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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended: March 31, 2004

For the transition period from _________ to __________

Commission file number: 0-22122

MTM Technologies, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (845) 268-5000

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

Securities registered under Section 12(g) of the Exchange Act: Common stock, par value $0.001 per share

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

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

Indicate by check mark whether the registrant is an accelerated filer.Yes o No x

The aggregate market value of the 3,157,235 shares of voting and non-voting common equity stock held by non-affiliates (all shareholders other than directors, executive officers and 5% or greater shareholders) of the registrant was $4,230,695, as of September 30, 2003, based on the average bid and asked prices of the registrant’s common stock on such date of $1.34 per share, as reported by The Nasdaq Stock Market, Inc.

There were a total of 4,723,052 shares of the registrant’s common stock outstanding as of June 28, 2004.

Documents Incorporated by Reference

None

Introductory Comment - Terminology

Throughout this Annual Report on Form 10-K, the terms the “we,” “us,” “our” and “our company” refers to MTM Technologies, Inc. (formerly, Micros-to-Mainframes, Inc.) (“MTM”) and, unless the context indicates otherwise, includes, on a consolidated basis, MTM’s wholly-owned subsidiaries, Pivot Technologies, Inc. (“PTI”), MTM Advanced Technology, Inc. (“MTM Advanced”) and Data.Com Results, Inc. (“DCR”).

Introductory Comment - Forward-Looking Statements

Statements contained in this Annual Report on Form 10-K include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual financial or operating results, performances or achievements expressed or implied by such forward-looking statements not to occur or be realized. Forward-looking statements made in this Form 10-K generally are based on our best estimates of future results, performances or achievements, predicated upon current conditions and the most recent results of the companies involved and their respective industries. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “should,” “project,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” “potential,” “opportunity” or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions. Potential risks and uncertainties include, among other things, such factors as:

Readers are urged to carefully review and consider the various disclosures made by us in this Annual Report on Form 10-K and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this Form 10-K speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

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PART I

We are a leading computer and communications technology management company providing IT networking and data center services, including storage, security and messaging solutions. We serve as a single source provider of advanced technology solutions to divisions of large corporations, mid-size companies, municipalities and educational institutions. We provide our clients with a suite of outsourced support services, including network and mainframe connectivity consulting; remote network monitoring and management; network and system diagnostics, product maintenance and support, training, and product procurement solutions. In addition, we provide a total solution to our clients by delivering systems design, installation, consulting, maintenance and integration of network computer products, including the design and implementation of wide area networks (“WAN’s”), local area networks (“LANs”), wireless network solutions and provide computer hardware and software products. We provide our remote network solutions by utilizing out proprietary solution which we market as Pivot Technology.

Business Strategy

There is a rapidly growing trend of companies outsourcing their computer services requirements. This entails a client company obtaining all or a portion of its data processing requirements from a solution provider, such as us, that specializes in the computer service, product or application required by the client. Our strategy is to offer these companies a selective outsourced infrastructure solution at competitive price points. We are focusing on developing our higher margin recurring service offerings, while maintaining expense control and improving our balance sheet. These services include our outsourced support services; contract programming, network consulting, network management and monitoring, security solutions, collaboration solutions focused primarily on Microsoft Exchange, data storage (including disaster recovery and data back-up) and IT staff leasing. Since 1991, we have evolved to become a provider of IT professional services and IT managed solutions. We are focusing our current marketing efforts in accelerating growth in such areas. Services account for approximately 25% of our revenues for the fiscal year ended March 31, 2004 (“Fiscal 2004”), a small portion of these revenues is derived from maintenance and repair services.

Acquisition Program

On May 20, 2004, our shareholders approved an investment of up to $25 million by Pequot Ventures (“Pequot”), the private equity arm of Pequot Capital Management, Inc., a leading investment firm. On May 21, 2004 we completed an initial $7 million investment from Pequot. We intend to use these funds to execute a growth through acquisition strategy, as well as for working capital needs. We believe that there is an opportunity to consolidate similar businesses throughout the United States. We will focus our acquisition strategy on businesses providing networking, messaging, storage and security solutions. The acquisition targets will include companies providing IT services and products, as well as certain managed solutions.

We intend to seek acquisitions to enhance our current service offerings and extend our geographic presence. We seek to identify businesses which will add technical expertise and service offerings, customers, sales capabilities and/or geographic coverage while generating a positive rate of return on investment. Furthermore, we intend to capitalize on the business practices of acquired companies that we believe will best maintain our competitive advantage and ensure ongoing delivery of high quality IT solutions to our customers. The acquisition candidates we review can be large, and their acquisition by us could have a significant and lasting impact on our business.

Business Services

We are a leading computer and communications technology management company providing IT networking and data center services, including storage, security and messaging solutions. We serve as a single source provider of advanced technology solutions to our clients, which consist of divisions of Fortune 500 corporations, middle market corporations (generally those with $50 million to $1 billion in revenues), municipalities and educational institutions in the tri-state, New York City metropolitan area.

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Managed Services

We provide our clients with a suite of managed services through the use of our proprietary network management and monitoring software system, Pivot Technology. We provide our clients with automated remote network, system and security management solutions and related consulting and engineering services. The Pivot Technology tool set is a combination of our proprietary network management and monitoring software and third party licensed software. We provide our managed services through our corporate network operations center and our field consulting staff.

Consulting and Outsourced Support Solutions

In addition to offering managed services, we deliver a total solution to our clients by providing systems design, installation, consulting, maintenance and integration of network computer products, including network analysis, design and implementation for wide area networks (“WAN’s”), local area networks (“LANs”) and wireless networks and network service management, systems configuration, physical installation, software loading, application training, continuing education, maintenance and repair services. The computer industry is characterized by numerous hardware systems that utilize different and often incompatible standards for hardware and software. We have the capability to design systems and support services, which include products or components manufactured by numerous manufacturers that address most applicable industry standards.

Our outsourced support solutions include network and mainframe consulting, network management, systems and network diagnostics, network training and consulting and videoconferencing. Our clients have access to our consulting services for LAN, WAN, broadband and wireless 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. These solutions provide our clients with the ability to outsource virtually all of their support requirements with one company for a wide variety of their computer infrastructure and software needs. These services generally provide our clients with access via an 800-telephone call to person-to-person support services administered by a staff of highly trained support engineers in our Advanced Technology Group. There are presently 106 technical support persons 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.

We also sell, install and service network computers, computer software products, supplies, accessories and custom designed computer systems. We are an authorized direct dealer and value added reseller. We also serve as a systems integrator, by integrating into a single working system a group of hardware and software products from more than 40 major computer vendors, including Hewlett-Packard Company, IBM Corporation, Microsoft Corporation, Cisco Systems, Inc., Dell Computer Corporation, NEC Technologies, Inc., ISS Technology Inc., Citrix Systems, Inc., Novell, Inc., 3COM Corporation and Symantec Corporation.

Network and Mainframe Connectivity. Our staff of networking consultants offer a high level of expertise at all levels of computer technology 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. We offer research and planning insight at all levels of information flow from mainframes to desktop computers and within each system. These consulting services provide clients with access to a variety of options in designing and maintaining systems.

Our Advanced Technology Group seeks to serve customers’ increasing communications requirements, including their need to share data and resources using LANs and WANs. We offer an array of connectivity services, including LAN and WAN system design and configuration, videoconferencing consulting, user training and installation. In addition, we have established a connectivity and communication laboratory in our 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

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and optimization, replication, diagnosis and solution of service problems and to generally provide a basis to address support issues. Our lab features several different LAN and WAN operating systems for the entire spectrum of computer sizes from such manufacturers as Microsoft Corporation, Novell, Inc., IBM Corporation, Citrix Systems, Inc., Hewlett-Packard Company and Cisco Systems, Inc.

Network Management and Fine-Tuning. Our 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. 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 Technology, our proprietary network management and monitoring software, provides automated remote network services, security, and systems monitoring and management on both a proactive and reactive basis.

Diagnostics. We ship one of our 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, our experienced systems engineers can analyze and determine the network problem. In addition, through a remote dial-in system, our systems engineers can access a client’s network problems. Diagnostics is also provided utilizing the Pivot Technology remote network management system.

Network Training and Consulting. Our Advanced Technology Group provides our clients and their corporate management, as well as its own engineering and sales personnel, with technical support and training. Our support engineers have generally been trained by major computer vendors and receive additional training from courses given by computer vendors, as well as by our internal staff, on an as needed basis and also in order to maintain their certifications with their respective vendors. We offer comprehensive training sessions for our 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. We also offer customer-training seminars for various computer hardware and software products at our facilities and at customer sites.

Support Services. Our support services include a wide range of services designed for our customers’ corporate planners and management needing a single source for technical support issues, such as LANs and WANs, 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.

Database. We have access to state-of-the-art technical databases, which provide us with information concerning technological advances from major vendors. This assists us in trouble-shooting as we receive up-to-date product information from a wide variety of vendors. We have either been licensed, contracted or authorized to use Novell’s technical database which Novell engineers use for research and network diagnosis, as well as technical information from IBM Corporation, Hewlett-Packard Company, Cisco Systems, Inc., Microsoft Corporation, NEC Corporation, 3COM Corporation and Fore Systems, Inc. These databases provide us with technological advances from major vendors as soon as the information is published. These, in turn, allow us flexibility to shift rapidly to vendors whose products are expected to increase in demand as a result of technological advances.

Other Services

In addition to managed services and consulting and outsourced support services, we also supply third party computer hardware and software products, software maintenance and technical support. We market computers, printers, displays, video conferencing products, LAN and WAN products, plotters, software and other peripheral products.

We are an authorized sales and service dealership of computer equipment and related products supplied primarily by major manufacturers, including, but not limited to, Hewlett-Packard Company, IBM Corporation, Microsoft Corporation, Cisco Systems, Inc., Dell Computer Corporation, NEC Technologies, Inc., ISS Technology Inc., Citrix Systems, Inc., Canon USA, Inc., Novell, Inc., 3COM Corporation and Symantec Corporation. We also purchase certain products from distributors selling to other dealers at prices generally lower than we could obtain directly

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from suppliers. We also obtain products from a number of suppliers, including independent distributors, on an individual purchase order basis rather than through dealership agreements. We also will order specific products from other manufacturers to satisfy a particular customer requirement. We regularly evaluate new products, both internally and through evaluations with our customers.

Our experienced support engineers provide product support to resolve specific operating system and application problems. Our 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 operating systems, graphics, databases and various utilities. We provide our clients with instant access to the latest product support resources for known problems and resolutions, updates and release information.

We offer contracts to our customers for both on-site and off-site complete product maintenance and repair services. These maintenance contracts generally provide for us to maintain computer equipment at the customer’s location during regular business hours. Most maintenance contracts are renewable annually. In addition, we provide authorized warranty service and repair for equipment sold by us 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 a parts inventory for the products distributed by us and is staffed by manufacturer-certified field engineers.

We 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, we became a 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 currently automatically renewable for additional one-year terms on each expiration date unless either party gives a written notice of termination at least one hundred twenty days prior to the expiration date of the then current term.

Industry

The network computer industry has become a multi-billion dollar industry since its development in the late 1970’s. Today, industry participants face intense competition, the challenge of constant technological advancement and the ongoing need for business process optimization. Companies are turning to IT solutions to compete more effectively. As a result, the ability of solutions providers to integrate and align information technologies with new business objectives has become critical for survival.

Although many companies have recognized the importance of optimizing IT systems and products to support business processes in competing in today’s challenging climate, the process of designing, developing and implementing IT solutions has become increasingly complex. With the prevailing economic conditions, many customers have nonetheless elected to defer updating their IT system as well as failing to reinvest in their computer infrastructures. The deferral of critical projects has had a direct effect on our recent financial performance. Many of our clients have reduced their IT staff and do not plan to increase the staff as their business improves. Clients are seeking to supplement their existing IT staff through the use of selective outsourcing of IT functions. We believe that as our clients’ financial prospects improve that they will continue to challenge their IT staff to cost effectively manage their IT infrastructure through the use of selective outsourcing. We believe that we have developed middle market outsourcing solutions that will be in demand as the economy improves and that the execution of a growth by acquisition strategy will position us to meet our clients growing demand for our solutions.

The current economic environment has further challenged many companies to evaluate investment or funding choices and business critical applications. IT managers must integrate and manage computing environments consisting of multiple computing platforms, operating systems, databases and networking protocols and off-the-shelf software applications to support business objectives. Companies also need to keep pace with new developments in technology, which often render existing equipment and internal skills obsolete. At the same time, external economic factors have caused many organizations to focus on core competencies and trim workforces in the IT management

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area. Accordingly, these organizations often lack the quantity, quality and variety of IT skills necessary to design and support IT solutions. IT managers are charged with supporting increasingly complex systems and applications of significant strategic value, while working under budgetary, personnel and expertise constraints within their own organizations.

We believe the strongest demand for our IT services is among companies which typically lack the time and technical resources to satisfy all of their IT needs internally. These companies typically require sophisticated, experienced IT assistance to achieve their business objectives. These companies often rely on IT service providers to help implement and manage their systems. However, many of these companies rely on multiple providers for their IT needs. Generally, we believe that this reliance on multiple providers results from the fact that larger IT service providers do not target these companies, while smaller IT service providers lack sufficient breadth of services or industry knowledge to satisfy all of these companies’ needs.

These companies purchase computer solutions from a number of sources, including manufacturer authorized dealers and value-added resellers, such as us, retail stores and, with increasing importance, directly from manufacturers through direct telemarketing and mail order organizations. Direct sales have benefitted from users becoming more computer literate, the emergence of industry standards and increased inter-changeability of peripherals. As a result of the foregoing, the value added reseller channel is currently undergoing additional market segmentation into solutions providers such as us, which offer one-stop total solution for outsourcing of a client’s IT needs.

Our support services include a wide range of services designed for our customers’ corporate planners and management needing a single source for technical support issues, such as LANs and WANs, 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 solutions 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 us, that specializes in the computer service, product or application required by the client.

We believe that it is generally more cost-effective and more efficient for our clients to purchase outsourcing services from us than for them to provide equivalent services by hiring their own service and support personnel.

Sales and Marketing

Our marketing efforts are focused on divisions of Fortune 500 corporations, middle market corporations (generally those with $50 million to $1 billion in revenues), municipalities and educational institutions. We have recently begun to increase our focus on the mid-tier corporate market. Except for major corporate accounts, these customers generally do not have internal computer support personnel. We believe that the increasing complexity of computer systems, increased usage of computers 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 us. We believe 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. We use such an approach, which addresses purchasing, compatibility, maintenance, support, training and obsolescence.

We have approximately 290 active clients. Our customers are diversified in such industries as securities, financial institutions, pharmaceuticals, manufacturing, distribution, law and accounting firms as well as municipalities and educational institutions. For the years ended March 31, 2004, 2003 and 2002, approximately 34%, 18% and 12% of our revenue was from one customer, Verizon Wireless. We entered into a three-year desktop maintenance and support contract with Verizon Wireless, which expires in April 2005 and is renewable on an annual basis thereafter. For the years ended March 31, 2004, 2003, and 2002 approximately 10%, 12%, and 12%, respectively, of our total revenues were derived from sales to UBS/PaineWebber, Incorporated. Even though our agreement with UBS/ PaineWebber terminated on February 28, 1998, we are continuing to do business with UBS/ PaineWebber on

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generally the same terms as the expired agreement. We are continuing our efforts to negotiate a new agreement with UBS/ PaineWebber. In any event, sales to Verizon Wireless and USB/PaineWebber are negotiated on a case-by-case basis. Although our customer base has increased, the loss either of Verizon Wireless or USB/PaineWebber could be expected to have a material adverse effect on our financial condition and results of operations.

As of May 31, 2004, we employed 23 salespersons, sales assistants and marketing persons who are paid salaries, commissions and/or a combination of both. Our sales executives regularly call on management at companies seeking solutions for their computer problems. While our marketing activities are focused on Fortune 2000 corporations located in the tri-state New York City metropolitan area and throughout New England, we have begun to change our focus to middle market corporations (generally those with $50 million to $1 billion in revenues) and divisions of large companies. We also sell our products and services to branch offices of our customers throughout the United States. We rely on customer referrals from our major suppliers and manufacturers who often receive requests for a systems integrator to design and install their systems.

Our sales executives generally participate in weekly training concerning various topics, including product knowledge, industry information and sales techniques. Our ability to successfully expand our 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.

We also makes joint sales presentations with certain of our 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 us to their purchase obligations under those agreements. As a result, these customers have the flexibility of purchasing products from us to take advantage of our added services and our 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 us and certain of our competitors from becoming authorized dealers for new vendors.

Suppliers

We purchase computers and related products directly from numerous suppliers as either an authorized dealer or a value added reseller. We have entered into authorization agreements with our major suppliers. Typically, these agreements provide that we have 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. We believe that our relationships with our major suppliers are good.

Sales of Hewlett-Packard Company products accounted for approximately 40%, 42%, and 49% of our product sales for the years ended March 31, 2004, 2003 and 2002, respectively. Sales of Dell Computer Corporation products accounted for approximately 23%, 26% and 14% of our product sales for the years ended March 31, 2004, 2003 and 2002, respectively. No other supplier’s products accounted for 10% or more of our product sales for the years ended March 31, 2004, 2003 and 2002. Substantially all of our hardware products, with the exception of Dell products, were purchased through distributors. Our primary distributor suppliers are Ingram Micro, Inc. and Tech Data Corporation. We do not believe that a termination of any individual supplier or distributor agreement, other than our agreements with Hewlett-Packard Company and Dell Computer Corporation, would have a material adverse effect on us.

Our future results of operations are dependent upon continued demand for computer products. Distributors and integrators in the computer 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 computer manufacturers. The increased price competition among major hardware vendors has resulted in declining gross margins for many computer distributors and may result in a reduction in existing vendor subsidies. We believe

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that these current conditions, which are forcing certain of our direct competitors out of business, may present us with opportunities to expand our business. There can be no assurance, however, that we will be able to continue to compete effectively in this industry.

Pursuant to the terms of most of our authorized dealership agreements, we furnish firm purchase orders 30 to 90 days in advance of shipment. Under the terms of these agreements, we are generally liable for up to a 5% restocking fee to many manufacturers and suppliers for the return of previously received merchandise. We have not experienced any significant cancellation penalties or restocking fees to date.

We receive certain discretionary cost subsidies, typical for the industry, from certain major suppliers to promote sales and support activities relating to their products. We have used these funds to subsidize marketing, advertising and our connectivity and communication laboratory.

Our suppliers permit us to pass through to its customers all warranties and return policies applicable to the suppliers’ products. To date, we have experienced few returns of product and have 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. We offer service contracts of varying lengths under which we agree 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, we do 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 computer 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 computer resellers. Although discounted prices have enabled us to increase our sales volume of products during the year ended March 31, 2004 from the prior year, it has resulted in lower gross margins for some of our product lines.

We entered into a Program Agreement with Ingram as of December 5, 1997. Either party may terminate such agreement with or without cause upon thirty (30) days prior notice. Pursuant to the agreement, Ingram provides a supplemental program to provide us (and other similarly situated companies contracting with Ingram) with services designed to assist the reseller in marketing and distributing Ingram’s products. We also agreed to name Ingram as our primary supplier and to purchase from Ingram at least 65% of our total product purchased from wholesale distributors. No assurance can be given that such agreement will not be terminated by Ingram.

Our agreement with Tech Data was for a one year term commencing January 15, 1997, subject to an automatic three month renewals. Such agreement was terminable upon 30 day prior notice. Even though the term has expired, we continue to conduct business with Tech Data on substantially the same terms as the original agreement. The agreement generally sets forth the price to be charged for purchases based on a percentage above a stated cost to Tech Data. Even though we have no reason to believe that Tech Data will not continue to do business on substantially similar terms as provided in the agreement, no assurance thereof can be given that this arrangement will continue in the future.

We entered into a Service Agreement with Dell on April 15, 1999. Under the Service Agreement, we became a Dell 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 120 days’ prior to the expiration date of the then current term.

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Competition

The computer market is highly competitive. We are in direct competition with local, regional and national distributors of computer products and related services. Several of these competitors offer most of the same basic products as we do. We compete with other resellers and believe that our prices and delivery terms are competitive. Many competitors may sell their products at lower prices than we do, but we believe that such parties generally do not offer the same range of support services after installation of equipment that we offer to our customers.

In addition, the tri-state New York City Metropolitan area and New England, to which we market our products and services, are particularly characterized by highly discounted pricing on computer products from various sources of competition. We face competition from computer 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. We have an insignificant market share of sales in the computer industry and the service markets which we serve. Certain of our competitors at the regional and national level are substantially larger, have more personnel, have materially greater financial and marketing resources than us and operate within a larger geographic area than do we.

We believe that we will continue to be able to compete effectively against our various competitors by combining fair pricing with a wide range of customer support services designed to provide our 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.

We believe that our backlog of unfilled customer orders is not material.

Proprietary Information

We do not hold any patents, but have several trademarks and service marks related to our Pivot Technology operations. We also may affix copyright notices on our support service, training and service manuals. While such protection may become important to use, it is not considered essential to the success of our business. We rely on the know-how, experience and capabilities of our management, sales and service personnel. We require some of our employees to sign confidentiality or non-competition agreements.

Employees

As of May 31, 2004, we employed 151 persons, all but six of whom are full-time personnel. Of these employees, five were in management, 23 were in sales and marketing, 106 were in technical support, two were in distribution, eight were in finance and seven were in administration. None of our personnel are represented by a union and we consider our employee relations to be good.

Incorporation

We were incorporated on May 12, 1986 in the State of New York.

Our principal executive offices are currently located at 614 Corporate Way, Valley Cottage, New York. We occupy approximately 11,000 square feet at this location, which also serves as one of our customer services and support and warehouse facilities. Our connectivity and communication lab is also located at this location. The lease for this location expires in August 2004. The monthly base rent for this location is approximately $10,700. We do not intend to renew the lease for this location at the expiration of the lease term.

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We also occupy approximately 4,800 square feet of office space at 245 Fifth Avenue, New York, New York under a lease expiring in April 2009. The monthly base rent for this facility is approximately $12,000. We use this facility primarily for sales and marketing.

We lease approximately 8,100 square feet of office and warehouse space in Rocky Hill, Connecticut. The monthly base rent for this facility is approximately $5,600. The lease for this facility expires in July 2004. We expect to renew the lease for this location at the expiration of the lease term for an additional two years, although no assurance can be given that we will be able to renew the lease on terms we believe are favorable to us, if at all.

We lease an additional approximately 8,700 square feet facility at 614 Corporate Way, Valley Cottage, New York under a lease expiring in November 2004. The monthly base rent for this facility, which we use for office space, warehousing and as our Pivot Technology network operating center, is approximately $7,700. We expect to renew the lease for this location at the expiration of the lease term, although no assurance can be given that we will be able to renew the lease on terms we believe are favorable to us, if at all.

We are also responsible for real estate taxes, insurance, utilities and maintenance expenses relating to our leased facilities. These expenses totaled approximately $286,000 for the year ended March 31, 2004.

We have entered into an additional lease for approximately 6,500 square feet of office space located at 850 Canal Street, Stamford, Connecticut. The lease for this location, which will serve as our new principal executive offices, expires on the later of August 21, 2009 or the fifth anniversary of the commencement of our occupancy of this location. The landlord currently is making required improvements to this location pursuant to our requirements and we expect to take occupancy in September 2004. The monthly base rent for this facility is approximately $11,800.

On April 1, 2003, Andrew J. Maxwell, trustee of the bankruptcy petition of Marchfirst, Inc. and its subsidiaries and affiliates, commenced an action against us in the United States Bankruptcy Court, Northern District of Illinois, Eastern Division. Marchfirst initially sought bankruptcy protection on April 12, 2001 under Chapter 11 of the United States Bankruptcy Code. The debtors’ petition was converted to a Chapter 7 proceeding on April 26, 2001. The complaint alleges that, during the 90 days immediately preceding the initial filing of the bankruptcy petition, the debtors made payments to us aggregating $212,000 which constituted a preference within the meaning of Section 547(b) of the Bankruptcy Code, and seeks return of the amount of such payments, together with interest and costs. We have asserted affirmative defenses under Sections 547(c)(2) and (4) of the Bankruptcy Code, commonly known as the “ordinary course of business” and “new value” defenses, as the remittance to us of such $212,000 was in payment of valid debts due us from the debtors for goods supplied and services rendered. We believe that an adverse outcome resulting from this action is not probable and have not accrued any amount in our financial statements with respect to this action.

We are not a party to any other pending legal proceeding, nor is any of our property subject of a pending legal proceeding, involving a claim for damages exceeding 10% of our current assets. We are not aware of any material legal proceeding in which any of our directors, officers, affiliates or record or beneficial owners of more than 5% of our voting securities is a party adverse to us or has a material interest adverse to us.

We held a special meeting of our shareholders on May 20, 2004. At this special meeting, our shareholders voted as follows:

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PART II

Market for Our Common Stock

Our common stock is traded on The Nasdaq SmallCap Market under the symbol “MTMC.” Set forth in the following table is the range of the high and low bid quotations for our common stock for each of the quarters during our last two completed fiscal years, based upon data provided by Nasdaq. These quotations reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions, and may not represent actual transactions.

Record Holders

As of June 8, 2004, there were 103 record holders of our common stock. We believe that there are approximately 1,400 beneficial holders of our common stock, based on information gathered in connection with the recently held special meeting of our shareholders.

Dividends

We have never declared or paid any dividends to the holders of our common stock and we do not expect to pay cash dividends in the foreseeable future. We currently intend to retain all earnings for use in connection with the further development of our business and for general corporate purposes. Our board of directors will have the sole discretion in determining whether to declare and pay dividends in the future. The declaration of dividends will depend on our profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors. In addition, provisions contained in our certificate of incorporation governing the terms of our Series A Convertible Preferred Stock, as well as our financing agreement with Textron Financial Corporation, place restrictions on our ability to declare or make any cash dividends on our common stock. In addition, our ability to pay cash dividends on our common stock in the future could be further limited or prohibited by the terms of future financing agreements that we may enter into or by the terms of any preferred stock that we may authorize and issue.

Equity Compensation Plan Information

The following table sets forth, as of March 31, 2004:

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The Equity Compensation Plan Information table does not give effect to our 2004 Equity Incentive Plan, which was approved by our shareholders on May 20, 2004. As of the date of this Annual Report on Form 10-K, the 2004 Plan was authorized to issue up to 2 million shares of our common stock, of which options to purchase 700,000 shares were outstanding with a weighted average exercise price of $2.15 per share.

Equity Compensation Plan Information

The shares issuable upon exercise of outstanding options, warrants and rights granted under plans not approved by shareholders consist of:

Recent Sales of Unregistered Securities

We sold and issued to two accredited investors, Pequot Private Equity Fund III, LLP and Pequot Offshore Private Equity Partners III, L.P., an aggregate of 3,255,814 shares of our Series A-1 Convertible Preferred Stock and warrants to purchase 500,000 shares of our common stock on May 21, 2004. The consideration tendered for the Series A-1 Preferred Stock and warrants was $7 million. The Pequot entities have the right, but not the obligation, to purchase an additional $18 million of our Series A Convertible Preferred Stock and warrants at any time, and from time to time, through May 20, 2007. The Series A-1 Preferred Stock is convertible into shares of our common stock, on a one-for-one basis. Each of the warrants sold to the Pequot entities entitles its holder to purchase one share of our common stock at any time on or prior to May 20, 2008, at a purchase price of $2.46 per share. The numbers of shares of our common stock issuable upon conversion of the Series A-1 Preferred Stock and exercise of the warrants are subject to anti-dilution adjustment. We believe that the sale and issuance of the Series A-1 Preferred Stock and warrants was exempt from the registration requirements of the Securities Act pursuant to the provisions of Section 4(2) of the Securities Act.

The following selected financial data for the fiscal years ended March 31, 2004, 2003, 2002, 2001 and 2000 has been derived from our consolidated financial statements. This data should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

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The following discussion and analysis of our results of operations and financial position should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Accounting estimates in these financial statements include reserves for trade accounts receivable and vendor accounts receivable. Actual results could differ from those estimates.

Overview

We are a leading computer and communications technology management company providing IT networking and data center services, including storage, security and messaging solutions. We serve as a single source provider of advanced technology solutions to divisions of large corporations, mid-size companies, municipalities and educational institutions. We provide our clients with a suite of outsourced support services, including network and mainframe

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connectivity consulting; remote network monitoring and management; network and system diagnostics, product maintenance and support, training, and product procurement solutions. In addition, we provide a total solution to our clients by delivering systems design, installation, consulting, maintenance and integration of network computer products, including the design and implementation of wide area networks (“WAN’s”), local area networks (“LANs”), wireless network solutions and provide computer hardware and software products. We provide our remote network solutions by utilizing out proprietary solution which we market as Pivot Technology.

There is a rapidly growing trend of companies outsourcing their computer services requirements. This entails a client company obtaining all or a portion of its data processing requirements from a solution provider, such as us, that specializes in the computer service, product or application required by the client. Our strategy is to offer these companies a selective outsourced infrastructure solution at competitive price points. We are focusing on developing our higher margin recurring service offerings, while maintaining expense control and improving our balance sheet. These services include our outsourced support services; contract programming, network consulting, network management and monitoring, security solutions, collaboration solutions focused primarily on Microsoft Exchange, data storage (including disaster recovery and data back-up) and IT staff leasing. Since 1991, we have evolved to become a provider of IT professional services, and IT managed solutions. We are focusing our current marketing efforts in accelerating growth in such areas. Services account for approximately 25% of our revenues for the fiscal year ended March 31, 2004 (“Fiscal 2004”), a small portion of these revenues is derived from maintenance and repair services.

On May 20, 2004, our shareholders approved an investment of up to $25 million by Pequot Ventures (“Pequot”), the private equity arm of Pequot Capital Management, Inc., a leading investment firm. On May 21, 2004 we completed an initial $7 million investment from Pequot. We intend to use these funds to execute a growth through acquisition strategy, as well as for working capital needs. We believe that there is an opportunity to consolidate similar businesses throughout the United States. We will focus our acquisition strategy on businesses providing networking, messaging, storage and security solutions. The acquisition targets will include companies providing IT services and products, as well as certain managed solutions.

We intend to seek acquisitions to enhance our current service offerings and extend our geographic presence. We seek to identify businesses which will add technical expertise and service offerings, customers, sales capabilities and/or geographic coverage while generating a positive rate of return on investment. Furthermore, we intend to capitalize on the business practices of acquired companies that we believe will best maintain our competitive advantage and ensure ongoing delivery of high quality IT solutions to our customers. The acquisition candidates we review can be large, and their acquisition by us could have a significant and lasting impact on our business.

We presently realize revenue from client engagements that range from the placement of contract and temporary technical consulting to project assignments that entail the delivery of end-to-end solutions. These services are primarily provided to the client at hourly rates that are established for each of our employees based upon their skill level, experience and the type of work performed. We also provide project management and consulting work which are billed either by an agreed upon fixed fee or hourly rates, or a combination of both. The billing rates and profit margins for project management and solutions services are higher than those for professional consulting services. We generally endeavor to expand our sales of higher margin solution and project management services. The majority of our services are provided under purchase orders. Contracts are utilized on more of the complex assignments where the engagements are for longer terms or where precise documentation on the nature and scope of the assignment is necessary. Contracts, although they normally relate to longer-term and more complex engagements, generally do not obligate the customer to purchase a minimum level of services and are generally terminable by the customer on 60 to 90 days’ notice. Revenues are recognized when services are provided.

Costs of services and related products consist primarily of salaries, cost of outsourced labor and products to complete the projects. Selling, general and administrative expenses consist primarily of salaries and benefits of personnel responsible for administrative, finance, operative, sales and marketing activities and all other corporate overhead expenses. Corporate overhead expenses include rent, telephone charges, insurance premiums, accounting and legal fees, depreciation and amortization expenses. Depreciation primarily relates to the fixed assets and amortization related to a capital lease.

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Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The methods, estimates, and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The Securities and Exchange Commission has defined critical accounting policies as policies that involve critical accounting estimates that require (a) management to make assumptions that are highly uncertain at the time the estimate is made and (b) different estimates that could have been reasonably used for the current period, or changes in the estimates that are reasonably likely to occur from period to period, which would have a material impact on the presentation of our financial condition, changes in financial condition or in result of operations. Based on this definition, our most critical policies include: revenue recognition, allowance for doubtful accounts, inventory valuation reserve, the assessment of recoverability of long-lived assets, the assessment of recoverability of goodwill and intangible assets, and valuation of deferred tax assets.

Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104. We recognize revenue from sales of hardware when the rights and risks of ownership have passed to the customer, which is upon shipment or receipt by the customer, depending on the terms of the sales contract. Revenue from sales of software not requiring significant modification or customization is recognized upon delivery or installation. Revenue from services is recognized upon performance and acceptance after consideration of all the terms and conditions of the customer contract. Service contracts generally do not extend over one year, and are billed periodically as services are performed. Revenue from both products and services is recognized provided that persuasive evidence of an arrangement exists, the sales price is fixed and determinable, and collection of the resulting receivable is reasonably assured. Revenue arrangements generally do not include specific customer acceptance criteria. For arrangements with multiple deliverables, delivered items are accounted for separately, provided that the delivered item has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. Revenue billed on retainer is recognized as services are performed and amounts not recognized are recorded as deferred revenue.

We periodically receive discretionary cost reimbursements from suppliers. These reimbursements are accounted for as reductions to the cost of sales of products.

Shipping and handling costs are included in the cost of sales.

Goodwill and Intangibles

Goodwill is not amortized, but is regularly tested for impairment, in accordance with SFAS No. 142, “Goodwill and Intangible Assets.”

We recorded goodwill as a result of our acquisition of PTI and DCR, which we currently are operating as wholly-owned subsidiaries. We determined the fair value of both companies’ operations through a discounted cash flow method. This analysis was based on a projection of future sales and earnings for a discrete period of three years at March 31, 2004, plus an assumed average growth rate for all years beyond the initial projected period. We developed projections based on recent sales data for existing products, planned timing of new product launches and customer commitments related to existing and newly developed products. In estimating future sales and growth rates, we used internal budgets and made comparisons to competitors. We developed an income statement, a balance sheet and cash flow projections of PTI and DCR for the next three years at March 31, 2004. The cash flows were then discounted to a present value using a weighted-average cost of capital for each unit. We determined a terminal value, which went beyond the projection period. This terminal value is based on an average growth rate of 5% we assumed for cash flows beyond the projection period. The present value of cash flows was then added to the terminal value and compared with the net assets plus reported goodwill and it was determined that the fair value was greater then the carrying amount. Based on this analysis, we determined that our goodwill was not impaired.

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We believe that the accounting estimate related to goodwill impairment is a “critical accounting estimate” because: (a) it is highly susceptible to change from period to period since it requires our management to make assumptions about future sales, cost of sales, and growth rates over the next three years of the acquired entities and (b) the impact that recognizing an impairment would have on the assets reported on our balance sheet, as well as our net income, would be material. Our assumptions about future sales prices, future sales volumes and growth rates require significant judgment because actual sales prices and volumes have fluctuated in the past and are expected to continue to do so. If our assumptions change or prove incorrect, we could be required to recognize an impairment loss, equal to the difference between the fair value of the goodwill and the reported amount of the goodwill. Our management has discussed the development and selection of this critical accounting estimate with our audit committee and independent auditors.

Accounts Receivable

Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts, based on certain percentages of aged receivables. We estimate doubtful accounts based on historical bad debts, factors related to specific customers’ ability to pay and current economic trends. We write off accounts receivable against the allowance when a balance is determined to be uncollectible.

Property and Equipment

We estimate the useful lives of property and equipment in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The majority of our equipment is depreciated from three to seven years. The estimated useful lives are based on our historical experience with similar assets, as well as our taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation and amortization in future periods. We review for impairment when events or circumstances indicate that the carrying amounts may not be recoverable over the remaining lives of the assets.

Results of Operations

The following table sets forth for the periods presented information derived from our audited consolidated statement of operations expressed as a percentage of net revenue:

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Years Ended March 31, 2004 and 2003

Net Revenue

Net revenue for fiscal year 2004 was $52.3 million, as compared with net revenue of $55.5 million for fiscal year 2003. The decrease in net revenue was attributable to a decrease in service revenue of $7.7 million, partially offset by an increase in product revenue of $4.5 million. The decrease in service revenue was primarily related to the delayed funding of E-RATE programs for certain school districts. This decreasw also was attributable to recording deferred revenue of $1.6 million during the fourth quarter as we recorded new business for which the related revenue is expected to be recognized in subsequent periods, as well as certain credits to revenue of $1.3 million. Substantially all of the increase in the product revenue was attributable to a single major customer upgrade of its existing computer system.

Gross Profit

Gross profit decreased to 4.6% in fiscal year 2004 from 18.1% in fiscal year 2003. This decrease in gross profit resulted primarily from the decrease in hardware and service margins, and the issuance of certain credits to revenue.

We continue to face competitive market pressures which impact the gross profit on our product revenue and service related revenue. We currently face a number of adverse business conditions, including price and gross profit margin pressures, market consolidation and a slow down in the general economy. In recent years, all major hardware vendors have instituted extremely aggressive price reductions in response to lower component costs and discount pricing by certain computer manufacturers. The increased price competition among major hardware vendors has resulted in declining gross profit margins for many computer distributors, including us, and may result in a reduction or elimination of existing vendor subsidies in the future. We believe that these current conditions, which are forcing certain of our direct competitors out of business, may present us with opportunities to expand our business. There can be no assurance, however, that we will be able to continue to compete effectively, given the intense price reductions and competition currently existing in the computer industry.

Selling, General and Administrative

Selling, general and administrative expenses decreased to $10.0 million in fiscal year 2004 from $11.5 million in fiscal year 2003. Expressed as a percentage of net revenues the decrease was to 19.2% from 20.7%. The decrease was primarily related to a reduction in payroll and payroll related expenses.

Interest Expense

Interest expense increased to $.5 million in Fiscal 2004 from $.3 million in Fiscal 2003. During the past year, we incurred over-advance fees when our borrowings exceeded our credit line.

Net Loss

The net loss increased to $8.1 million in Fiscal 2004 from $1.2 million in Fiscal 2003. The increase in the net loss was a result of the factors described above.

Years Ended March 31, 2003 and 2002

Sales

We had net revenue of approximately $55.5 million for Fiscal 2003, as compared with $75.5 million for the Fiscal 2002.

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Sales by Product and Service

Product revenue decreased approximately $20.7 million, or 37%, offset by an increase of service revenue of $.7 million, or 3%, in Fiscal 2003. The products revenue decline was primarily attributable to a softness in the “IT” market and a softness in the overall economic conditions, resulting in a hesitancy by customers to launch new capital spending programs. The increase in services and related revenue is due to our emphasis on promoting our IT solution services segment of our business.

Gross Profit

Gross profit in Fiscal 2003 decreased to approximately $10 million from $11.8 million in Fiscal 2002, a decrease of 15%. Gross profit margins increased to 18.1% in Fiscal 2003 as compared to 15.6% in the prior year.

Gross Profit by Product and Service

The gross profit margins from product revenue decreased to 6.8% in Fiscal 2003 compared to 8.1% in Fiscal 2002. The decrease in gross profit margins from product sales is related to the competitive market, which resulted in an adverse impact on selling prices.

The gross profit margins from service sales increased to 36.8% in Fiscal 2003 compared to 35.9% in Fiscal 2002. 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 utilization of our technical and engineering staff.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to approximately $11.5 million in Fiscal 2003 from $11.1 million in Fiscal 2002, or 4%. The increase is primarily attributable to an increase in depreciation of $.3 million, bad debt expense increase of $.5 million, and telephone expense increase of $.1 million. This was offset by a decrease in payroll of $.4 million in Fiscal 2003, resulting from a planned layoff of employees.

Interest Expense

Interest expense decreased in Fiscal 2003 to approximately $.3 million from $.5 million in the prior year. The major loan borrowing interest rate was 3.75% for Fiscal 2003 and 4.25% for Fiscal 2002. The average loan balance for Fiscal 2003 was approximately $4.5 million as compared to $6.1 million for Fiscal 2002. This is due to the decreased borrowing necessary to finance sales, which decreased by $20 million in Fiscal 2003.

Income Taxes

A credit of approximately $.4 million for income taxes from continuing operations has been recorded at an effective rate of 26% for Fiscal 2003 as compared to a credit of $.1 million, at an effective rate of 43% for Fiscal 2002.

During Fiscal 2002, we carried back approximately $2.5 million of net operating losses, which were available to offset taxable income through 1997. This resulted in income tax refunds aggregating $.8 million received during Fiscal 2003.

Loss from Operations

As a result, the net loss was approximately $1.2 million for the year ended March 31, 2003, compared with a net income of approximately $.4 million in the prior year.

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Liquidity and Capital Resources

We measure our liquidity in a number of ways, including the following:

Cash and cash equivalents generally consist of cash and money market funds. We consider all highly liquid investments purchased with maturities 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.

During Fiscal 2004, we used cash of approximately $1 million in operating activities. This primarily resulted from the increase in deferred revenue and accounts payable of $2.7 million, a decrease in accounts receivable from customers of $2.2 million and depreciation and amortization charges of $1.6 million, offset, in part, by the net loss of $8.1 million.

Net cash used in investing activities amounted to approximately $.6 million for the acquisition of property and equipment. In addition, net cash was provided by financing activities of $1.9 million primarily related to borrowings under our secured notes payable and inventory financing.

We had negative working capital of approximately $1.3 million as of March 31, 2004, a decrease of $7.5 million from March 31, 2003.

As a result of the foregoing, our cash increased approximately $.3 million.

We entered into a $16 million financing facility with Textron Financial Corporation on January 17, 2002. The financing facility was revised down to $10 million under mutual agreement with the lender, due to the fact that our then borrowing needs did not require a $16 million facility. We did not meet certain financial and other covenants prescribed under this financing facility as of March 31, 2004. We did, however, receive a letter of forbearance from the financial institution with respect to such non-compliance.

We entered into an Amended and Restated Financing Facility on May 21, 2004, which amended and superceded our prior financing arrangement with the financing facility lender. The amended facility has a term of one year. The amended financing facility provides for borrowings of up to $10 million, secured by all of our assets, except for permitted encumbrances. Two forms of borrowings can be made under the amended financing facility: floor plan financings and revolving receivable financings. The floor plan financings generally allow us to finance inventory purchases from approved vendors on a 30-day interest-free basis. Interest accrues on floor plan financings after such 30-day period at the rate equal to six hundred basis points over a specified prime rate. The revolving receivable financing allows us to borrow against current account receivables that meet certain specified standards. Interest accrues on revolving receivable financings immediately upon funding at prime rate. The amended financing facility contains other affirmative and negative covenants, including those relating to our tangible net worth and other financial conditions. We are required to pay additional fees if our borrowings exceed the maximum permitted aggregate loan amount of $10 million or if we are found to be in breach under the amended financing facility. The lender also is entitled to make periodic reviews and audits of our records, files, books of account and other documents. We incur an annual facility fee of 0.2% of the amount of the total facility.

Our total outstanding debt under the revolving receivable financing facility was $5.9 million at March 31, 2004 and $4.8 million at March 31, 2003. The amount outstanding under the inventory financing was $3.4 million at March 31, 2004 and $2.3 million at March 31, 2003.

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Our other financing arrangement is a $1.3 million floor plan financing agreement we entered into on May 25, 1989. Financing under this agreement is secured by our assets, other than inventories and accounts receivable directly financed and secured by other floor plan lenders. The lender under this financing agreement informed us on April 13, 2004 that the maximum borrowings under such facility shall be reduced to $.3 million effective July 6, 2004. The total amount due to this lender was under $.1 million as of March 31, 2004.

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. We place our cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits.

Our customers are primarily mid- to large-sized corporations in diversified industries located in the New York tri-state metropolitan area.

One of our largest customers is a federal government funded program for the City of Bridgeport, Connecticut Board of Education, which represented approximately $1.9 million, or 16%, of our accounts receivables at March 31, 2004 and $2.7 million, or 19%, of our accounts receivable at March 31, 2003. Revenues generated from this customer represented 3% of our total revenues for the year ended March 31, 2004 and 5% of our total revenues for the year ended March 31, 2003. This federally funded program is being reviewed, causing the normal funding and payment process to be delayed. The collection of the accounts receivable connected to this program is contingent upon the continued funding by the federal government.

Accounts receivable from another of our customers, a telecommunications company, were approximately 22% of our total accounts receivable at March 31, 2004 and 11% of our total accounts receivable at March 31, 2003. This customer accounted for 34% of our total revenues for the year ended March 31, 2004, 18% of our total revenues for the year ended March 31, 2003 and 12% of our total revenues for the year ended March 31, 2002.

A third customer, a financial institution, accounted for approximately 12% of our total accounts receivable at March 31, 2004 and 9% of our total accounts payable for the year ended March 31, 2003. Revenues generated from this third customer represented 10% of our total revenues for the year ended March 31, 2004, 12% of our total revenues for the year ended March 31, 2003 and 12% of our total revenues for the year ended March 31, 2002.

The loss of any of these three customers, or any of our other major customers, could be expected to have a material adverse effect on our financial condition during the short term and until we are 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.

Impact of Inflation

The effects of inflation on our operations were not significant during the periods presented.

Recently Issued Accounting Standards

In November 2002, the Emerging Issues Task Force issued EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF 00-21 provides guidance in determining when a revenue arrangement with multiple deliverables should be divided into separate units of accounting and, if separation is appropriate, how the arrangement consideration should be allocated to the identified accounting units. The provisions of EITF 00-21 are effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We will evaluate multiple element arrangements in accordance with this EITF conclusion upon its effective date for new arrangements into which we enter.

We do not believe that any other recently issued, but not yet effective, accounting standards will have a material effect on we financial position or results of operations.

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Our risk investments only consisted of cash deposited in various money market funds. We do not use interest rate derivative instruments to manage our exposure to interest rate changes. Due to the limited investment risks involving money market funds, we do not anticipate any material loss in connection with such investments.

Set forth below is a list of our audited consolidated financial statements included in this Annual Report on Form 10-K and their location.

______________

Not applicable.

An evaluation was performed, as of March 31, 2004, under the supervision and with the participation of our management, including those persons serving as our president, chief executive officer and chief financial officer on March 31, 2004 and the date of this Annual Report on Form 10-K, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on such evaluation, our management has concluded that our disclosure controls and procedures were effective as of March 31, 2004. There have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to March 31, 2004.

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PART III

Directors and Executive Officers

Set forth below is a brief description of the background of each of our current directors and executive officers, based on information provided to us by them.

Gerald A. Poch has served as Managing Director of Pequot Capital Management, Inc., the investment manager/advisor for Pequot Private Equity Fund III, L.P. and Pequot Offshore Private Equity Partners III L.P., since January 2000. He is also a Managing General Partner of both Pequot Fund and Pequot Partners. From August 1998 through January 2000, he was a principal of Pequot Capital Management, Inc. and co-leader of Pequot Fund’s and Pequot Partners’ venture capital team. From August 1996 to June 1998 he was the Chairman, President and Chief Executive Officer of GE Capital Information Technology Solutions, Inc., a technology solutions provider. Prior to that, he was a founder, and served as Co-Chairman and Co-President, of AmeriData Technologies, Inc., a value-added reseller and systems integrator of hardware and software systems. Mr. Poch is also a director of Analex Corporation, Andrew Corporation, BriteSmile, Inc. and NETGEAR, Inc., each a publicly-traded company. In addition, Mr. Poch is a director of a number of private companies.

Francis J. Alfano served as Chief Executive Officer, President and a director of Interliant, Inc., an Internet infrastructure business focused on collaboration, security, and managed hosting solutions from August 2002 to June 2003. On August 5, 2002, Interliant filed for protection under title 11 of the U.S. Bankruptcy Code. Mr. Alfano led the restructuring of Interliant’s businesses resulting in the ultimate sale of its operations. From May 2001 through July 2003, he served as Interliant’s Chief Financial Officer. From December 1998 to May 2001, he was Interliant’s Senior Vice President of Corporate Development, with responsibility for strategic business relationships and execution of all merger and acquisitions. Mr. Alfano served as Vice President of Business Development at G.E. Capital Information Technology Solutions, Inc., a technology solutions provider from July 1996 to December 1998. Mr. Alfano was Director of Taxes at AmeriData Technologies, Inc. from July 1994 to July 1996. Mr. Alfano began his career in public accounting and was a Senior Manager in the tax department of Ernst & Young from January 1991 to July 1994.

Steven H. Rothman has served as our Executive Vice President since May 2004. He served as our Chairman of the Board from September 2002 to May 2004. From May 1986 to August 2002, he served as our President. Mr. Rothman served as our Chief Executive Officer from September 1996 to August 2002 and as Co-Chief Executive Officer from May 1986 to August 1996.

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Howard A. Pavony has served as our President and Chief Operating Officer since May 2004. He served as our Chief Executive Officer and President from September 2002 to May 2004. From September 1986 to August 2002, he served as our Chairman of the Board, and from May 1986 to August 1986 as Co-Chief Executive Officer and Vice President.

Arnold J. Wasserman has served as chairman of our audit committee since March 1999 and our lead independent director since June 2002. Mr. Wasserman has been a principal of Panda Financial Associates, Inc., a leasing/consulting firm, for the past 35 years. He is a director of Stratasys, Inc., a Nasdaq National Market listed company which manufactures rapid prototyping systems and materials, and serves as chairman of its audit committee.

Richard R. Heitzmann has served as a Senior Vice President at Pequot Capital Management, Inc., where he focuses on software and services investments, since January 2004. From June 2003 to January 2004, Mr. Heitzmann was Vice President of Corporate Development with First Advantage Corp., a public company involved in the risk mitigation industry. From November 2001 to June 2003 and prior to its merger with First Advantage, Mr. Heitzmann was the Senior Vice President of Corporate Development and a member of the board of directors of US Search.Com, Inc., a public company involved in the risk mitigation industry. From August 1999 to November 2001, Mr. Heitzmann served as a Vice President of Pequot Capital Management, Inc. Mr. Heitzmann served as an executive with Nationsbanc Montgomery Securities in its Private Equity Group from July 1998 to September 1998 and with Booz-Allen and Hamilton in its Financial Services and Healthcare Group from September 1997 to December 1997. Mr. Heitzmann was involved in turnaround situations and distressed investing as a financial analyst and associate at Houlihan Lokey Howard and Zukin from July 1994 to September 1997.

Amish Jani is a Vice President at Pequot Capital Management, Inc., where he focuses on investments in infrastructure technologies. He joined Pequot Capital Management, Inc. as an associate in 2000.

William Lerner has served as chairman of our corporate governance and nominating committee since November 2003. Mr. Lerner has been engaged in the private practice of corporate and securities law in New York since 1961 and in Pennsylvania since 1990. Mr. Lerner is a director of Seitel, Inc., New York Stock Exchange listed company which develops and maintains a seismic data library for the oil and gas industry; Rent-way, Inc., New York Stock Exchange listed company engaged in the rental-purchase industry; and Cortland Trust, Inc., a money market mutual fund distributed primarily through securities brokerage firms and commercial banks.

Alvin E. Nashman has served as chairman of our compensation committee since March 1999. He has been an independent consultant in the field of computer service for the past ten years.

John F. Kohler has served as a Senior Vice President, as well as our General Counsel and Corporate Secretary, since May 2004. From May 2000 to January 2003, he served as Vice President - Mergers and Acquisitions for Interliant, Inc., a technology solutions provider, primarily responsible for Interliant’s acquisition and restructuring activities. From May 1995 to April 2000, he was a corporate lawyer with Weil, Gotshal & Manges LLP, a law firm in New York, and from September 1993 to April 1995, he was a corporate lawyer with Jenkens & Gilchrist, P.C., a law firm in Dallas. Mr. Kohler served as an officer in the United States Army from May 1986 to September 1990.

Eran Marom joined our company in June 2004. He was Vice President of Information Technology and Chief Information Officer of Stellaris Health Network, a four-hospital medical organization, from July 2001 to January 2004. Mr. Marom was Vice President and Chief Technology Officer for QuantumClicks, Inc., a start-up Internet customer acquisition company, from April 2000 to June 2001. He served in the capacities of Senior Director of Information Technology and Director of Applications Development for Mount Sinai NYU Health System, a large network of hospitals located in New York, New York, during the period from December 1997 to April 2000. He was a partner of M&D Advanced Systems Inc., a computer consulting company, from March 1993 to December 1997.

Alan Schwartz is a certified public accountant who has served as a Senior Vice President, as well as our Chief Financial Officer, since May 2004. Mr. Schwartz served as Vice President -Finance for Interliant, Inc. from 1999 to

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2003, where he managed financial and operational reporting for various domestic and international segments of the business. From August 1996 until joining Interliant, Mr. Schwartz was employed by GE Capital IT Solutions, last serving as Vice President - Financial Planning and Analysis. For four years prior to his serving at GE Capital IT Solutions, Mr. Schwartz was employed by AmeriData Technologies, Inc., last serving in the position of Vice President - Finance.

Board Committees

Our board of directors currently has three standing committees, consisting of an audit committee, a compensation committee and a corporate governance committee.

Our audit committee currently is composed of William Lerner, Alvin E. Nashman and Arnold J. Wasserman, with Mr. Wasserman serving as its chairman. We believe that each of these committee members are “independent,” within the meaning of such term under applicable law and the Marketplace Rules of The Nasdaq Stock Market, Inc. Our board of directors has determined that Mr. Wasserman is an “audit committee financial expert,” as such term is defined by the SEC. The audit committee is primarily concerned with the accuracy and effectiveness of the audits of our financial statements by our internal audit staff and by our independent auditors. Its duties include:

Our compensation committee currently is composed of Richard Heitzmann, William Lerner and Alvin Nashman, with Mr. Heitzmann serving as its chairman. The duties of our compensation committee include recommending to the full board of directors remuneration to be paid our executive officers, determining the number and conditions to exercise of options granted pursuant to our various stock option plans and recommending the establishment of and monitoring a compensation and incentive program for all of our executive officers.

Our corporate governance committee currently is composed of Richard Heitzmann, Amish Jami, William Lerner and Arnold J. Wasserman, with Mr. Lerner serving as its chairman. The duties of our corporate governance committee include overseeing that our board’s policies, as well as ensuring that we are in compliance with all applicable federal and state securities laws and the Nasdaq rules, and determining our board of directors’ slate of director-nominees for each shareholder election of directors.

Meetings of Our Board of Directors and its Committees

Our board of directors held six formal meetings during our fiscal year ended March 31, 2004. Our audit committee held four formal meetings, our compensation committee held one formal meeting and our corporate governance committee held no formal meetings during our 2004 fiscal year. Each member of our board of directors attended, in person or telephonically, at least 75% of the total number of meetings of our board and each committee of the board on which the director serves.

Director Fees

Each director who is not an employee of our company receives an annual fee of $9,000 as compensation for serving on our board of directors, plus an additional $1,500 for each board meeting attended in person and $250 for each board meeting attended by telephonic conference call. Each member of the board’s audit, compensation and corporate governance committees receives $2,500 per year, and each chairman of the committees receives $3,500, as compensation for serving on such committees, as well as an additional $250 for each committee meeting attended if the committee meeting is held on a day other than a day on which the board itself is meeting. We also paid the lead

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independent director a monthly fee of $1,000 as compensation for serving in such capacity during the year ended March 31, 2004.

Audit Committee Charter

Our board of directors adopted a charter for its audit committee in 2001. We amended the audit committee charter in June 2003 in order to comply with rules mandated by the Securities and Exchange Commission. A copy of the revised charter was made Appendix A to the proxy statement we issued in connection with the annual meeting of our shareholders held on November 7, 2003.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3, 4 and 5 and amendments to these forms furnished to us, together with written representations received by us from applicable parties that no Form 5 was required to be filed by such parties, all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed all such required reports during and with respect to our 2004 fiscal year.

Code of Ethics

Our board of directors has established a code of ethics that applies to our principal executive, financial and accounting officer(s). A copy of our code of ethics has been made Exhibit 14.1 to this Annual Report on Form 10-K.

Summary Compensation

The following table sets forth, with respect to the our fiscal years ended March 31, 2004, 2003 and 2002, all compensation earned by each person who served as our chief executive officer during our 2004 fiscal year and such other persons who were serving as executive officers at the end of our 2004 fiscal year and whose total annual salary and bonus earned during our 2004 fiscal year exceeded $100,000.

Summary Compensation Table

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Option Grants In Last Fiscal Year

None of the executive officers listed in the Summary Compensation Table contained in this Item 10 received the grant of a stock option during the year ended March 31, 2004.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values.

None of the named executive officers listed in the Summary Compensation Table contained in this Item 10 exercised any of their options during the year ended March 31, 2004.

The following table sets forth:

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Stock Plans

We have adopted the following stock plans:

The 1993 Stock Option Plan has expired. Accordingly, we can no longer grant options under such plan.

Employees (including officers), directors and others who provide services to us are eligible to participate in our stock plans. The plans are administered by our board of directors or the compensation committee of the board.

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Options granted under the plans may be incentive stock options (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 ten 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 shares of our common stock. An option may be exercised by tendering payment of the purchase price to us or, at the discretion of the administrator of the plans, by delivery of shares of our 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 and 2002 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.

Our shareholders approved our 2004 Equity Incentive Plan in May 2004. We have reserved a total of 2 million shares of our common stock for issuance under the 2004 plan. The types of awards that may be granted under the 2004 plan include one or more of the following types, either alone or in any combination thereof:

Securities Authorized for Issuance Under Equity Incentive Plans

We have provided in the “Equity Compensation Plan Information” section of Item 5 of this Annual Report on Form 10-K certain information with respect to securities authorized for issuance under our equity incentive plans.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee is or was an officer employee of our company, nor had any relationship requiring disclosure under Item 13 of this Annual Report on Form 10-K. In addition, to our knowledge, none of our executive officers :

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Our Current Beneficial Owners

Our Series A Convertible Preferred Stock and common stock are the only classes of our voting securities presently outstanding. The Series A Preferred Stock votes on an “as converted” basis, such that each share of Series A Preferred Stock is entitled to that number of votes as equals the number of shares of common stock that the holder of such share of Series A Preferred Stock would receive upon conversion of the share of Series A Preferred Stock.

The following Beneficial Ownership Table sets forth information with respect to the beneficial ownership of shares of our Series A Preferred Stock and common stock as of June 24, 2004 by:

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power. In addition, under SEC rules, a person is deemed to be the beneficial owner of securities which may be acquired by such person upon the exercise of options and warrants or the conversion of convertible securities within 60 days from the date on which beneficial ownership is to be determined.

Our “named executive officers,” in accordance with SEC rules, are those executive officers who are required to be listed in the Summary Compensation Table provided in Item 11 of this Annual Report on Form 10-K.

Except as otherwise indicated in the notes to the Beneficial Ownership Table,

Beneficial Ownership Table

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______________

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Shareholders’ Agreement

We entered into a Shareholders’ Agreement with the Pequot Fund, Pequot Partners, Howard A. Pavony and Steven H. Rothman on May 21, 2004, as a condition to the consummation of our sale to the Pequot Fund and Pequot Partners of an aggregate 3,255,814 shares of Series A-1 Preferred Stock.

The shareholders’ agreement provides that the Pequot Fund, Pequot Partners and the two executive officers will vote, or cause to be voted, all of the voting securities of our company that they own or over which they have voting control so that the number of directors constituting our board of directors will be eleven, consisting of:

The voting obligations of the Pequot Fund, Pequot Partners and Messrs. Pavony and Rothman under the shareholders’ agreement are subject to the following limitations:

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The shareholders’ agreement provides that, to the greatest extent permitted by applicable law and stock exchange rules, at least one of the directors designated by the Pequot Fund and Pequot Partners will be entitled to be a member of any committee formed by the board of directors, including our audit, compensation and corporate governance committees.

Our board of directors is constituted in accordance with the shareholders’ agreement, and consists of:

Mr. Alfano has yet to name the two independent directors he is entitled to designate for election to our board, subject to acceptance by the Pequot Fund, Pequot Partners and the members of our board of directors immediately prior to the sale of the Series A-1 Preferred Stock.

Not applicable.

Principal Accounting Fees and Services

The following table sets forth the fees billed by our independent accountants for each of our last two fiscal years for the categories of services indicated.

______________

Audit Committee Pre-Approval Policy

In addition to retaining Goldstein Golub Kessler LLP to audit our consolidated financial statements for the years ended March 31, 2004 and 2003, we retained Goldstein Golub Kessler to provide other auditing and advisory

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services to us in our 2004 and 2003 fiscal years. We understand the need for Goldstein Golub Kessler to maintain objectivity and independence in its audit of our financial statements. To minimize relationships that could appear to impair the objectivity of Goldstein Golub Kessler, our audit committee has restricted the non-audit services that Goldstein Golub Kessler and its aligned company may provide to us primarily to tax services and merger and acquisition due diligence and audit services, and has determined that we would obtain even these non-audit services from Goldstein Golub Kessler and/or its aligned company only when the services offered by Goldstein Golub Kessler and its aligned company are more effective or economical than services available from other service providers.

The audit committee also has adopted policies and procedures for pre-approving all non-audit work performed by Goldstein Golub Kessler and any other accounting firms we may retain. Specifically, the audit committee has pre-approved the use of Goldstein Golub Kessler and its aligned company for detailed, specific types of services within the following categories of non-audit services: merger and acquisition due diligence and audit services; tax services; internal control reviews; and reviews and procedures that we request Goldstein Golub Kessler to undertake to provide assurances of accuracy on matters not required by laws or regulations. In each case, the audit committee has also set a specific annual limit on the amount of such services which we would obtain from Goldstein Golub Kessler, and has required management to report the specific engagements to the committee on a quarterly basis and to obtain specific pre-approval from the audit committee for all engagements.

Exhibits

Set forth below is a list of the exhibits to this Annual Report on Form 10-K.

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