pricing with its wide range of customer support services designed to provide its customers with high-end technological services, multi-vendor technical support, maintenance of their computer product needs, a dedicated, trained staff of salespersons and technicians, complete solutions for single user, multi-user or network systems and specialized vertical market software.
	The Company generally delivers products from inventory to its customers within one to two weeks of its receipt of purchase orders. As a result, the Company believes that its backlog of unfilled customer orders is not material.
PROPRIETARY INFORMATION
	The Company holds no patents registered in the United States Patent Office or in any state, but has several trademarks and service marks related to its Pivot operations. If the Company believes that trademark registration is significant in protecting its product or service recognition, the Company may apply for registration of various trademarks or service marks, including, but not limited to, the names Micros-to-Mainframes, Data.Com, and The Advanced Technology Group and Pivot Technologies, in which it believes that it has certain common-law rights. The Company may also affix copyright notices on its support service, training and service manuals. While such protection may become important to the Company, it is not considered essential to the success of its business. The Company relies on the know-how, experience and capabilities of its management, sales and service personnel. The Company requires some of its employees to sign confidentiality or non-competition agreements.
EMPLOYEES
	As of June 19, 2001, the Company employed 157 persons, all but 2 of whom are full-time personnel. Of these employees, 5 are in management, 20 are in sales and marketing, 115 are in technical support, 3 are in distribution, 5 are in finance and 7 are in administration. None of the Company's personnel is represented by a union, and the Company considers its employee relations to be good.
ITEM 2.
ITEM 2. 	PROPERTIES
	The Company's executive offices and warehouse are located in approximately 11,000 square feet of space at a two-story facility leased at 614 Corporate Way, Valley Cottage, New York. The lease is terminable on four months notice and expires on August 31, 2001. The cost to terminate this lease is not material to the Company. Approximately 35% of such space is devoted to marketing and telephone sales, 15% to service and customer support, 10% to administration, 10% to the Connectivity and Communication Lab and 30% to warehouse space. The Company does not maintain a retail showroom. The current monthly rental payment is approximately $9,800. Even though no assurance can be given, the Company anticipates no difficulty in renewing the lease at the current market rate.
	The Company entered into a lease on June 17, 1998 for 8,433 square feet of office space at 270 Madison Avenue for an approximate term of five years and three months. The monthly rent for the space is currently approximately $23,200. The Company also leases approximately 8,100 square feet of office and warehouse space (only about 10% of this property is devoted to warehouse space) in Rocky Hill, Connecticut. The monthly payment on this lease is approximately $5,600. The lease is terminable on six months' notice after August 2002 and expires on July 31, 2004. The cost to terminate this lease is not material to the Company. Even though no assurance can be given, the Company anticipates no difficulty in renewing the lease at the current market rate. In connection with the acquisition of Pivot, the Company assumed Pivot's lease dated August 4, 1997 and renewed on October 13, 2000 for approximately 8,700 square feet at 614 Corporate Way, Valley Cottage, New York. This lease expires on October 31,2002. The monthly rent for such space is approximately $7,291. Even though no assurance can be given, the Company anticipates no difficulty in renewing the lease at the current market rate.
	The Company is also responsible for real estate taxes, insurance, utilities and maintenance expenses concerning these premises.
ITEM 3.
ITEM 3. 	LEGAL PROCEEDINGS
	The Company is not a party to any material pending legal or administrative proceedings.
ITEM 4.
ITEM 4. 	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	None. PART II
ITEM 5.
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	The Common Stock of the Company is listed on NASDAQ/NMS under the symbol "MTMC".
	The following table sets forth the high and low sale prices of the Common Stock for each quarterly period within the last two fiscal years as reported by NASDAQ.
Period High Low ------- ------ ------ FISCAL YEAR ENDED MARCH 31, 2000 ---------------------------------- April 1 - June 30, 1999 $5.125 $3.250 July 1 - September 30, 1999 $3.513 $2.438 October 1 - December 31, 1999 $10.188 $2.500 January 1 - March 31, 2000 $19.625 $4.000
FISCAL YEAR ENDED MARCH 31, 2001 ----------------------------------- April 1 - June 30, 2000 $14.625 $4.781 July 1 - September 30, 2000 $8.250 $3.500 October 1 - December 31, 2000 $4.938 $0.938 January 1 - March 31, 2001 $2.125 $1.00
As of June 20, 2001, Company had 109 record holders and in an excess of 2,000 beneficial holders,of Common Stock.
	The Company has not paid any cash dividends on Common Stock to date and does not anticipate paying any in the foreseeable future. The Board of Directors intends to retain earnings, if any, to support the growth of the Company's business.
The Company has received a Nasdaq Staff Determination letter dated June 26, 2001, indicating that the Company was not in compliance with Marketplace Rule 4450(a)(2) which requires a minimum market value of public float of $5,000,000 for continued listing by The Nasdaq National Market and that its Common Stock would be delisted from the National Market at the opening of business on July 5, 2001. The Company has requested a hearing before a Nasdaq Listing Qualification Panel to review the Staff Determination. Delisting of the Common Stock will be delayed pending the outcome of the hearing. There can be no assurance that the Panel will grant the Company's request for continued listing. The Company also intends to apply for a listing of its Common Stock on the Nasdaq SmallCap Market if the Panel doses not grant the Company's request for continued listing.
Income Statement Data:
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
	The following selected financial data for the fiscal years ended March 31, 2001, 2000, 1999, 1998 and 1997, are derived from the financial statements of the Company. The data should be read in conjunction with the consolidated financial statements, related notesand other financial information included herein.
Income Statement Data:
Balance Sheet Data:
(1) Reflects receipt of $850,000 from BTG to offset the direct ($421,000) and indirect costs of the terminated merger. Net income and basic and diluted net income per share would have been $85,000 and $0.02 respectively, excluding amounts with the aforementioned indirect cost.
(2) Includes $810,000 contractual payment from BTG and interest income of $107,000.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	The Company reported a loss from operations before an income tax benefit of approximately $2,880,000 for the year ended March 31, 2001, compared with income from operations before income taxes of approximately $391,000 in the prior year. The decrease in income from operations before income taxes is primarily due to (a) an increased in payroll of approximately $2,500,000 in Fiscal 2001, resulting from hiring of new employees for expansion of the Company, (b) an increase in expenses related to the Company's investment in the service sector and its sales force that resulted in increased in interest expense for Fiscal 2001 of approximately $261,000. As a result of the loss in the fiscal year ended March 31, 2001, the Company has subsequently reduced the number of employees in all areas of the Company. The Company plans to continue to invest in the service sector of its business, including the Pivot automated remote network management system, in Fiscal 2002.
	 The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report.
RESULTS OF OPERATIONS
	The following table sets forth for the periods indicated certain items in the Company's Consolidated Statements of Operations expressed as a Percentage of total revenue for that period:
Year Ended March 31,
---------------------------------------------- 2001 2000 1999
Product Sales 72.10% 71.42% 68.76%
Services 27.90 28.58 31.24 -------- ------- ------
Net sales 100.00 100.00 100.00
Cost of Products and Services 85.53 85.64 86.68 -------- ------- ------ 14.47 14.36 13.32
Selling, general and administrative expenses 16.76 13.63 12.47
Severance and other costs of terminated employees .84
Interest expense 0.54 0.24 0.03
Other Income 0.08 0.05 1.38(1)
Income (loss) from operations before provision (benefit) for income taxes (3.59) 0.54 2.20
Net income (loss) (2.84) 0.31 1.32 _______________________
(1) Includes $810,000 contractual payment from BTG and interest income of $107,000.
The following table sets forth revenues and cost of revenues as a percentage of each category:
Year Ended March 31,
-------------------------------------------------- 2001 2000 1999
Revenues 100.00% 100.00% 100.00%
Cost of products sold 92.85 92.56 	93.22 --------- ------- ------ 7.15% 7.44% 6.78% ========= ======= ======
Service Revenues
Revenues 100.00% 100.00% 100.00%
Cost of service revenues 66.61 68.37 	72.27 ------- ------ ----- 33.39% 31.63% 27.73% ======= ====== 	=====
Year Ended March 31, 2001 and 2000
The Company had net sales of approximately $80,172,000 for the year ended March 31, 2001 ("Fiscal 2001") as compared with approximately $72,823,000 for the year ended March 31, 2000 ("Fiscal 2000"). Product sales increased approximately $5,795,000, or 11.1%, and Service sales increased by approximately $1,552,000 or 7.46%, in Fiscal 2001. Product sales increased due to higher demand for products from current and new customers of the Company during the year. Service sales consist of service related sales, which include the Pivot automated remote network management system, and high-end service related product sales. The Company grew the service related portion of its business by approximately $454,000 or 3.0%, in Fiscal 2001 from Fiscal 2000. High-end service related product sales increased by approximately $1,098,000, or 19.3%, in Fiscal 2001 from Fiscal 2000. The Company plans to continue to invest in the service sector of its business, including the automated remote network management system, in Fiscal 2002.
	Gross profit in Fiscal 2001 increased to approximately $11,598,000 from approximately $10,455,000 in Fiscal 2000, an increase of 10.9%. Gross profit margins slightly increased to 14.5% in Fiscal 2001 as compared to 14.4% in the prior year. The gross profit margins from product sales slightly decreased to 7.1% in Fiscal 2001 compared to 7.4% in Fiscal 2000. The increase and decrease in gross profit margins from product sales is primarily related to the mix of products sold within the year. The gross profit margins from service sales increased to 33.4% in Fiscal 2001 compared to 31.6% in Fiscal 2000. The increase in gross profit margins from service sales primarily is a result of a decrease in the use of outside contractors to perform certain services and the increased efficiency in the use of the Company's technical and engineering staff. The Company expects to continue to hire additional professional technicians and engineers for its consulting and service business in order to meet the expected demand in the outsourcing and services business for the coming year and to not be so dependent on third party service subcontractors in the future. To the extent necessary, the Company will continue to use subcontractors.
	The Company continues to face competitive market pressures which impact the mark-up on product sales and services related sales. The Company currently faces a number of adverse business conditions, including price and gross profit margin pressures and market consolidation. In recent years, all major hardware vendors have instituted extremely aggressive price reductions in response to lower component costs and discount pricing by certain microcomputer manufacturers. The increased price competition among major hardware vendors has resulted in declining gross profit margins for many microcomputer distributors, including the Company, and may result in a reduction in existing vendor subsidies. Management of the Company believes that these current conditions, which are forcing certain of the Company's direct competitors out of business, may present the Company with opportunities to expand its business. There can be no assurance, however, that the Company will be able to continue to compete effectively in this industry, given the intense price reductions and competition currently existing in the microcomputer industry.
	Selling, general and administrative expenses increased to approximately $13,431,000 in Fiscal 2001 from approximately $9,922,000 in Fiscal 2000, or 35.2%. This increase is primarily attributable to (a) an increase in payroll of approximately $2,500,000 in Fiscal 2001, resulting from hiring of new employees for expansion of the Company, (b) an increase in expenses related to the Company's investment in the service sector and its sales force that resulted in increased interest expense for Fiscal 2001 of approximately $261,000, (c) additional administrative costs incurred as a result of the opening of an additional office for approximately $500,000, (d)an increase in costs in related to the increase in the number of employees, including payroll taxes, benefits and employee travel, increased approximately $506,000 and (e) an increase in the Company's data communication costs of approximately $141,000.
As a result of market conditions, and a loss in the fiscal year, the Company implemented the expenditure reduction plan, during the beginning of the fourth quarter. The costs of severance pay of terminated employees and related costs was $677,000.
	Other income increased to approximately $69,000 in Fiscal 2001 from approximately $36,000 in Fiscal 2000. This increase is primarily due to increased interest income from cash flow.
	Interest expense increased in Fiscal 2000 to approximately $439,000 from approximately $177,000 in the prior year due to the increased investment in the service sector of the business and its sales force.
The Company has recorded an approximately $600,000 income tax benefit as a result of its current year loss. The effective tax rate for Fiscal 2001 was 20.9%.
	As the result , the net loss was approximately $2,279,000 for the year ended March 31, 2001, compared with net income of approximately $233,000 in the prior year.
Year Ended March 31, 2000 and 1999
	The Company had net sales of approximately $72,823,000 for the year ended March 31, 2000 ("Fiscal 2000") as compared with approximately $69,031,000 for the year ended March 31, 1999 ("Fiscal 1999"). Product sales increased approximately $4,541,000, or 9.6%, and Service sales decreased approximately $749,000, or 3.5%, in Fiscal 2000. Product sales increased due to higher demands for products from current and new customers of the Company during the year. Service sales consist of service related sales, which include the Pivot automated remote network management system, and high-end service related product sales. The Company grew the service related portion of its business by approximately $1,840,000, or 14.0%, in Fiscal 2000 from Fiscal 1999. High-end service related product sales decreased by approximately $2,589,000, or 30.8%, in Fiscal 2000 from Fiscal 1999. The Company intends to continue to invest in the service sector of its business, including the Pivot automated remote network management system, in the coming year.
	Gross profit in Fiscal 2000 increased to approximately $10,455,000 from approximately $9,196,000 in Fiscal 1999, an increase of 13.7%. Gross profit margins increased to 14.4% in Fiscal 2000 as compared to 13.3% in the prior year. The gross profit margins from product sales increased to 7.4% in Fiscal 2000 compared to 6.8% in Fiscal 1999. The increase in gross profit margins from product sales is primarily related to the mix of products sold within the year. The gross profit margins from service sales increased to 31.6% in Fiscal 2000 compared to 27.7% in Fiscal 1999. The increase in gross profit margins from service sales primarily is a result of a decrease in the use of outside contractors to perform certain services and the increased efficiency in the use of the Company's technical and engineering staff. The Company expects to continue to hire additional professional technicians and engineers for its consulting and service business in order to meet the expected demand in the outsourcing and services business for the coming year and to not be so dependent on third party service subcontractors in the future. To the extent necessary, the Company will continue to use subcontractors.
	The Company continues to face competitive market pressures which impact on the mark-up on product sales and services related sales. The Company currently faces a number of adverse business conditions, including price and gross profit margin pressures and market consolidation. In recent years, all major hardware vendors have instituted extremely aggressive price reductions in response to lower component costs and discount pricing by certain microcomputer manufacturers. The increased price competition among major hardware vendors has resulted in declining gross profit margins for many microcomputer distributors, including the Company, and may result in a reduction in existing vendor subsidies. Management of the Company believes that these current conditions, which are forcing certain of the Company's direct competitors out of business, may present the Company with opportunities to expand its business. There can be no assurance, however, that the Company will be able to continue to compete effectively in this industry, given the intense price reductions and competition currently existing in the microcomputer industry.
	Selling, general and administrative expenses increased to approximately $9,922,000 in Fiscal 2000 from approximately $8,615,000 in Fiscal 1999, or 15.2%. This increase is primarily attributable to
(a) additional administrative costs incurred as a result of the Pivot acquisition, (b) additional goodwill amortization of approximately $175,000 from the Pivot acquisition and (c) additional investment in the infrastructure of the Company as it grows its service related business. The Company's compensation and related costs increased in Fiscal 2000 by approximately $911,000 from Fiscal 1999. The Company's data communication costs increased by approximately $59,000 in Fiscal 2000. Additionally, the Company increased its rent expense by approximately $73,000 due to an increase in warehousing space and the acquisition of Pivot.
	Other income decreased to approximately $36,000 in Fiscal 2000 from approximately $953,000 in Fiscal 1999. This decrease is primarily a result of $810,000 of nonrecurring income in Fiscal 1999 from the termination of the merger agreement with BTG and a reduction of interest income of approximately $73,000 due to the Company's increased investment in the service sector of its business, which includes the Pivot automated remote network management system.
	Interest expense increased in Fiscal 2000 to approximately $177,000 from approximately $18,000 in the prior year due to the increased investment in the service sector of the business.
	The effective income tax rate for Fiscal 2000 and 1999 was 43% and 40%, respectively. The effective income tax rate increased primarily as a result of certain nondeductible expenses related to the Pivot acquisition.
	Net income was approximately $223,000 for the year ended March 31, 2000, compared with net income of approximately $910,000 in the prior year. The decrease in net income is primarily due to (a) $810,000 of nonrecurring income in Fiscal 1999 resulting from the termination of the merger agreement with BTG, (b) goodwill amortization recorded in Fiscal 2000 of approximately $175,000 resulting from the June 1999 acquisition of Pivot, and (c) an increase in cash requirements due to the Company's investment in the service sector of its business that resulted in increased interest expense for Fiscal 2000 from Fiscal 1999 of approximately $159,000 and reduced interest income of approximately $73,000 from the prior year. The Company intends to continue to invest in the service sector of its business, including the Pivot automated remote network management system, in the coming year.
LIQUIDITY AND CAPITAL RESOURCES
	The Company measures its liquidity in a number of ways, including the following:
March 31,
-------------------------------------------- 2001 2000 1999 (Dollars in thousands, except current ratio data)
Cash and cash equivalents 1,206 1,055 679
Working capital 7,835 10,202 10,630
Current ratio 1.50:1 2.17:1 2.16:1
Secured notes payable 7,620 3,040 980
Working capital line available 3,359 7,064 9,509
	The Company had working capital of approximately $7,835,000 as of March 31, 2001, a decrease of approximately $2,367 ,000 from March 31, 2000.
	During Fiscal 2001, the Company's net cash used in operating activities was approximately $3,519,000 resulting from current year loss and non cash adjustments and an increase in account receivable $3,987,000, an increase in prepaid assets of $424,000, an increase in deferred taxes of $449,000, and offset by a increase in accounts payable of $2,301,000, and a decrease in inventory of $80,000 and other assets of $171,000.
	The Company used approximately $1,700,000 of cash in investing activities, which amount is comprised of $628,000 for the purchase of property, equipment and software and $1,072,000 for capitalized software labor costs.
	The Company had an increase in its net cash provided by financing activities of $5,369,000 primarily related to increased borrowings of $4,580,000 from its bank and the receipt of funds from the options exercised by employees of $10,500 and issuance common stock to investor 820,000.
	As a result of the foregoing, the Company's cash increased approximately $150,000.
	The Company has entered into two financing agreements for the purchase of inventory. One of these agreements is a $15,000,000 credit facility. This credit facility includes an $8,000,000 floor plan agreement and a $5,000,000 revolving receivable financing facility. The combined facility is secured by the Company's assets (other than inventories and accounts receivable directly financed by other floor planners who have the lien thereon).
	On the revolving receivable financing facility, the Company has a choice of two types of loans: (i) the prime rate loan, in which interest is calculated at the prime rate (8.00% at March 31, 2001) on the daily contract balance, and (ii) the LIBOR loan, in which the unpaid principal amount of LIBOR loans shall bear interest prior to maturity at a rate per annum equal to the LIBOR in effect for each interest period plus 1.5% per annum. As of March 31, 2001, the Company had three LIBOR loans outstanding at rate of interest 6.5075%, 6.5575%,6.775.%
	The other financing agreement is a $1,300,000 floor plan agreement and is secured by the Company's assets (other than inventories and accounts receivable directly financed by other floor planners who have the lien thereon).
	The financing agreements are effective until notice of termination is given by either party (within a specific time-frame, as defined). The floor plan agreements generally allow the Company to borrow for a period of 30 to 60 days interest free. Interest is charged to the Company only after the due date. In addition, one of these agreements provides for minimum amounts of tangible net worth and specified financial ratios.
	The Company's total outstanding debt under the revolving receivable financing facility was $7,620,000 and $3,040,000 at March 31, 2001 and 2000, respectively, with interest at the prime rate. The Company also pays an unused credit line fee of .125% per annum on the daily average of the unused amount of the revolving receivable financing facility.
	The Company believes that expected cash flow from its operations combined with available financing arrangements will be sufficient to satisfy its expected cash requirements for the next fiscal year and thereafter. There can be no assurance, however, that changes in the Company's plans or other events affecting the Company will not result in unexpected expenditures or cash requirements.
Termination of the Merger Agreement
	On August 29, 1997, the Company entered into an Agreement and Plan of Merger (the "Agreement") with BTG, a Virginia corporation ("BTG"), and BTG Merger Sub, Inc., a wholly owned subsidiary of BTG, pursuant to which the Company was to be acquired by BTG for cash and stock valued at approximately $25 million.
	On February 13, 1998, BTG terminated the Agreement with the Company. As a result of the default, BTG paid the Company a $500,000 termination fee provided for in the Agreement. In addition, BTG paid the Company an additional $350,000 for out-of-pocket expenses in exchange for a release from future liability which may arise as a result of the termination of the Agreement. The Company recognized these payments as a reduction to selling and administrative expenses in Fiscal 1998, reflecting an offset against the direct and indirect costs and expenses related to the BTG merger.
	The Company also entered into a cooperative marketing and service agreement with BTG under which the Company received a non-refundable advance payment of $900,000 from BTG for future consulting services to be provided during the 10 months period ending December 31, 1998. The Company recognized the revenue ratably over the term of the contract. The Company recognized $90,000 of income during Fiscal 1998 and $810,000 of income during Fiscal 1999.
Merger with Pivot
	On May 18, 1998, the Company acquired 19.9% of Pivot, an automated remote network service provider, and an Option to cause the merger of Pivot into a wholly-owned subsidiary of the Company. In consideration for the Option and the Pivot Shares, the Company paid Pivot (exclusive of the merger consideration payable upon any exercise of the Option) $475,000 and agreed to make further payments if Pivot was in material compliance with its Business Plan, as defined in the Purchase and Option Agreement, up to an aggregate of $346,000 over a five month period commencing one month after Closing. The Company further agreed to lend Pivot up to an additional $125,000 in six (6) equal monthly installments. Such loan was payable, without interest, twelve months after its issuance, or upon redemption of the Company's interest in the event the Option was not exercised. The Option had a term of six (6) months (the "Initial Option Period") and could be extended for up to three additional one month terms upon the payment of an additional $80,000 prior to the expiration of the Initial Option Period and the commencement of each additional extension period, respectively. On February 22, 1999, the Company exercised its rights to increase ownership to 33.4% from 19.9%.
	On June 2, 1999, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") consummating a merger (the "Merger") with Pivot and the principal shareholders of Pivot ("Pivot Shareholders"). Pursuant to the Merger Agreement, the non-Company Pivot Shareholders received 377,129 shares of Common Stock, five (5) year warrants to acquire 100,000 shares of Common Stock at an exercise price of $2.916767 per share and $261,300 in cash. The Company also paid $100,000 to the Pivot shareholders in consideration for the shareholders' consent not to compete.
The shares of Common Stock which the Pivot Shareholders received in connection with the Merger Agreement are subject to Lock-up Agreements which have a two year restriction on resale. Twenty-five percent of the shares subject to the lock-up were released on June 2, 2000, and the remaining shares were released on June 2, 2001. The Lock-up Agreements grant the Company a right of first offer should any of the Pivot Shareholders elect to sell their common stock in a non-public transaction.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information appears in Part IV, immediately following Item 14 of this Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position(s) - ------------------- ----- --------------------------- Howard Pavony 50 Chairman of the Board of Directors
Steven H. Rothman 52 Chief Executive Officer, President and a Director
Frank T. Wong 53 Vice President-Finance and Secretary
Anthony R. Travaglini 48 Chief Technology Officer
William Lerner* 67 Director
Arnold J. Wasserman* 63 Director
Alvin E. Nashman* 73 Director
James W. Davis* 53 Director ______________
* Member of the Audit Committee and Compensation Committee.
	Howard Pavony has served as Chairman of the Board of Directors of the Company since September 1996. He served as Co-Chief Executive Officer and President of the Company from May 1986 to August 1996. He has been a Director of the Company since 1986. From 1977 until 1986, Mr. Pavony was employed by Data Research Associates ("DRA"), a computer hardware and accessories company, rising to the positions of Vice President of Sales and member of the Executive Board of DRA.
	Steven H. Rothman has served as Chief Executive Officer and President of the Company since September 1996. He served as Co-Chief Executive Officer and Vice President of the Company from May 1986 to August 1996. He has been a Director of the Company since 1986. From 1976 until 1986, Mr. Rothman was employed by DRA, rising to the positions of Director of Marketing and member of the Executive Board.
	Frank T. Wong has served as the Company's Vice President-Finance since February 1992, as a Director from June 1993 to March 1998 and as Secretary since September 1995. Prior thereto, from 1975 to 1991, he served as Chief Accountant of the Carvel Corporation, a franchise ice cream distributor.
Anthony R. Travaglini became the Chief Technology Officer in June 1999 when the Company acquired Pivot. Mr. Travaglini founded Pivot in August 1997 and served as its President until it was acquired by the Company. From April 1992 until August 1997, Mr. Travaglini was responsible for network, systems and administration management for multiple divisions of PepsiCo. While at PepsiCo., he supervised the design, development and implementation of PepsiCo.'s enterprise management system. Mr. Travaglini also served as Vice President of Trading Technologies at Shearson-Lehman Brothers from 1988 to 1992 and a senior UNIX systems administrator at Salomon Brothers from 1982 to 1988.
	William Lerner has served as a Director of the Company since September 1995 and is the Chairman of the Compensation Committee. Mr. Lerner has been engaged in the private practice of corporate and securities law in New York and Pennsylvania since 1991. His career included service with the U.S. Securities and Exchange Commission, the American Stock Exchange, and as counsel to a major investment banking/securities brokerage firm. Mr. Lerner is a director of Seitel, Inc. (a NYSE listed oil and gas producing company that owns one of the
largest seismic data libraries in North America), Rent-way, Inc. (a NYSE listed company that is the second largest in the rental-purchase industry), and Helm Resources, Inc. (an OTC company that provides financing and management services to middle market public companies). Mr. Lerner also provides corporate secretarial services to a number of other public companies including Computer Research, Inc. (an OTC company that is a leading provider of computer accounting services to the brokerage and banking industries).
	Arnold J. Wasserman has served as a Director of the Company since March 1998 and is the Chairman of the Audit Committee. Mr. Wasserman has, for the past 33 years, been a principal of P & A Associates, a leasing/consulting firm. Prior to that, he held positions with IBM and Litton Industries. Mr. Wasserman has consulted with major corporations in the areas of marketing, advertising and sales. He is a director of Stratasys, Inc., a publicly traded company.
	Alvin E. Nashman has served as a Director of the Company since August 1998 and is the Chairman of the Compensation Committee. He has been an independent consultant for major corporations in the field of computer service for the past nine years. Prior to that, Dr. Nashman was a Director of Computer Sciences Corporation and the President of its System Group.
	James W. Davis became a Director of the Company in June 2000. Since January 1999, he has been Senior Partner at Key West Technologies, LLC., a business consulting partnership advising a number of firms with regard to technology, e-commerce, the Internet and business management. From January 1997 through January 1999, he served as the President and Chief Executive Officer of MRT micro, ASA/Inc., a communications software company. From September 1996 to January 1997, Mr. Davis was a Visiting Research Scholar at the Communications Technology Center at Florida Atlantic University. In March 1995, Mr. Davis founded Key West Technologies, Inc., a computer hardware and software company. In February 1996, Key West Technologies, Inc. was acquired by Interaxx Television Network, Inc. Mr. Davis served as Chief Executive Officer of Interaxx Television Network, Inc. from February 1996 until January 1997. Mr. Davis has also served as Director for Intel Corp.'s Home Computing Laboratory, which was responsible for developing a consumer-focused Pentium platform strategy, and as Senior Technical Staff Member at International Business Machines Corp., where he worked for twenty-five years. While at IBM, he was also a member of IBM's Academy of Science and Technology and Chief Technical Officer of the IBM PC Company Premium Brand. He is currently a director of American Vantage Companies, a NASDAQ SmallCap listed company in the Internet and gaming industries.
	All directors hold office until the next annual meeting of shareholders or until their successors are elected and qualify. Officers are elected annually by, and serve at the discretion of, the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
	Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Officers, Directors and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, Directors and ten percent shareholders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the Company's copies of such forms received or written representations from certain reporting persons that no Form 5's were required for those persons, the Company believes that, during the time period from April 1, 2000 to March 31, 2001, all filing requirements applicable to its Officers, Directors and greater than ten percent beneficial owners were complied with.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
	The following table sets forth certain compensation information for the chief executive officer of the Company and other executive officers who, based on their salary and bonus compensation from the Company and its subsidiaries, were the most highly compensated officers for the fiscal year ended March 31, 2001.
(1) Other compensation primarily represents amounts paid by the Company for life insurance premiums and leased automobiles that are used in business by the executives. In prior years, these amounts were below the reportable threshold.
OPTION GRANTS IN LAST FISCAL YEAR
	The table below includes the number of stock options granted to the executive officers named in the Summary Compensation Table during the year ended March 31, 2001, exercise information and potential realizable value.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY END OPTION VALUES
	The table below includes information regarding the value realized on option exercises and the market value of unexercised options held by the executive officers named in the Summary Compensation Table during the year ended March 31, 2001.
- ---------------------------- (1) Calculated by determining the difference between the last sale price of the Company's Common Stock on the date of exercise as reported by the Nasdaq National Market and the exercise price.
(2) Calculated by determining the difference between $1.125 (the last sale price of the Company's Common Stock on March 31, 2001 as reported by the Nasdaq National Market) and the exercise price of the shares of the Company's Common Stock underlying the options.
DIRECTOR FEES
	The Company's independent directors receive an annual fee of $9,000 payable quarterly in advance. In addition, each independent director receives $1,500 for attendance in person at each Board meeting and $250 for participation in each telephonic board meeting held. Members of the Audit Committee and Compensation Committee are appointed annually and serve at the discretion of the Board of Directors. In recognition of the increased responsibilities of members of the Audit Committee, the Chairman of the Audit Committee receives $3,500 per year and each other member of the Audit Committee will receive $2,500 per year.
	Directors who are also officers of the Company currently receive no cash compensation for serving on the Board of Directors, other than reimbursement of reasonable expenses incurred in attending meetings. For serving as a director, the Company's independent directors each received in October 1999 options to purchase 25,500 shares of Common Stock . See "Stock Option Plans" below.
EMPLOYMENT AGREEMENTS
	On September 1, 1996, Steven H. Rothman and Howard Pavony, respectively the Chief Executive Officer and Chairman of the Board of Directors of the Company, each entered into a five-year employment agreement with the Company on the terms set forth below. Each agreement renews annually after the term unless either party elects to terminate. Salary for Fiscal 2001 was at the rate of $250,000. Pursuant to their agreements, each executive receives annual increases in salary equal to the greater of (i) the percentage increase in the Consumer Price Index; and (ii) $10,000. Each executive is entitled to participate in the Company's stock option plans and any incentive bonus program established from time to time, as determined by the Compensation Committee of the Board of Directors. Further, the Company will maintain a $1,000,000 life insurance policy on each executive's life, payable to the beneficiaries named by him, and maintain disability insurance for the benefit of each executive which will pay $150,000 per annum to him in the event of his permanent disability. In the event that there is a change in control of the Company, the executive will be entitled, upon such change of control, to terminate his employment and receive 2.9 times his annual salary as then in effect.
	Simultaneously with the acquisition of Pivot on June 2, 1999, the Company and Mr. Travaglini entered into an employment agreement with a term ending on March 31, 2002 providing for a base salary of $150,000 based on an April 1 to March 31 fiscal year; $175,000 for the second year and $185,000 for the third year; bonus and stock options based on the earnings of the Company's business with respect to which Mr. Travaglini has management responsibility; and a $500 per month car allowance.
STOCK OPTION PLANS
	The Company has adopted the following stock plans: the 1993 Stock Option Plan, which provides for the grant of options to purchase 250,000 shares of Common Stock; the 1996 Stock Option Plan, which provides for the grant of options to purchase 350,000 shares of Common Stock; the 1998 Stock Option Plan, which provides for the grant of options to purchase 250,000 shares of Common Stock, and the 2000 Long Term Performance Plan, which provides for stock awards of up to 350,000 shares of Common Stock. Employees (including officers), directors and others who provide services to the Company and its subsidiaries are eligible to participate in the plans. The plans are administered by the Board of Directors or the Compensation Committee.
	Options granted under the plans may be incentive stock options or ISOs (as defined in Section 422 of the Internal Revenue Code of 1986, as amended), or non-qualified stock options. Non-qualified stock options may be granted in tandem with stock appreciation rights. The exercise price of options may not be less than 100% of the fair market value of the Common Stock as of the date of grant, except that this limitation does not apply to options granted under the 1998 Stock Option Plan and the exercise price of ISOs granted to an employee who owns more than ten percent of the outstanding Common Stock may not be less than 110% of the fair market value as of the date of grant. Options may not be exercised more than 10 years after the date of grant, or five years in the case of ISOs granted to an employee who owns more than 10% of the outstanding Common Stock. An option may be exercised by tendering payment of the purchase price to the Company or, at the discretion of the Board of Directors or Compensation Committee, by delivery of shares of Common Stock having a fair market value equal to the exercise price. The number of shares that may be acquired upon exercise of an option and the exercise price of an option are subject to adjustment in the event of a merger, recapitalization, stock split or stock dividend.
	The 2000 Long Term Performance Plan permits the grant of any form of award, including stock options, stock appreciation rights, and stock or cash awards. Awards under the 2000 Long Term Performance Plan may be in stock or denominated in units of stock, which may be subject to restrictions on transfer and include forfeiture provisions.
	As of March 31, 2001, options to purchase 698,434 shares were outstanding, options to purchase 176,166 shares had been exercised and options to purchase 324,400 shares were available for future grants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
	There are no compensation committee (or Board of Directors) interlock relationships with respect to the Company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	The following table sets forth, as of the date hereof, certain information concerning those persons known to the Company, based on information obtained from such persons, with respect to the beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of Common Shares and Preferred Stock by (i) each person known by the Company to be the owner of more than 5% of the outstanding Common Shares and Preferred Stock, (ii) each Director, (iii) each executive officer named in the Summary Compensation Table and (iv) all Directors and executive officers as a group.
Name and Address Amount and Nature of Beneficial Owner of Beneficial Ownership Percent (1) - ------------------- ----------------------- ----------- Steven H. Rothman(2) 1,007,403(3)(4) 19.6%
Howard Pavony(2) 999,056(3)(5) 19.5%
Anthony Travaglini(2) 238,565(6) 4.6%
William Lerner 423 East Beau Street Washington, PA 15301 40,500(7) *
Arnold Wasserman 1 Brookwood Drive West Caldwell, NJ 07006 45,500(7) *
Alvin E. Nashman 3609 Ridgeway Terrace Falls Church, VA 22044 35,500(7) *
James W. Davis 17300 Boca Club Blvd. Boca Raton, Fl 33487 27,000(7) *
All directors and executive officers as a group (nine persons) 2,402,279(8) 46.8%
__________________________ * Represents less than 1%.
(1) 	Based on 5,135,569 shares of Common Stock issued and outstanding as of March 31, 2001.
(2) 	The address of this person is c/o the Company, 614 Corporate Way, Valley Cottage, New York 10989.
(3) 	Includes 134,000 shares that he may acquire upon exercise of currently exercisable options.
(4) 	Includes 1,125 shares held by his spouse. Does not include an aggregate of 55,544 shares held in trust for his three children, as to which he disclaims beneficial ownership.
(5) 	Does not include an aggregate of 52,444 shares held in trust for his children, as to which he disclaims beneficial ownership.
(6) 	Includes 50,000 shares that he may acquire upon exercise of a warrant and 188,565 shares subject to a lock-up agreement that restricts the resale of 47,142 shares until June 2, 2000 and 141,423 shares until June 2, 2001. The Company has the right to purchase shares released from the lock-up agreement if Mr. Travaglini elects to sell them in a private transaction.
(7) 	Represents shares that he may acquire upon exercise of currently exercisable options.
(8) 	Includes 417,500 shares that may be acquired upon exercise of currently exercisable options.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	None.
PART IV
ITEM 14.
ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)	Financial Statements.
Independent Auditors' Reports
Consolidated Balance Sheets at March 31, 2001 and 2000
	Consolidated Statements of Income for the years ended March 31, 2001, 2000 and 1999
Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements -F19
	(2) 	Financial Statement Schedules
		Financial Statement Schedules have been omitted because of the absence of the conditions under which they are required or because the required information, where material, is shown in the Consolidated Financial Statements or the notes thereto.
	(3) 	Exhibits
2.1 Asset Purchase Agreement dated as of May 1, 1996 by and among DATA.COM RESULTS, INC. ("DATA.COM"), the sole shareholder of DATA.COM, the Company and the Company's wholly-owned subsidiary, DATA.COM DIRECT, INC. (4)
2.2 Stock Purchase and Option Agreement dated May 15, 1998 by and among the Company, Pivot Technologies, Inc. and certain Pivot Shareholders. (7)
3.1 Certificate of Incorporation of the Company, as amended. (1)
3.2 Certificate of Amendment filed September 10, 1996. (6)
3.3 By-Laws of the Company. (1)
4.1 Form of Warrant issued by the Company to Pivot Shareholders.(9)
4.2 Form of Placement Agent Warrant (10)
4.3 Form of Investor Warrant (Included as Exhibit A to Exhibit 4.2) (10)
10.1 Lease Agreement between the Company and Associates of Rockland County dated July 30, 1989. (1)
10.2 Amendment to Lease between the Company and Associates of Rockland County dated July 23, 1992. (1)
10.3 	Lease Extension between the Company and Associates of Rockland County dated February 29, 1996. (5)
10.4 Revised 1993 Employee Stock Option Plan. (1)
10.5 Revolving Credit Line Agreement between The Bank of New York and the Company. (1)
10.6 Modification and Extension Agreement (to Agreement in 10.5 above) between The Bank of New York and the Company dated November 12, 1992. (1)
10.7 Extension Agreement (to Agreement in 10.5 above) between The Bank of New York and the Company dated March 3, 1994. (2)
10.8 Amendment to Revolving Loan Agreement between the Company and The Bank of New York dated March 28, 1995. (3)
10.9 Remarketer/Integrator Agreement between Dell Marketing L.P. and Company, as amended. (1)
10.10 Dealer Addendum, as amended, to IBM Agreement for Authorized Dealers and Industry Remarketers. (1)
10.11 	Master Purchase Agreement between PaineWebber Incorporated and the Company. (1)
10.12 September 13, 1993 amendment to PaineWebber Incorporated Agreement
10.13 Agreement for Wholesale Financing between Deutsche Financial Service (f/k/a/ ITT Commercial Finance Corp.) and the Company. (1)
10.14 Agreement of Cancellation and Termination of Franchise Agreement and General Release between ______ and _______, dated March 28, 1995. (3)
10.15 Pledge and Escrow Agreement among the Company, Data.Com and Mr. Fries, dated May 6, 1996. (4)
10.16 Employment Agreement between the Company and Mr. Fries, dated May 6, 1996. (4)
10.17 Employment Agreement between the Company and Mr. Mota, dated April 1, 1996. (5)
10.18 Employment Agreement between the Company and Steven H. Rothman, dated September 1, 1996. (6)
10.19 Employment Agreement between the Company and Howard Pavony, dated September 1, 1996. (6)
10.20 Agreement and Plan of Merger by and among the Company, a wholly-owned subsidiary of the Company, and Pivot Shareholders, to be entered into if the Option is exercised pursuant to the Stock Purchase and Option Agreement referred to in 2.2 above. (7)
10.21 Business Financing Agreement between Deutsche Financial Services Corporation and the Company, dated January 19, 1999 (8)
10.22 Addendum to Business Financing Agreement (set forth in 10.22) and Agreement for Wholesale Financing (set forth in 10.13). (8)
10.23 Addendum to Agreement for Wholesale Financing (set forth in 10.13). (8)
10.24 Employment Agreement dated June 2, 1999 by and among the Company, Pivot and Anthony Travaglini. (9)
10.25 Agreement and Plan of Merger dated June 2, 1999 by and among the Company, Pivot Acquisition Corporation, Pivot Technologies, Inc. and certain shareholders of Pivot. (11)
10.26 Lease Agreement between 270 Madison Limited Partnership as landlord and the Company as tenant for space located at 270 Madison Avenue. (12)
10.27	Master Services Agreement dated April 15, 1999, between the Company and Dell Marketing L.P. (13)
10.28 Employment Agreement dated as of May 1, 2000 between the Company and David Schwartz. (14)
10.29 Long Term Performance Plan 2000. (15)
21.1 Subsidiaries of the Company.
23.2 Consent from Goldstein Golub Kessler LLP, independent accountants. __________________
1.	Incorporated by reference from the Company's Registration Statement on Form SB-2 for October 26, 1993 (No. 33-62932-NY).
2. Incorporated by reference from the Company's Annual Report on Form 10- KSB for the fiscal year ended March 31, 1994.
3. Incorporated by reference from the Company's Current Report on Form 8-K dated March 28, 1995.
4. Incorporated by reference from the Company's Current Report on Form 8-K dated May 6, 1996.
5. Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996.
6. Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
7. Incorporated by reference from the Company's Current Report on Form 8-K dated June 1, 1998.
8 Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1998.
9. Incorporated by reference from the Company's Current Report on Form 8-K dated June 8, 1999.
10.	Incorporated by reference from the Company's Registration Statement on Form S-3 dated November 13, 2000.
11. 	Incorporated by reference from the Company's Current Report on Form 8-K/A dated December 21, 1999.
12.	Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
13.	Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
14.	Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000.
15.	Incorporated by reference from the Company's Annual Proxy Statement for its Fiscal 2000 Annual Meeting of Shareholders, as filed on September 25, 2000.
	(b) 	Reports on Form 8-K.
	 	None.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders Micros-to-Mainframes, Inc.
We have audited the accompanying consolidated balance sheets of Micros-to- Mainframes, Inc. and Subsidiaries as of March 31, 2001 and 2000 and the related consolidated statements of operations, shareholders' equity, and cash flows foreach of the three years in the period ended March 31, 2001. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Micros-to- Mainframes, Inc. and Subsidiaries as of March 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
GOLDSTEIN GOLUB KESSLER LLP New York, New York
May 17, 2001
See Notes to Consolidated Financial Statements
MICROS-TO-MAINFRAMES, INC. AND SUBSIDARIES
MICROS-TO-MAINFRAMES, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------- MICROS-TO-MAINFRAMES, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMETS - --------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Nature of Operations:
The accompanying consolidated financial statements include the accounts of Micros-to-Mainframes, Inc. and its wholly owned subsidiaries, Data.Com RESULTS, Inc. ("Data.Com"), MTM Advanced Technology, Inc. ("MTM"), and PTI Corporation, formerly known as Pivot Technologies, Inc. ("Pivot"), hereinafter collectively referred to as the "Company." Significant intercompany accounts and transactions have been eliminated. The Company is a premier provider of network analysis and diagnostics, management, remote network management, architecture, design, implementation and support services serving the New York Tri-State Area. The Company practices in Network Protocol Analysis, Network OS Consulting, Internet & Network Security, Integrated Communications and Life Cycle Managed Services, which create a comprehensive computer and communication services suite.
The Company purchases microcomputers and related products directly from suppliers as either an authorized dealer or a value-added reseller. The Company has entered into authorization agreements with major suppliers which can be terminated by the supplier, with or without cause, upon 30 to 90 days notice, or immediately upon the occurrence of certain events. The cost of sales of products purchased from the Company's three largest suppliers accounted for 33%, 32% and 29% for the year ended March 31, 2001. The cost of sales of products purchased from the Company's three largest suppliers were 40%, 28% and 24% for the year ended March 31, 2000. The cost of sales of products purchased from the Company's three largest suppliers were 33%, 28% and 17% for the year ended March 31, 1999. The Company believes that it has excellent relationships with its major suppliers, however, there can be no assurance that the aforementioned agreements will be renewed. If these agreements are not renewed the Company may have difficulty obtaining inventory at a cost which would allow for resale at a competitive market price.
Certain prior years' amounts have been reclassified to conform to current- year presentation.
Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents generally consist of cash, certificates of deposit, commercial paper and money market funds holding similar investments. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Such investments are stated at cost, which approximates fair value, and are considered cash equivalents for purposes of reporting cash flows.
Inventories:
Inventories, comprised principally of computer hardware and software, are stated at the lower of cost or market using the first-in, first-out ("FIFO") method.
Property and Equipment:
Property and equipment is stated at cost and is depreciated using the straight-line method. Furniture, fixtures and other equipment and software development costs have useful lives ranging from three to seven years. Leasehold improvements are amortized over the shorter of the lease term or economic life of the related improvement. Expenditures which extend the useful lives of existing assets are capitalized. Maintenance and repair costs are charged to operations as incurred.
The Company incurred approximately $815,000, $507,000 and $299,000 in depreciation expense for the years ended March 31, 2001, 2000, and 1999, respectively.
Software Development Costs:
The costs of software developed for internal use incurred during the preliminary project stage are expensed as incurred. Direct costs incurred during the application development stage are capitalized. Costs incurred during the post implementation/operation stage are expensed as incurred. Capitalized software development costs are amortized on a straight-line basis over their estimated useful lives.
Goodwill:
Goodwill is amortized using the straight-line method over 15 years (see Note 8).
Impairment of Long-lived Assets:
The Company identifies and records impairment on long-lived assets, including capitalized software development costs and goodwill, when events and circumstances indicate that such assets have been impaired. The Company periodically evaluates the recoverability of its long-lived assets based on expected undiscounted cash flows, and recognizes impairment, if any, based on expected discounted cash flows. At March 31, 2001, no such impairment existed.
Income Taxes:
Deferred income taxes are provided, using the asset and liability method, for temporary differences between financial and tax reporting, which arise principally from the deductions related to the allowances for doubtful accounts, certain capitalized software costs, the basis of inventory and differences arising from book versus tax depreciation methods. The Company files a consolidated federal income tax return and a separate state income tax return for each of its subsidiaries.
Revenue Recognition:
The Company recognizes revenue upon the shipment of ordered merchandise and as technical services are rendered.
Fair Value of Financial Instruments:
The estimated fair value of amounts reported in the consolidated financial statements have been determined by using available market information and appropriate valuation methodologies. All current assets are carried at their cost and current liabilities at their contract amount, which approximate fair value, because of their short-term nature.
Accounting for Stock-based Compensation:
The Company has granted stock options for a fixed number of shares to employees with an exercise price equal to or greater than the fair value of the shares at the date of grant. The Company has accounted for stock option grants in accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees.
Earnings per Share:
Net income (loss) per common share is calculated by dividing net income (loss) by the number of shares of common stock outstanding.
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits.
The Company's customers are primarily mid- to large-sized corporations in diversified industries located in the New York Tri-State Area. Receivables from one of the Company's largest customers were approximately 14% and 18% of the trade receivables at March 31, 2001 and 2000, respectively. Three other customers were each approximately 12% of the Company's trade receivables at March 31, 2001. One customer accounted for approximately 19%, 19%, and 21% of the Company's revenue for the years ended March 31, 2001, 2000 and 1999, respectively. Another customer accounted for 17% of the Company's revenue for the year ended March 31, 2001. The loss of a principal customer would be expected to have a material adverse effect on the Company's operations during the short term until the Company is able to generate replacement business, although there can be no assurance of obtaining such business.
Credit is extended to customers based on an evaluation of their financial condition, and collateral is generally not required. The evaluation of financial condition is performed to reduce the risk of loss. The Company has not historically experienced any material losses due to uncollectible accounts receivable.
Recent Accounting Pronouncements:
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.
2.	CREDIT FACILITIES:
The Company has entered into two financing agreements for the purchase of inventory. One of these agreements is a $15,000,000 credit facility comprising a floor plan agreement and a revolving receivable financing facility. The combined facility is secured by the Company's assets (other than inventories and accounts receivable directly financed by other floor planners who have the lien thereon).
On the revolving receivable financing facility, the Company has a choice of two types of loans: (i) the prime rate loan, in which interest is calculated at the prime rate (8% at March 31, 2001) on the daily contract balance, and (ii) the LIBOR loan, in which the unpaid principal amount of LIBOR loans shall bear interest prior to maturity at a rate per annum equal to the LIBOR in effect for each interest period ,plus 1.5% per annum (6.5 % at March 31, 2001).
The other financing agreement is a $1,300,000 floor plan agreement and is secured by the Company's assets (other than inventories and accounts receivable directly financed by other floor planners who have the lien thereon).
The financing agreements are effective until notice of termination is given by either party (within a specific time-frame, as defined). The floor-plan agreements generally allow the Company to borrow for a period of 30 to 60 days interest free. Interest is charged to the Company only after the due date. In addition, one of these agreements provides for minimum amounts of tangible net worth and specified financial ratios.
The Company's total outstanding debt under the revolving receivable financing facility was $7,620,000 and $3,040,000 at March 31, 2001 and 2000, respectively, and bears interest at the prime rate. The Company also pays an unused line fee of .125% per annum on the daily average of the unused amount of the revolving receivable financing facility.
3. SHAREHOLDERS' EQUITY: Preferred Stock:
The Company has authorized 2,000,000 shares of "blank check" preferred stock, par value $.001 per share. As of March 31, 2001 and 2000 there were no preferred shares issued.
Stock Options:
The 1993 Employee Stock Option Plan (the "1993 Plan") was adopted by the Company in May 1993; the 1996 Stock Option Plan (the "1996 Plan") was approved by the shareholders of the Company on August 20, 1996; and the 1998 Stock Option Plan (the "1998 Plan") was approved by the shareholders of the Company on October 16, 1998. The 2000 Employee Stock Option Plan (the "2000 Plan") was adopted by the Company in September 2000. The plans
provide for granting of options, including incentive stock options, nonqualified stock options and stock appreciation rights to qualified employees (including officers and directors) of the Company, independent contractors, consultants and other individuals, to purchase up to an aggregate of 250,000, 350,000, 250,000 and 350,000 shares of common stock under the 1993 Plan, the 1996 Plan, the 1998 Plan and the 2000 Plan, respectively. The exercise price of options generally may not be less than 100% of the fair market value of the Company's common stock at the date of grant. Options may not be exercised more than 10 years after the date of grant. Options granted under the plans become exercisable in accordance with different vesting schedules depending on the duration of the options.
A summary of the status of the Company's options as of March 31, 2001, 2000 and 1999, and changes during the years then ended, is presented below:
The weighted-average exercise price of the total options outstanding at March 31, 2001 is $3.43 and the weighted-average contractual life is 6.07 years.
The weighted-average fair value of options granted during the years ended March 31, 2001, 2000 and 1999 is $2.25, $2.42 and $2.31, respectively.
There were 440,544, 375,034 and 263,700 options exercisable at March 31, 2001, 2000 and 1999, respectively. The weighted-average exercise price of the total options exercisable at March 31, 2001 is $3.18. .
The Company has elected to follow APB Opinion No. 25 and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Financial Accounting Standards Board ("FASB") Statement No. 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB Opinion No. 25, because the exercise price of the Company's employee stock
options are equal to or greater than the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by FASB No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of the statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended March 31, 2001, 2000 and 1999: risk-free interest rate 5.8%, 6.0% and 5.1%, respectively; no dividend yield; a volatility factor of the expected market price of the Company's common stock of 1.25, .75, and 1.88, respectively, and an expected life of 5.0, 7.7 and 9.2 years, respectively.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows:
Year ended March 31, 2001 2000 1999 - ---------------------------------------------------------------------------- Pro forma net income (loss) $(2,653,075) $(266,647) $444,307 ============================================================================= Pro forma income (loss) per share- basic $(.53) $ (.06) $ .10 ============================================================================= Pro forma income (loss) per share - diluted $(.53) $ (.05) $ .10 ============================================================================= In accordance with the provisions of FASB No. 123, the pro forma disclosures include only the effect of stock options granted in years beginning after December 15, 1994. The application of the pro forma disclosures presented above are not representative of the effects that FASB No. 123 may have on net earnings and EPS in future years due to the timing of stock option grants and considering that options vest over several years.
Earnings per Share:
The following table presents the computation of basic and diluted income (loss) per share:
Year ended March 31, 2001 2000 1999 - ------------------------------------------------------------------------------ Numerator: Net income (loss) $ (2,287,980) $ 222,914 $ 909,977 ============================================================================== Denominator: Denominator for basic earnings per share - weighted-average shares 5,012,718 4,768,618 4,414,564 Dilutive effect of employee stock options and warrants 132,699 22,449 - ------------------------------------------------------------------------------ Denominator for diluted earnings per share 5,012,718 4,901,317 4,437,013 ============================================================================== Net income (loss) per share - basic $ (.45) $ .05 $ .21 ============================================================================== Net income per share - diluted $ (.45) $ .05 $ .21 ============================================================================== Options to purchase 278,122, 78,265 and 154,700 shares of common stock, outstanding as of March 31, 2001, 2000, and 1999, respectively, were not included in the computation of diluted earnings per share because their inclusion would be antidilutive.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
March 31, 2001 2000 - ----------------------------------------------------------------------------- Trade accounts payable (includes obligations under floor plan agreements)	$6,860,679	$4,923,661 Sales and other taxes payable 201,694 262,347 Accrued commissions 229,239 140,862 Accrued other 639,817 303,697 - ----------------------------------------------------------------------------- $7,931,429 $5,630,567 =============================================================================
5.	INCOME TAXES:
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The provision (benefit) for income taxes consists of the following:
Year ended March 31, 2001 2000 1999 - -------------------------------------------------------------------------- Federal: Current (benefit) $(152,100) $ 42,900 $184,500 Deferred (345,500) 97,800 299,000 - --------------------------------------------------------------------------- (497,600) 140,700 483,500 State: Current (5,300) 49,500 Deferred (103,700) 32,600 72,800 - --------------------------------------------------------------------------- $(601,300) $168,000 $605,800 ===========================================================================
The reconciliations of income tax (benefit) computed at the federal statutory tax rates to actual income tax expense (benefit) are as follows:
Year ended March 31, 2001 2000 1999 - ---------------------------------------------------------------------------- Tax expense at statutory rates applied to pretax earnings ($979,000) $133,000 $515,000 Nondeductable goodwill amortization 65,700 State income taxes, net of federal benefit (69,100) 21,000 76,500 Valuation allowance 397,600 Other, net (16,500) 14,000 14,300 - ---------------------------------------------------------------------------- $(601,300) $168,000 $605,800 ============================================================================
The tax effects of temporary differences that give rise to the net short- term deferred and refundable income tax asset at March 31, 2001 and 2000 are presented below:
March 31, 2001 2000 - ---------------------------------------------------------------------------- Reserve for bad debts $178,000 $54,600 Inventory reserve 22,000 - Valuation allowance (112,000) Other, net 29,900 - ----------------------------------------------------------------------------- Total short-term deferred income tax asset $88,000 $84,500 =============================================================================
The tax effects of temporary differences that give rise to the net long- term deferred income tax asset (liability) are presented below:
Capitalized software, net $(682,000) ($210,200) Property and equipment (2,600) (43,500) Capitalized leases 29,600 32,400 Net operating loss 1,165,000 - Valuation allowance (285,600) - - ------------------------------------------------------------------------------ Net long-term deferred income tax asset (liability) $224,400 $(221,300) ==============================================================================
The Company has recorded a deferred tax asset of approximately $1,165,000 reflecting the benefit of $2,987,000 in loss carryforwards, which are available to offset taxable income through the year 2021. Realization depends on generating sufficient taxable income before expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that part of the deferred tax asset will be realized, and accordingly has provided a reserve against the deferred tax asset. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during carryforward period are reduced.
For the years ended March 31, 2001, 2000 and 1999, the Company recognized for income tax purposes a tax benefit of $ 22,100, $112,700 and $76,646, respectively, for compensation expense related to its incentive stock option plan for which no corresponding charge to operations has been recorded. Such amounts have been added to additional paid-in capital for the years ended March 31, 2001, 2000 and 1999.
6. COMMITMENTS AND CONTINGENCIES:
Leases:
The Company leases four locations for its administrative and operational functions under operating leases expiring at various dates through September 2003. Certain leases are subject to escalation based on the Company's share of increases in operating expenses. In addition, the Company leases four cars for the use of certain of its officers, as well as office equipment.
Approximate future minimum annual lease payments under noncancelable operating leases are as follows:
Year ending March 31, 2002 $493,000 2003 374,000 2004 156,000 - -------------------------------------------------------------------------- $1,023,000 ==========================================================================
Rental expense for operating leases approximated $735,000, $645,000, and $572,000 for the years ended March 31, 2001, 2000 and 1999, respectively.
Employment Agreements:
The Company has entered into employment agreements which require the payment of approximately $836,000 and $76,000 for the next two years. In addition, certain of the agreements provide for bonus compensation based on certain performance goals, as defined.
7. EMPLOYEE SAVINGS PLAN:
The Company has an employee savings plan which qualifies under Section 401(k) of the Internal Revenue Code. Under the plan, all employees who are at least 21 years of age and have completed one year of service are eligible to defer up to 15% of their pre-tax compensation, but not more than the limit prescribed by the Internal Revenue Service. The Company matches 10% of employee contributions to a maximum of 6% of the employee's salary. The Company contributed approximately $34,000, $31,000 and $25,000 to the plan in the years ended March 31, 2001, 2000 and 1999, respectively.
8. ACQUISITION OF PIVOT TECHNOLOGIES, INC.:
PTI Corporation, formerly known as Pivot Technologies, Inc. ("Pivot"), a remote network servicer, was merged into a wholly owned subsidiary of the Company in a three-part step-acquisition. The acquisition has been accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the share of assets acquired and the liabilities assumed based upon the fair values at the dates of acquisition.
On May 18, 1998, the Company acquired 19.9% of Pivot and an option (the "Option") to cause the merger of Pivot into a wholly owned subsidiary of the Company. In consideration for the Option and the Pivot shares, the Company paid Pivot (exclusive of the merger consideration payable upon any exercise of the Option) $475,000 and made further payments, as defined in the Purchase and Option Agreement, of $346,000 over a five-month period commencing one month after closing. The Company also incurred acquisition costs of approximately $26,000.
The Option had an initial term of six months and was extended for three additional one-month terms for additional cash consideration of $240,000. The election not to exercise the Option at the end of the additional three months gave the Company the right to increase its ownership of Pivot to 33.4% for no further consideration. On February 22, 1999, the Company increased its ownership to 33.4%.
The investment in Pivot in 1999 is accounted for under the equity method of accounting whereby earnings or losses from the investment are reflected in the Company's earnings based on the Company's pro-rata ownership interest. The net loss from this investment for the year ended March 31, 1999 aggregated approximately $13,000. The excess of the Company's carrying value over the proportionate share of the underlying net assets of Pivot purchased aggregated approximately $905,000 and is being amortized over a period of 15 years.
In addition, the Company lent Pivot $124,000 which is included in prepaid expenses and other current assets at March 31, 1999. The loan was forgiven by MTM and included in the purchase price of Pivot on June 2, 1999.
On June 2, 1999, the Company acquired the remaining 66.6% ownership of Pivot. In consideration, Pivot shareholders received 377,129 shares of the Company's common stock; five-year warrants to acquire 100,000 shares of the Company's common stock at $2.916767 per share, exercisable immediately; and $261,300 in cash. The Company also paid $100,000 to the Pivot shareholders in consideration for the shareholders' covenant not to compete. The approximate value of the consideration paid totaled $2,170,000. The Company also incurred additional acquisition costs of approximately $50,000. The excess of the Company's carrying value over the proportionate share of the underlying net assets of Pivot purchased aggregated approximately $1,994,000 and is being amortized over a period of 15 years.
At March 31, 2001, total goodwill arising from the purchase of Pivot aggregated approximately $ 3,004,000.
Results of operations for Pivot from June 2, 1999 through March 31, 2001 are included in the Company's consolidated income statement for the year ended March 31, 2000 and 2001.
The following summarized pro forma results of operations for the year ended March 31, 2000 have been prepared assuming the acquisition occurred at the beginning of the period.
March 31, 2000 1999 - --------------------------------------------------------------------------- Net sales $72,31,309 $69,079,454 Net income $ 213,906 $ 668,938
Earnings per share: Basic and diluted $ .04 $ .15 - ---------------------------------------------------------------------------
9. TERMINATION OF THE MERGER AGREEMENT:
On August 29, 1997, the Company entered into an Agreement and Plan of Merger (the "Agreement") with BTG, Inc. ("BTG"), a Virginia corporation, and BTG Merger Sub, Inc., a wholly owned subsidiary of BTG, pursuant to which the Company was to be acquired by BTG for cash and stock valued at approximately $25,000,000.
On February 13, 1998, BTG terminated the Agreement with the Company. As a result of the default BTG paid the Company a $500,000 termination fee. In addition, BTG paid the Company for out-of-pocket expenses of $350,000 in exchange for a release from future liability which may arise as a result of the termination of the Agreement. The Company recognized these payments as a reduction to selling, general and administrative expenses, reflecting an offset against the direct and indirect costs and expenses related to the BTG merger.
The Company also entered into a cooperative marketing and service agreement with BTG under which the Company received a nonrefundable payment of $900,000 from BTG for consulting services to be provided during the 10-month period ended December 31, 1998. The Company recognized $810,000 and $90,000 of income related to this payment during the years
ended March 31, 1999 and 1998, respectively. The Company was not required to provide services exceeding $900,000.
10. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Information relating to the allowance for doubtful accounts is as follows:
Balance at Charged to Balance Beginning Costs and at End Description of Year Expenses of Year - --------------------------------------------------------------------------- (in thousands)
Year ended March 31, 1999 $140 - $140 2000 140 - 140 2001 140 317 457 - ---------------------------------------------------------------------------
11.	QUARTERLY RESULTS OF OPERATIONS (unaudited):
The following is a summary of the quarterly results of operations for the years ended March 31, 2001, 2000 and 1999:
June 30 September 30 December 31 March 31 - ------------------------------------------------------------------------------ (in thousands, except per share data)
2001: - ----- Net revenue $21,628 $20,819 $18,570 $19,155 Cost of products sold 15,229 13,758 12,039 12,648 Cost of services provided 3,560 3,134 4,244 3,962 Net income (loss) (8) 34 (899) (1,406) Net income (loss) per common share: Basic $ - $ .01 $ (.18) $ (.28) Diluted $ - $ .01 $ (.18) $ (.28)
2000: - ----- Net revenue $18,363 $19,024 $17,644 $17,792 Cost of products sold 12,356 12,623 12,038 11,119 Cost of services provided 3,510 3,937 3,201 3,584 Net income 73 52 63 35 Net income per common share: Basic $ .02 $ .01 $ .01 $ .01 Diluted $ .02 $ .01 $ .01 $ .01
1999: - ----- Net revenue $17,073 $15,066 $17,313 $19,579 Cost of products sold 11,840 9,675 11,716 12,518 Cost of services provided 2,905 3,003 3,119 5,076 Net income 207 (1) 215 (1) 135 (1) 353 Net income per common share: Basic $ .05 (1) $ .05 (1) $ .03 (1) $ .08 Diluted $ .05 (1) $ .05 (1) $ .03 (1) $ .08 - ------------------------------------------------------------------------------
Earnings per common share calculations for each of the quarters were based on the weighted-average number of shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the full year earnings per common share amount.
(1) Includes a $270,000 (approximately $159,000 after tax) contractual payment from BTG.
SIGNATURES
	Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 27, 2001
					 	MICROS-TO-MAINFRAMES, INC.
By: /s/ Steven H. Rothman Steven H. Rothman Chief Executive Officer and President (Principal Executive Officer)
	Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Howard Pavony Chairman of the Board June 27, 2001 Howard Pavony
/s/ Steven H. Rothman Chief Executive Officer, June 27, 2001 Steven H. Rothman President and Director (Principal Executive Officer)
/s/ Frank T. Wong Vice President - Finance June 27, 2001 Frank T. Wong (Principal Financial and Accounting Officer)
/s/ William Lerner Director June 27, 2001 William Lerner
/s/ Arnold J. Wasserman Director June 27, 2001 Arnold J. Wasserman
/s/ Alvin E. Nashman Director June 27, 2001 Alvin E. Nashman
/s/ James W. Davis Director June 27, 2001 James W. Davis