**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON
      D.C. 20549**


**_______________**




**F** **ORM
      10-K**


**(Mark
      One)**


**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**


**FOR
      THE FISCAL YEAR ENDED: MARCH 31, 2006**





** ̈**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**


**FOR
      THE TRANSITION PERIOD FROM**    **TO**


**COMMISSION
      FILE NUMBER: 0-22122**


**_______________**





**MTM
      TECHNOLOGIES, INC.**


**(Exact
      name of registrant as specified in its charter)**


**_______________**


**New
                York**
              **(State
                or other jurisdiction of incorporation or
                organization)**
            
            **13-3354896**
              **(I.R.S.
                Employer Identification No.)****1200
                High Ridge Road**
              **Stamford,
                CT**
              **(Address
                of principal executive offices)**
            
            **06905**
              **(Zip
                Code)**




**Registrant’s
      telephone number, including area code: (203) 975-3700**


**_______________**




**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 if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes  ̈ No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes  ̈ No x





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  ̈




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.  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.




Large
                  Accelerated Filer ̈
              Accelerated
                  Filer ̈
              Non-Accelerated
                  Filerx




Indicate
      by check mark whether registrant is a shell company.  Yes  ̈ No x




The
      aggregate market value of the 5,394,243 shares of voting and non-voting common
      equity stock held by non-affiliates of the registrant was $17.3 million as
      of
      September 30, 2005, based on the last sale price of the registrant’s common
      stock on such date of $3.20 per share, as reported by The Nasdaq Stock Market,
      Inc. There were a total of 11,565,234 shares of the registrant’s common stock
      outstanding as of June 20, 2006.




**Documents
      Incorporated by Reference:**


None
















**MTM
      TECHNOLOGIES, INC.**




**FORM
      10-K**


**For
      the Fiscal Year Ended March 31, 2006**




**Number**
              
              **Page****PART
                  I**Item
                  1.
              Description
                  of Business
              1Item
                  1A.
              Risk
                  Factors
              7Item
                  2.
              Properties
              12Item
                  3.
              Legal
                  Proceedings
              12Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              12**PART
                  II**Item
                  5.
              Market
                  for Registrant’s Common Equity, Related Stockholder
                  Matters and Issuer Purchases of Equity Securities
              13Item
                  6.
              Selected
                  Financial Data
              14Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results ofOperations
              15Item
                  7A.
              Quantitative
                  and Qualitative Disclosures about Market
                  Risk
              22Item
                  8.
              Financial
                  Statements and Supplementary Data
              22Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and
                  Financial Disclosure
              22Item
                  9A.
              Controls
                  and Procedures
              22**PART
                  III**Item
                  10.
              Directors
                  and Executive Officers of the
                  Registrant
              23Item
                  11.
              Executive
                  Compensation
              26Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and
                  Management
              33Item
                  13.
              Certain
                  Relationships and Related
                  Transactions
              38Item
                  14.
              Principal
                  Accountant Fees and Services
              38**PART
                  IV**Item
                  15.
              Exhibits
                  and Financial Statement Schedules
              40




*Table
            of Contents*




**Introductory
      Comment—Terminology**





Throughout
      this Annual Report on Form 10-K, the terms “we,” “us,” “our” and “our company”
refers to MTM Technologies, Inc. ( “MTM” ) and, unless the context indicates
      otherwise, our subsidiaries on a consolidated basis.




“Pequot
      Fund” refers to Pequot Private Equity Fund III, L.P., “Pequot Partners” refers
      to Pequot Offshore Private Equity Partners III, L.P., and collectively with
      Pequot Fund, “Pequot,” “Constellation Venture” refers to Constellation Venture
      Capital II, L.P., “Constellation Offshore” refers to Constellation Venture
      Capital Offshore II, L.P., “BSC” refers to The BSC Employee Fund VI, L.P., “CVC”
refers to CVC Partners II, LLC, and collectively with Constellation Venture,
      Constellation Offshore and BSC, “Constellation,” and together with Pequot, the
“Investors.”





**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:





·
            the
                market acceptance, revenues and profitability of our current and
                future
                products and services;




·
            our
                ability to acquire additional companies and ability to successfully
                integrate such acquirees, if any, into our
                operations;




·
            general
                economic conditions in the United States and elsewhere, as well as
                the
                economic conditions affecting the industries in which we
                operate;




·
            the
                competitive environments within the industries in which we
                operate;




·
            our
                ability to raise additional capital, if and as needed; the
                cost-effectiveness of our product and service development
                activities;




·
            the
                extent that our sales network and marketing programs achieve satisfactory
                response rates;




·
            political
                and regulatory matters affecting the industries in which we operate;
                and




·
            the
                other risks detailed in this Form 10-K and, from time to time, in
                our
                other filings with the Securities and Exchange
                Commission.




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.


**Restatement
    of Prior Financial Statements** The
Company has determined to restate its operating results for fiscal year 2005 for
the manner in which it accounted for certain acquisition related costs. The Company
has also determined to restate the second and third quarters of fiscal year 2005
and the first, second and third quarters of fiscal year 2006. Please
  see Note 1 and Note 12 of the consolidated financial statements contained herein
  for information regarding these restatements. The
Company has determined that our consolidated financial statements for the fiscal
quarters ended September 30, 2004, December 31, 2004, and March 31, 2005, the
fiscal year ended March 31, 2005, and the fiscal quarters ended June 30, 2005,
September 30, 2005, and December 31, 2005 should no longer be relied upon due
to this restatement.    
   *Table
            of Contents*
 
 **PART
      I**
 **Item
      1.** ***Description
      of Business***
 
 We
      are a
      leading national provider of innovative information technology (“IT”) solutions,
      including Access, Convergence, Consolidation, Virtualization, and Managed
      Services. We enable our clients to achieve improved operational efficiency
      and
      to focus on growth, while mitigating the risk of implementing complex IT
      systems. We achieve these results by providing systems, networking, IP
      telephony, storage, security and data center infrastructure services that
      address the full life cycle of a client’s IT requirements from needs analysis,
      through planning, development, deployment, and testing, to on-going maintenance
      and support. We combine these services with technology from leading software
      and
      hardware manufacturers delivering strategic IT solutions that solve many of
      today’s business challenges.
 
 Our
      clients consist of middle market corporations (generally those with $50 million
      to $1 billion in revenues), divisions of Global 2000 corporations, municipal,
      state and federal government agencies, and educational institutions. We serve
      clients in most major US metropolitan markets.
 
 **Business
      Strategy**
 
 Our
      strategy is to be the national leader in providing IT solutions to the middle
      market using a combination of carefully managed internal growth and
      acquisitions. We intend to grow our business organically by deepening strong
      customer relationships in our capacity as trusted advisors in IT solutions,
      as
      well as through acquisitions as we seek strong companies that can augment our
      geographic coverage and technical capabilities. The following are key components
      of our strategy.
 
 *Drive
      cross* - *selling
      of solutions across all geographies to generate organic growth*
 
 Our
      current solution areas include Access, Convergence, Consolidation,
      Virtualization, and Managed Services. Each of the companies we acquired had
      its
      own unique expertise in one or more of these solutions. We have been leveraging
      this expertise to spread these solutions and their related practice areas across
      our entire company. By offering a full complement of our solutions to all
      clients across all locations, we intend to drive additional organic growth
      by
      deepening our relationships with existing clients and creating stronger
      relationships with new clients.
 
 *Acquire
      strong companies that will augment our ability to deliver sophisticated IT
      solutions*
 
 One
      of
      our goals is to grow our business through the acquisition of additional
      companies. We intend to acquire companies to expand our business into geographic
      regions where we do not yet have a strong presence, strengthen our technical
      capabilities and provide new service offerings. Acquired companies may be
      material and their acquisition could have a significant and lasting impact
      on
      our company.
 
 *Leverage
      our centralized infrastructure and processes to support our national IT
      solutions platform*
 
 We
      have
      made a significant investment in building an infrastructure that supports our
      current business operations and enhances our ability to support substantial
      future growth. Centralized technology infrastructure, back-office, purchasing
      and human resources functions have all contributed to our ability to deliver
      our
      services on a national basis and improve the operating margins of our acquired
      businesses.
 
 **Business
      Services**
 
 Our
      approach to the market aligns our solutions and professional services with
      strategic manufacturer and supply chain relationships to deliver an end-to-end
      solution for our clients.
 
 *Solutions*
 
 We
      have
      developed our IT solutions to deliver immediate business value and return on
      investment for our clients. Our solutions consist of the following:
 
 Access .
      Our
      Access solutions offer our clients secure, on-demand access to all of their
      corporate applications and information from remote locations using both wired
      and wireless technologies. These solutions combine system, network, and security
      technologies to create a cohesive infrastructure that improves the efficiency,
      mobility and agility of clients’ businesses.
 
 1
   *Table
            of Contents*





Convergence .
      Our
      Convergence solutions provide our clients the ability to combine voice, data
      and
      video content on a common network, offering a feature-rich, cost-effective
      and
      flexible platform for business communications. By using a single converged
      network rather than multiple networks, clients are able to lower their total
      cost of ownership and simplify network management and deployment.





Consolidation .
      Our
      Consolidation solutions provide our clients the ability to streamline their
      IT
      infrastructure by consolidating operating systems, applications, and storage
      into high-performance, scalable systems thereby improving efficiency, control
      and manageability. These solutions combine server and storage consolidation,
      application centralization, data management and migration and disaster recovery
      services.





Virtualization .
      Our
      Virtualization solutions provide our clients the ability to separate
      applications, operating systems, and storage from physical hardware enabling
      a
      more flexible, scalable, fault-tolerant and cost-effective IT infrastructure.
      Virtualization allows clients to lower their total cost of ownership, maximize
      the utilization of their infrastructure resources and achieve operational
      efficiencies.





*Professional
      Services*





Our
      staff
      of experienced and certified technology professionals provide our clients with
      a
      full suite of IT professional services. The services range from advanced
      configurations and complex project management to project logistics and planning.
      We provide design, consulting, implementation and support services in our six
      areas of core competence. These are systems, networks, IP telephony, storage,
      security, and facilities and cabling.





·
            Our
                systems practice includes Windows servers, open system servers,
                directories, messaging, fax and server-based
                computing.





·
            Our
                networks practice includes wide-area networks, local-area networks,
                wireless, intelligent switching and
                routing.





·
            Our
                IP telephony practice includes voice, video and data integration
                on IP
                network.





·
            Our
                storage practice includes enterprise storage and data
                management.





·
            Our
                security practice includes essential systems and tools to secure,
                monitor
                and defend data and networks from unauthorized
                access.





·
            Our
                facilities and cabling practice includes design and installation
                of data
                centers and physical infrastructure.





Our
      capability to address all phases of technology projects, from needs analysis
      and
      definition through implementation and support, allows us to offer our customers
      a single point of accountability for a broad range of technology projects.
      As
      technology infrastructure becomes progressively more sophisticated and complex,
      our clients demand total project accountability from a single vendor. With
      our
      national presence, engineering expertise, and high-level relationships with
      top-tier vendors, we are able to undertake most technology infrastructure
      projects for our clients and provide them that critical single point of
      accountability.





Many
      of
      our clients require a guaranteed response to their system outages. Through
      our
      national staff of certified technicians and related field resources, we provide
      service level guarantees to our customers in response to problems with their
      infrastructure technology outages that are communicated to us, or that are
      detected through our automated remote monitoring systems as part of a managed
      services solution. We offer our clients various degrees of guaranteed response
      depending on the severity of the outage or the client’s specific response
      requirements.





*Technology
      Partners*





We
      maintain strategic relationships with many of today’s leading hardware and
      software technology manufacturers enabling us to deliver to our clients advanced
      and comprehensive solutions at competitive prices. For example, we are a Cisco
      Gold partner, a Citrix Platinum Solutions Advisor, a Hewlett Packard Gold and
      Enterprise Storage Elite partner, a Microsoft Gold partner, an EMC Velocity
      Premier partner, a Sun Advantage partner, an Avaya Gold partner, a Captaris
      Platinum partner, and a Nortel Elite partner. For those manufactures that we
      believe are critical to our client’s technology infrastructure we generally hold
      the highest levels of certification granted by such manufacturers. We work
      with
      our strategic partners to develop national training programs to ensure
      consistent service delivery methodologies across our entire national





2
   *Table
            of Contents*





footprint.
      With our 450 technical professionals nationwide, we train and certify our
      service professionals to maintain the highest levels of manufacturer
      certifications and authorizations. We often times work in conjunction with
      our
      partners to utilize our own accredited professional training service centers
      to
      train and deliver technical content to our service professionals.




We
      provide all aspects of infrastructure technology product delivery to our
      clients. Through our relationships as a certified partner with most of the
      key
      top tier infrastructure technology product manufacturers and with key
      infrastructure technology distributors, we are able to provide our clients
      with
      cost-effective product sourcing solutions to meet their requirements for
      managed, timely and competitive product procurement.





We
      offer
      an on-line, Web-based, secure product purchasing option for those clients who
      prefer a self-service alternative. Our e-commerce portal allows our clients
      to
      obtain product pricing, place unit or volume orders, and track the delivery
      process of their orders on line.




For
      clients who require their purchased products to be staged, pre-configured,
      field
      tested, assembled or integrated, we provide these services in one of three
      staging facilities (located in California, Massachusetts, and Delaware). Staging
      can be provided with or without the client’s participation, as directed by the
      client.





*Managed
      Services*





Our
      automated remote management system and pro-active support services monitor,
      manage, and protect our client’s business-critical infrastructure and
      applications from down time and failure.





Remote
      Monitoring & Management. ** Our
      automated remote management system provides our clients with real-time
      monitoring of their computing and storage systems, IP telephony systems and
      network infrastructure to immediately detect component failures, critical
      security events (such as, for example, hacking attempts), and deteriorating
      performance, and with reporting on key operating metrics of these systems.
      The
      system is a combination of our proprietary network management and monitoring
      software and third party licensed software. Monitoring of our clients’ networks
      is performed by our certified engineering staff operating on a 24x7x365 basis
      from our network operations centers (“NOC”). Our NOCs are located on the east
      and west coasts.





Hosting. In
      addition to monitoring, our managed services include managed hosting. We offer
      our customers a choice of two collocation facilities to host their computing
      systems. Our field engineering resources are available in each of our regions
      to
      provide field support and technical resources in connection with our managed
      services.





Remote
      Support. ** Our
      remote phone support service is a virtual extension of our client’s IT staff. We
      provide support for a wide range of technologies including Microsoft, Citrix,
      Sun, Cisco and Captaris. **





Remote
      Helpdesk. ** Our
      helpdesk services provide end-user support customized to meet our client’s
      specific application requirements. All helpdesk analysts are HDI (Help Desk
      International) certified and available 24x7. **





IT
      Outsourcing. ** Many
      of
      our potential clients have adopted an approach to technology of focusing on
      their core business competencies, while outsourcing non-core technology systems.
      These clients, however, often find it more cost-effective to outsource than
      to
      fund the cost of a full-time internal IT staff to operate the sophisticated
      technology systems necessary which support their core business. Additionally,
      some clients are faced with extensive legal and regulatory compliance mandates
      that require sophisticated technology solutions. Again, for some of these
      clients, maintaining a full-time internal staff to operate those systems is
      not
      feasible. Our IT outsourcing solutions provide a cost effective solution to
      such
      clients by providing targeted support to fill gaps in their technology staffing
      on a project basis.




**Industry**




The
      IT
      solution and service provider industry is a multi-billion dollar industry that
      is focused on providing client’s services in building and maintaining IT
      infrastructures, safeguarding data and systems, optimizing applications and
      ensuring regulatory compliance. Industry participants face intense competition,
      the challenge of constant technological advancement and the ongoing need for
      business process optimization. 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 an IT solutions provider, such as us, that
      specializes in the computer service, product or application required by the
      client.




3
   *Table
            of Contents*





We
      believe the strongest demand for our IT solutions 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.




Companies
      have recognized the importance of IT systems in supporting their business
      processes and are turning to IT solutions to compete more effectively. At the
      same time the process of designing, developing and implementing IT solutions
      has
      become increasingly complex. The accelerated rate of development of new
      technologies is placing increasing demand on our clients to understand the
      opportunity and impact which these technologies can have on their business.
      IT
      services organizations like ours are faced with an increasing demand to keep
      up
      with these developments so as to effectively serve as consultants and advisors
      to our clients.




Consolidation
      of client’s voice and data communications to IP-based networks and advances of
      virtualization at the device and application level are indicative of a trend
      toward a more centralized computing model. This cycle, which started with
      mainframes, then workgroup mini-computers, then highly distributed applications
      running on micro-computers and PCs, may now be returning to a model where an
      increasing portion of business applications are implemented in a centralized
      computing model, using increasingly sophisticated terminal services to access
      these applications. This shift may be one of the most significant developments
      driving the re-definition by IT providers of product and service solutions
      for
      the foreseeable future.




**Sales
      and Marketing**





Our
      marketing strategy is to position ourselves as the premier IT solutions to
      the
      middle market. We do this primarily through demand generation activities, and
      by
      identifying new business opportunities. Demand generation activities are
      targeted to both vertical markets (e.g. industry-specific markets such as
      financial services, healthcare, government, and or retail) and horizontal
      markets, and consist primarily of national and regional events, trade shows,
      and
      advertising. Event and trade show attendance is driven by targeted mass email
      campaigns and telemarketing. Most marketing initiatives involve participation
      by
      one or more of our technology partners, which both enhances our visibility
      and
      resources, and significantly defrays our out-of-pocket marketing costs. We
      also
      identify business opportunities through new and existing contacts generated
      by
      our sales force.





Our
      primary target market for acquiring new customers consists of middle market
      corporations (generally those worth $50 million to $1 billion in revenues),
      divisions of Global 2000 corporations, municipal, state and federal government
      agencies, and educational institutions. We further define our target market
      as
      organizations with 100 to 3,000 technology seats in a single or in multiple
      US
      locations.





Our
      organic growth strategy is based on two fundamental go-to-market activities:
      new
      customer acquisition and cross-sellingof existing customers. These activities
      are driven by our direct sales force working in conjunction with our marketing
      activities.





*New
      Customer Acquisition*





By
      follow-up on leads generated from our regional and national marketing
      initiatives and on leads generated by our strategic partners, as well as through
      unsolicited sales calls, our sales professionals regularly call on the
      executives of prospective client organizations. These prospective clients are
      typically looking for assistance with understanding the technologies that they
      can implement to better differentiate and/or position their businesses for
      growth, or are looking for support and outsourced managed service solutions
      to
      help them better run their existing technology infrastructure. Our sales
      professionals also make joint calls with our strategic partners or with our
      internal subject matter expert sales personnel to better assess our clients’ and
      prospective clients’ needs around specific business drivers or
      technologies.





4
   *Table
            of Contents*





*Cross-Selling*





We
      have
      an existing customer base of over 4,200 clients, many of whom came to us as
      part
      of our various acquisitions.  As part of the acquisition process we
      integrated the service offerings of the acquired companies across our entire
      company, creating a more diverse and comprehensive national solution portfolio.
      Individually the acquired individually companies did not offer the full range
      of
      services that we currently offer. As a result many of our clients are currently
      utilizing only a small portion of our solutions. Our sales professionals are
      actively revisiting our existing client base and introducing them to our
      complete set of offerings with the goal of having those clients purchase
      additional offerings thereby gaining and increased percentage of such client’s
      total IT spending.  As with new customer acquisitions, our sales
      professionals have subject matter expert resources available to them to assist
      in assessing client needs and creating solutions to meet those
      needs.





As
      of
      June 6, 2006, we employed approximately 160 salespersons, sales assistants,
      and
      subject matter expert sales personnel who are paid salaries, commissions, or
      a
      combination of both. The field sales force is segmented into four regions
      (Northeast, Mid-Atlantic, Central, and West) and report to a regional vice
      president of sales or regional president. The field sales force is further
      segmented by responsibility, as follows:





An
      account executive is a quota-carrying, outbound sales professional with an
      average of five-plus years of relevant experience. Our account executives are
      responsible for new client acquisition, deepening relationships with existing
      clients, managing client relationships, and presenting client
      issues.





A
      subject
      matter expert sales specialist is a quota-carrying, outbound sales professional
      with generally ten-plus years of relevant experience and with advanced knowledge
      of a specific technology or solution. The subject matter expert sales specialist
      is responsible for account executive assistance within their specific area
      of
      expertise, with year-over-year growth of the solutions inside his or her area
      of
      expertise.





An
      inside
      sales representatives generally carries an aggregate quota of the account
      executives he/she supports. The primary responsibility of the inside sales
      representatives is to support the selling activities of multiple account
      executives. A subset of these activities is quoting, order management, customer
      communications, and maintenance/license renewals.





**Acquisition
      Program**





One
      of
      our goals has been to grow our business through the acquisition of additional
      companies. These acquisitions have and are expected to continue to expand our
      business into geographic regions where we do not yet have a strong presence,
      strengthen our technical capabilities and provide new service offerings. To
      fund
      the cash portions of the acquisitions which we have made to date, we have relied
      on private institutional financing.





Since
      May
      2004 we have received approximately $85 million in private institutional
      financing to support our acquisition program and internal growth initiatives.
      This includes approximately $60 million in preferred equity financing from
      Pequot and Constellation, and $25 million of subordinated debt financing from
      National Electric Benefit Fund.





Since
      May
      2004, we have acquired six companies, either through the purchase of operating
      assets or the acquisition of capital stock:




·
            DataVox
                Technologies, Inc., a Cisco AVVID (Architecture for Voice, Video
                and
                Integrated Data) authorized partner, offering advanced technology
                solutions, including IP telephony, security, storage, networking
                and
                wireless technologies solutions, as well as network facilities engineering
                and data center technology consulting and
                services.





·
            Network
                Catalyst, Inc., a provider of advanced technology solutions in the
                VoIP
                (voice over Internet protocol), infrastructure and security fields
                to
                clients located throughout the Southern California
                region.





·
            Vector
                ESP, Inc. and Vector ESP Management, Inc., providers of secure access,
                consulting services, information technology products, technology
                solutions, applications, messaging and collaboration products and
                services, remote connectivity and workforce mobility products and
                services.





·
            Info
                Systems, Inc., a provider of VOIP, security and storage solutions,
                as well
                as telecommunications and structured cabling services, outsourced
                IT,
                staff augmentation and remote network monitoring, management and
                support
                services through its network operations
                center.





5
   *Table
            of Contents*





·
            Nexl,
                Inc., a provider of enterprise storage, network infrastructure, security,
                IP telephony, and managed services to clients primarily located in
                the
                Northeast.





·
            Axcent
                Solutions, Inc., a provider of access, infrastructure and availability
                solutions based on technologies from Citrix, Microsoft, Network Appliance,
                VMware and Cisco.





**Suppliers**




We
      purchase software, 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. We believe that
      we
      have excellent relationships with our major suppliers; however, there can be
      no
      assurance that the aforementioned agreements will be renewed. If these
      agreements are not renewed, we may have difficulty in obtaining inventory at
      a
      sufficiently low cost to allow for resale at a competitive price.




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 generally 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.




**Competition**




The
      markets in which we operate are highly competitive with respect to performance,
      quality and price. In our professional services business our competition ranges
      from small, specialty integrators, to other service providers of comparable
      size
      and profile to us, as well as large national and global professional services
      firms and integrators. Our smaller competitors generally are highly focused
      on
      their immediate market segment and can respond more quickly to changes in
      customer needs. Our larger competitors generally have greater financial
      resources and may be able to compete more effectively than we can on prices
      and
      payment terms offered to potential customers. In our product provisioning
      business we directly compete with local, regional and national distributors
      and
      mail order providers of computer and IT products and services, including network
      integrators and corporate divisions of retail superstores.




In
      addition, the computer and IT products and services industries have each
      experienced a significant amount of consolidation through mergers and
      acquisitions. In the future, we may face further competition from new market
      entrants and possible alliances between existing competitors. Some of our
      competitors have, or may have, greater financial, marketing and other resources
      than us. As a result, they may be able to respond more quickly to new or
      emerging technologies and changes in customer requirements, benefit from greater
      purchasing economies, offer more aggressive hardware and service pricing to
      customers, or devote greater resources to the promotion of their products and
      services. We also compete with manufacturers, including those serving as our
      vendors, which market through direct sales forces and distributors. More
      aggressive competition by principal manufacturers of computer and IT products,
      such as offering a full range of services in addition to products, could have
      a
      material adverse effect on our operations and financial results. 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. 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
      our
      employees to sign confidentiality or non-competition agreements.





6
   *Table
            of Contents*





**Employees**




Our
      growth-through-acquisition strategy has resulted in a substantial increase
      in
      the number of employees. As of May 31, 2004, prior to commencing our acquisition
      strategy, we employed 151 persons and as of March 31, 2006, after completing
      five acquisitions, we employed 749 persons. Of these employees, 25 were in
      management, 169 were in sales and marketing, 361 were in technical support,
      and
      184 were in operations, finance and administration. As of June 20, 2006, none
      of
      our personnel was represented by a union.




**Incorporation**




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





**Item
      1A.** ***Risk
      Factors***





**Risks
      Relating to Our Business**




*We
      have incurred losses in our last 3 fiscal years and our losses may
      continue.*




We
  incurred a net loss of approximately $8.5 million for our fiscal year ended
  March 31, 2006, $8.6 million for our fiscal year ended March 31, 2005 and $8.1
  million for our fiscal year ended March 31, 2004. Our net losses may continue
  and our ability to achieve and sustain profitability will be impacted by the
  following:





·
            Our
                ability to increase our Access, Convergence, Consolidation, and
                Virtualization solution revenue and our Managed Services revenue.
                Increasing our emphasis on these IT solutions has placed significant
                demands on our resources and has resulted in increased operating
                costs and
                capital expenditures as we develop and market our IT solutions and
                transition our sales and business development capabilities to sell
                and
                support these solutions. Additionally, developing and marketing IT
                solutions requires a significant up-front investment in resources
                and
                involves a longer sales cycle than selling IT products.




·
            Our
                ability to continue to implement our acquisition strategy. As we
                implement
                this strategy, we may incur additional operating expenses required
                to
                integrate and accelerate the growth of acquired companies, as well
                as
                certain transaction costs related to the completion of these
                acquisitions.




·
            Our
                ability to keep pace with rapidly changing technology and frequent
                introductions of new IT products, services, and product and service
                enhancements, and our ability to fulfill increasingly sophisticated
                client
                requirements.




·
            Our
                access to sufficient working capital to fund our sales and other
                operating
                activities.




·
            Our
                successful development of centralized technology and information
                processing systems. As we develop and implement these systems, we
                expect
                to achieve cost savings, however we may incur increased operating
                costs
                and capital expenditures in the near term.




·
            Our
                ability to attract, train, retain and motivate qualified IT, sales
                and
                senior management personnel in a market place where competition for
                qualified personnel is significant There is a shortage of qualified
                personnel in these fields and we compete with other companies for
                this
                limited pool of IT professionals and sales and senior management
                personnel.




*We
      may need additional funds to execute our acquisition and internal growth
      programs which, if available, could result in an increase in our interest
      expense or dilution of your shareholdings. If these funds are not available,
      our
      business could be adversely affected.*




We
      may
      raise funds through public or private debt or equity financing. If funds are
      raised through the issuance of equity securities, the percentage ownership
      of
      our then current shareholders may be reduced and such securities may have
      rights, preferences or privileges senior to those of the holders of our common
      stock. If additional funds are raised through the issuance of debt securities,
      such securities could have rights, preferences and privileges senior to those
      of
      the holders of our common stock and the terms of such debt could impose
      restrictions on our operations. If additional funds become necessary,




7
   *Table
            of Contents*





additional
      financing may not be available on terms favorable to us, or at all. If adequate
      funds are not available on acceptable terms, we may not be able to continue
      to
      fund our growth or to continue our acquisition program.




*We
      are subject to substantial competition which could adversely affect our
      operating results.*




The
      markets in which we operate are highly competitive with respect to performance,
      quality and price. In our professional services business our competition ranges
      from small, specialty integrators, to other service providers of comparable
      size
      and profile to us, as well as large national and global professional services
      firms and integrators. Our smaller competitors generally are highly focused
      on
      their immediate market segment and can respond more quickly to changes in client
      needs. Our larger competitors generally have greater financial resources and
      may
      be able to compete more effectively than we can on prices and payment terms
      offered to potential clients. This competition impacts our ability to acquire
      and retain clients and our reduces the prices we can charge for our
      offering.




In
      addition, the computer and IT products and services industries have each
      experienced a significant amount of consolidation through mergers and
      acquisitions. We also compete with manufacturers, including those serving as
      our
      vendors, which market through direct sales forces and distributors. More
      aggressive competition by principal manufacturers of computer and IT products,
      such as offering a full range of services in addition to products, could have
      a
      material adverse effect on our operations and financial results **.**




*The
      failure to maintain our status as an authorized reseller/service provider of
      IT
      products could have a material adverse effect on our business and
      operations.*




We
      are
      materially dependent on our continued status as an approved reseller of IT
      products and our continued authorization as an IT service provider. We would
      be
      unable to provide the range of products and services we currently offer,
      including warranty services, without such authorization. Our resale agreements
      with manufacturers generally are terminable by manufacturers on short notice.
      The sales of products from our two largest suppliers accounted for 16% and
      15%
      of all product sales for the year ended March 31, 2006. The loss of one or
      more
      of such authorizations could have a material adverse effect on our business
      and
      results of operations.




In
      addition, our professional services revenues depend in large part on our
      accreditations with other vendors such as Citrix, Cisco, and Microsoft. Most
      of
      our major vendors require that we maintain specifically trained and accredited
      staff at each of our offices in order to re-sell and provide services associated
      with such products. Furthermore, certain such vendors require that we make
      annual purchases of their products for use in our labs and for marketing
      purposes. Each vendor independently determines these requirements for those
      organizations which it authorizes to provide services in connection with their
      products. If these requirements should become substantially more burdensome,
      they could affect our business in either of two ways: (1) we would elect not
      to
      continue our accreditation with such vendor and forgo the revenues associated
      with the re-sale of such vendor’s products and associated services, or (2) we
      would incur the additional expense associated with additional staff training
      or
      equipment purchase requirements. In either case, this could have a negative
      impact on our operating results.




*We
      require access to significant working capital and vendor credit to fund our
      day-to-day operations. Our failure to comply with the financial and other
      covenants under our working capital facility and other credit arrangements
      could
      lead to a termination of those agreements and an acceleration of our outstanding
      debt.*




We
      require access to significant working capital and vendor credit to fund our
      day-to-day operations, particularly at the end of our fiscal quarters when
      demand for our products and services increases substantially. Our secured
      revolving credit facility (the “CIT Facility”) with CIT Group/Business Credit,
      Inc. (“CIT”), our amended and restated loan and security agreement (the “New
      Textron Facility”) with Textron Financial Corporation (“Textron”), and our
      secured credit agreement with Columbia Partners, L.L.C., as Investment Manager,
      and National Electric Benefit Fund, as Lender (the “NEBF Loan”) contain a number
      of financial and other covenants, including consolidated senior leverage ratios
      and consolidated fixed charge coverage ratios. A breach of these financial
      or
      other covenants, unless waived, would be a default under each facility. Upon
      an
      event of default, each of these lenders may terminate their respective
      facilities and/or declare all amounts outstanding under such facilities
      immediately due and payable and exercise other remedies including foreclosure
      of
      the security for the obligations under such facilities. The acceleration of
      our
      debt could have a material adverse effect on our financial condition and
      liquidity. Additionally, the amount of working capital available to us under
      the
      CIT Facility is dependent upon the amount and quality of our accounts
      receivable. A significant defaults, or payment delays, of our accounts
      receivable could materially adversely affect our borrowing base and our access
      to sufficient working capital.




8
   *Table
            of Contents*




As
      of
      March 31, 2006, we were in breach of the consolidated fixed charge coverage
      ratio under the CIT Facility, the New Textron Facility and the NEBF Loan and
      as
      of May 31, 2006, we were in breach of the net availability covenant under the
      CIT Facility. We have obtained a waiver of each of these breaches from each
      of
      the applicable lenders.




Our
      vendor agreement and lines of credit are generally terminable by the vendor
      at
      any time. Any significant termination of these arrangements could adversely
      impact our ability to deliver our IT solutions and reduce our working capital
      availability.




*The
      loss of the services of our principal executive officers could have a material
      adverse effect on us.*




We
      are
      significantly dependent upon the continued availability of Francis J. Alfano,
      our chief executive officer and Steven Stringer, our President and Chief
      Operating Officer. We have entered into employment agreements with each of
      Mr.
      Alfano and Mr. Stringer. These employment agreements contain non-competition
      provisions. The loss or unavailability to us of Mr. Alfano or Mr. Stringer
      for
      an extended period of time could have a material adverse effect on our business
      operations and prospects. To the extent that either Mr. Alfano’s or Mr.
      Stringer’s services would be unavailable to us for any reason, we would be
      required to procure other personnel to manage and operate our Company. There
      can
      be no assurance that we will be able to locate or employ such qualified
      personnel on acceptable terms. At the present time, we do not have “key man”
life insurance covering any of our principal officers.




*Our
      acquisition strategy entails significant risks.*




We
      intend
      to pursue opportunities to expand our business through the acquisition of
      selected companies in targeted markets. The acquisition candidates we review
      can
      be large, and their acquisition by us could have a significant and lasting
      impact on our business. We cannot guarantee that:




·
            we
                will be able to identify appropriate acquisition candidates or negotiate
                acquisitions on favorable terms; or




·
            we
                will be able to obtain the financing necessary to complete all projected
                future acquisitions.




Acquisitions
      involve numerous risks, including:




·
            adverse
                effects on our operating results;




·
            an
                inability to integrate acquired
                businesses;




·
            unanticipated
                liabilities and expenses;




·
            costs
                associated with incomplete
                acquisitions;




·
            expenses,
                delays and difficulties of integrating acquired companies into our
                existing organization;




·
            dilution
                of the interest of existing shareholders if we issue our securities
                in
                making acquisitions or if we sell our securities in order to raise
                cash
                for acquisitions;




·
            diversion
                of management’s attention;




·
            expenses
                of amortizing the acquired companies’ intangible
                assets;




·
            increases
                in our expenses in order to advertise and promote acquired companies;
                and




·
            expenses
                of any undisclosed or potential legal liabilities of an acquired
                company.




In
      addition, we cannot guarantee that we will realize the benefits or strategic
      objectives we are seeking to obtain by acquiring any particular company and
      any
      acquired company could significantly under perform relative to our expectations.
      In particular, acquired companies often experience modest revenue declines
      immediately following the closing of their acquisition.




9
   *Table
            of Contents*




*The
      success of our business depends on the continued integration of
      acquisitions.*




We
      completed several acquisitions and may make additional acquisitions of
      businesses as part of our strategic growth strategy. Our future performance
      will
      depend in large part on our ability to integrate those businesses, with our
      existing operations successfully and to do so profitably. To integrate acquired
      businesses, it is often necessary or desirable to accomplish one or more of
      the
      following:




·
            consolidate
                their billing and accounting systems into our systems and implement
                financial and other control
                systems;




·
            relocate
                the servers and other equipment of acquired companies to one of our
                facilities;




·
            migrate
                the operations of acquired companies onto our technology
                platforms;




·
            integrate
                the client accounts of acquired companies into our client service
                system;




·
            integrate
                the service offerings of acquired companies into our service offerings;
                and




·
            identify
                resellers and referral partners of the services of acquired companies
                and
                migrate them to our business partner
                program.




We
      may
      not be able to successfully integrate acquired businesses with existing
      operations without substantial costs, delays or other problems, if at all.
      As we
      integrate acquired businesses:




·
            we
                may lose clients of acquired companies due to difficulties during
                the
                integration process;




·
            we
                may not be able to bill clients of the acquired companies accurately
                due
                to potential deficiencies in the internal controls of the acquired
                companies, such as inadequate back-office systems of the acquired
                companies and potential difficulties in migrating records onto our
                own
                systems;




·
            we
                may experience difficulty in collecting bills rendered by acquired
                companies due to inaccurate record keeping of the acquired
                companies;




·
            key
                employees of the acquired companies whom we wish to retain may
                resign;




·
            management’s
                attention and resources could be diverted from our ongoing business
                concerns;




·
            we
                may not be able to integrate newly acquired technologies with our
                existing
                technologies; and




·
            we
                may not be able to train, retain and motivate executives and employees
                of
                the acquired companies.




Because
      we intend to employ a strategy that includes acquisition activity, at any time
      there are likely to be one or more acquired businesses that have not been fully
      integrated into our business. Moreover, the anticipated benefits of any or
      all
      of these acquisitions may not be realized. Future acquisitions could result
      in
      the incurrence of debt and the incurrence of contingent liabilities and
      amortization expenses, each of which could have a material adverse effect on
      our
      operating results and financial position.




*If
      we
      are unable to protect our trade secrets, our financial condition could be
      materially adversely affected.*




We
      rely
      upon a combination of nondisclosure and other contractual arrangements and
      trade
      secret, copyright, and trademark laws to protect our proprietary rights and
      the
      proprietary rights of third parties from whom we license intellectual property.
      We enter into confidentiality agreements with our employees and limit
      distribution of proprietary information. However, we cannot assure you that
      the
      steps taken by us in this regard will be adequate to deter misappropriation
      of
      proprietary information or that we will be able to detect unauthorized use
      and
      take appropriate steps to enforce our intellectual property rights. We also
      are
      subject to the risk of litigation alleging infringement of third-party
      intellectual property rights. Any such claims could require us to spend
      significant sums in litigation, pay damages, develop non-infringing intellectual
      property, or acquire licenses to the intellectual property that is the subject
      of the alleged infringement.




10
   *Table
            of Contents*





Our
      inability or failure to establish rights or to protect our rights may have
      a
      material adverse effect on our business, results of operations, and financial
      condition.




*Our
      dependence on third party licenses could have adverse affects.*




We
      rely
      on certain software, technology and content that we license or have licensed
      from third parties, including software, technology and content that is
      integrated with internally developed software and used in our products to
      perform key functions. These third-party licenses may not continue to be
      available to us on commercially reasonable terms. Also, the licensed software,
      technology and content may not be appropriately supported, maintained or
      enhanced by the licensors such that the license would not continue to provide
      the necessary commercial benefits to us. In addition, we may not be able to
      license additional software, technology and content on terms advantageous to
      us.
      The loss of or inability to obtain or replace licenses to, or inability to
      support, maintain and enhance, any of such licensed software, could result
      in
      increased costs, including the expense of internally developing the required
      software, technology and/or content, as well as delays or reductions in product
      shipments.




In
      certain parts of our managed services business we utilize software obtained
      as
      open-source. Such software is supported through various informal developer
      communities and may be more susceptible to internal vulnerabilities than
      commercial grade products. In the event that any of these software products
      would need to be replaced by an equivalent commercial product (because of
      discovered flaws or difficulty in obtaining support), we could incur significant
      costs associated with licensing equivalent commercial products, possibly
      rendering the services provided to clients based on these products
      unprofitable.




*We
      have and may continue to have fluctuations in our quarterly operating
      results.*




Our
      quarterly operating results have and, in the future, may fluctuate
      significantly, depending on a variety of factors, many of which are outside
      of
      our control. The markets in which we operate are characterized by significant
      seasonal swings in demand, which typically peak in the fourth quarter of each
      calendar year, our third fiscal quarter. We expect our net sales and operating
      results to reflect this seasonality. Factors that may affect our quarterly
      results include:




·
            the
                demand for our products and
                services;




·
            timing
                and amount of vendor and manufacturer incentive
                programs;




·
            the
                size, timing and timely fulfillment of orders for our products and
                services;




·
            the
                level of product, price and service
                competition;




·
            changes
                in our sales incentive strategy, as well as sales personnel changes;
                and




·
            general
                economic conditions and economic conditions specific to the IT
                market.




Our
      operating expenses and capital expenditures are expected to be based in large
      part on our expectations of future revenues and the expected costs associated
      with growing our acquired businesses. Therefore, if revenue levels are below
      expectations, operating results are likely to be adversely affected. Operating
      results may be disproportionately affected negatively by an unanticipated
      decline in revenue for a particular quarter because a relatively small amount
      of
      our expenses will vary with our revenue in the short term. As a result, we
      believe that period-to-period comparisons of our results of operations are
      not
      and will not necessarily be meaningful and should not be relied upon as any
      indication of future performance.




**Risks
      Involving Our Common Stock**




*Pequot
      can be deemed our controlling shareholder and Pequot’s interests may not be the
      same as our other shareholders.*




Pequot
      currently holds approximately 47% of the voting power of our outstanding
      securities and has the right to acquire up to 51% of our voting securities.
      Pequot also has the power to nominate two directors on our Board of Directors.
      Pequot also may receive additional voting power if we were to elect to pay
      dividends on outstanding Series A Preferred Stock in the form of additional
      shares of Series A Preferred Stock. As a result Pequot may be deemed in control
      because Pequot is in a





11
   *Table
            of Contents*





position
      to approve, and the approval of Pequot is effectively required to approve any
      transaction requiring approval of shareholders. These transactions could include
      mergers, consolidations, dissolutions or sales of assets. These transactions
      could benefit Pequot at the expense of our other shareholders or benefit Pequot
      disproportionately when compared to our other shareholders.




*There
      is significant potential volatility in our stock price.*




The
      market for our common stock is highly volatile and we have a limited average
      daily trading volume when compared to the total number of shares of our common
      stock outstanding. Consequently, even moderate selling pressure on our common
      stock could have a depressive effect on its market price.




*We
      have no history of paying dividends.*




We
      have
      never paid any cash dividends on our common stock and we do not anticipate
      paying any dividends in the foreseeable future. In addition, our ability to
      pay
      dividends to the holders of our common stock is limited under our certificate
      of
      incorporation and secured lending facilities.




*We
      may issue substantial amounts of additional shares of our common stock without
      shareholder approval, which could dilute the equity interests of our
      shareholders.*




As
      of
      June 20, 2006, we had outstanding an aggregate of 11,565,234 shares of our
      common stock and an aggregate of 20,024,832 shares of Series A Preferred Stock
      which are
      subsequently convertible into our common stock on a share for share
      basis .
      The
      Investors currently hold warrants to purchase 3,657,693 shares of our common
      stock; provided that 450,000 of such warrants are not exercisable until approved
      by our shareholders. We also have an additional 10,975,168 shares of Series
      A
      Preferred Stock authorized but unissued, all of which shares are not reserved
      for specific purposes, other than pursuant to the anti-dilution provisions
      of
      the Series A Preferred Stock or for issuance in lieu of cash dividends on the
      Series A Preferred Stock, an additional 9,000,000 shares of serial preferred
      that are not designated as Series A Preferred Stock and an additional (a)
      4,450,000 shares of our common stock issuable upon the exercise of stock options
      or restricted stock units granted or available for grant under our various
      stock
      plans and (b) aggregate of approximately 700,000 shares of our common stock
      issuable upon exercise of other stock options, restricted stock units or
      warrants previously granted and outstanding, all as of the date of this
      prospectus. All of such shares may be issued without any action or approval
      by
      our shareholders, except as may be limited under Nasdaq Marketplace Rules.
      Any
      shares issued by us in the future would further dilute the percentage ownership
      held by our shareholders.





**Item
      2.** ***Properties***





Our
      principal executive offices are currently located at 1200 High Ridge Road,
      Stamford, Connecticut. We occupy approximately 20,000 square feet at this
      location. The lease for this location expires in November, 2010. The monthly
      base rent for this location is approximately $39,500.





We
      are
      also responsible for rent, real estate taxes, insurance, utilities and
      maintenance expenses relating to all of our other leased facilities. These
      expenses for all of our leased facilities including the Stamford, Connecticut
      facility totaled approximately $3.7 million for the year ended March 31,
      2006. As of March 31, 2006 we had 24 leased facilities in addition to our
      Stamford headquarters.





**Item
      3.*****Legal
      Proceedings***





None.





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





None.





12
   *Table
            of Contents*





**PART
      II**





**Item
      5.** ***Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
      of Equity Securities.***




**Market
      for Our Common Stock**




Our
      common stock is traded on The Nasdaq Small Cap Market under the symbol “MTMC.”
Set forth in the following table is the range of the high and low sales price
      for our common stock for each of the quarters during our last two completed
      fiscal years, based upon data provided by The Nasdaq Stock Market,
      Inc.




**Fiscal
                Year Ended March 31, 2005**
            
            **High
                Sales**
            
            **Low
                Sales**Quarter
                ended June 30, 2004
            
            $
            1.99
            
            $
            1.27Quarter
                ended September 30, 2004
            
            
            2.20
            
            
            1.32Quarter
                ended December 31, 2004
            
            
            5.90
            
            
            1.80Quarter
                ended March 31, 2005
            
            
            5.50
            
            
            2.81






**Fiscal
                Year Ended March 31, 2006**
            
            **High
                Sales**
            
            **Low
                Sales**Quarter
                ended June 30, 2005
            
            $
            4.46
            
            $
            2.75Quarter
                ended September 30, 2005
            
            
            3.93
            
            
            2.75Quarter
                ended December 31, 2005
            
            
            4.59
            
            
            2.53Quarter
                ended March 31, 2006
            
            
            4.90
            
            
            3.51




**Record
      Holders**





As
      of May
      25, 2006, there were 166 record holders of our common stock. We believe that
      there are approximately 1,500 beneficial holders of our common stock, based
      on
      information gathered in connection with the most recent annual 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 agreements with CIT and Textron,
      and
      our financing agreement with Columbia Partners, L.L.C. Investment Management
      (“Columbia Partners”) and National Electrical Benefit Fund (“NEFB”), 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, 2006:




·
            the
                number of shares of our common stock issuable upon exercise of outstanding
                options, warrants and rights, separately identified by those granted
                under
                equity incentive plans approved by our shareholders and those granted
                under plans, including individual compensation contracts, not approved
                by
                our shareholders (column A),




·
            the
                weighted average exercise price of such options, warrants and rights,
                also
                as separately identified (column B), and the number of shares remaining
                available for future issuance under such plans, other than those
                shares
                issuable upon exercise of outstanding options, warrants and rights
                (column
                C).




13
   *Table
            of Contents*




**Column
                A**
            
            **Column
                B**
            
            **Column
                C****Number
                of shares****to
                be issued****upon
                exercise of****outstanding****options,
                warrants****and
                rights**
            
            **Weighted
                average****exercise
                price of****outstanding****options
                warrants****and
                rights**
            
            **Number
                of shares remaining****available
                for future issuance****under
                equity compensation****plans
                (excluding shares reflected****in
                column A)**Equity
                incentive plans approved by shareholders
            
            
            3,468,928
            
            $
            3.21
            
            
            1,200,956Equity
                incentive plans not approved by shareholders
            
            
            0
            
            
            
            
            
            0Totals
            
            
            3,468,928
            
            $
            3.21
            
            
            1,200,956




Equity
      Compensation Plan Information excludes, for the purposes of Columns A and B,
      419,500 Restricted Stock Units with a weighted-average fair value of $2.48.
      Equity Compensation Plan Information also excludes warrants issued in connection
      with our Series A-5 Preferred Stock as these warrants were not exercisable
      as of
      March 31, 2006. A total of 450,000 such warrants were issued as of March 31,
      2006 with an exercise price of $4.06 per share.





**Sales
      of Unregistered Securities**





On
      July
      2, 2004, we acquired the assets and business operations of DataVox Technologies,
      Inc. (“DataVox”). As part of purchase price for DataVox we issued a promissory
      note (the "DataVox Notes"), in the principal amount of $124,757, to each of
      the
      two DataVox shareholders. Each DataVox Note was payable in five equal quarterly
      installments of $20,792 and one final quarterly installment of $20,792 (each,
      an
      "Installment"), such Installments being due on October 1, 2004, January 1,
      2005,
      April 1, 2005, July 1, 2005, October 1, 2005 and January 1, 2006 (each, an
      "Installment Due Date"), without interest. Payments of principal and interest,
      if any, on the DataVox Notes was payable at our option in any combination of
      cash and common stock, provided that all payments must be made with a minimum
      of
      25% cash and cannot be made with more than a maximum of 75% cash. On January
      1,
      2006 we issued to each DataVox Shareholder 3,967 shares of our common stock
      as
      part of the January 1, 2006 Installment.





On
      March
      11, 2005, we acquired the capital stock of Info Systems, Inc. (“Info Systems”).
      As part of the purchase price for Info Systems, we agreed to pay to the
      shareholders (the “Info Systems Shareholders”) additional amounts or cash or
      stock on the achievement of certain financial targets. These financial targets
      were achieved and during the quarter ended March 31, 2006, in satisfaction
      to
      our obligations to the Info Systems Shareholders, we issued 124,109 shares
      of
      common stock to them.





On
      December 10, 2004, we acquired the assets and business operations of Vector
      ESP,
      Inc. and Vector ESP Management, Inc. (collectively, “Vector”). As part of the
      purchase price for Vector, we agreed to pay to Vector (or its assigns)
      additional shares of our common stock on the achievement of certain financial
      targets. These financial targets were achieved and in the quarter ended March
      31, 2006, in satisfaction of our obligations to Vector, we issued 731,587 shares
      of common stock to certain shareholders of Vector’s parent company
      (collectively, the "Vector Parties").





The
      issuance of common stock to each of the DataVox shareholders, the Info Systems
      Shareholders and the Vector Parties described above was made in reliance upon
      the exemption afforded by the provisions of Section 4(2) of the Securities
      Act,
      and/or Regulation D there under. Certificates representing such securities
      contain restrictive legends preventing sale, transfer or other disposition,
      unless registered under the Securities Act or pursuant to an exception there
      under. All such persons received, or had access to, material information
      concerning us and our operations including, but not limited to, our reports
      on
      Form 10-K, Form 10-Q and Form 8-K, as filed with the Securities and Exchange
      Commission.




**Item
      6.** ***Selected
      Financial Data***




The
      following selected financial data for the fiscal years ended March 31, 2006,
      2005, 2004, 2003, and 2002 have 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.





14
   *Table
            of Contents*





**Income
      Statement Data:**


**Year
                Ended March 31,****2006**
            
            **2005**
            
            **2004******
            
            **2003******
            
            **2002****(as
          restated)****(In
                thousands of dollars, except per share amounts)**Net
                revenues:Products
            
            $
            175,851
            
            $
            73,161
            
            $
            38,976
            
            $
            34,471
            
            $
            55,141Services
            
            
            60,868
            
            
            28,033
            
            
            13,288
            
            
            20,985
            
            
            20,309Total
                revenue
            
            
            236,719
            
            
            101,194
            
            
            52,264
            
            
            55,456
            
            
            75,450Gross
                profit — products
            
            
            25,068
            
            
            8,915
            
            
            1,219
            
            
            2,332
            
            
            4,479Gross
                profit — services
            
            
            24,288
            
            
            9,873
            
            
            1,185
            
            
            7,713
            
            
            7,292Gross
                profit — total
            
            
            49,356
            
            
            18,788
            
            
            2,404
            
            
            10,045
            
            
            11,771Selling,
                general and administrative(a)
            
            
            52,164
            
            
            22,708
            
            
            10,025
            
            
            11,484
            
            
            11,077Operating
                (loss) income
            
            
            (2,808
            )
            
            (3,920
            )
            
            (7,621
            )
            
            (1,439
            )
            
            694Interest
                expense and other (b)
            
            
            (5,425
            )
            
            (4,686
            )
            
            (488
            )
            
            (188
            )
            
            (422
            )Pre-tax
                (loss) income
            
            
            (8,233
            )
            
            (8,606
            )
            
            (8,109
            )
            
            (1,627
            )
            
            272Net
                (loss) income
            
            
            (8,474
            )
            
            (8,619
            )
            
            (8,109
            )
            
            (1,211
            )
            
            389Net
                (loss) income per common share:Basic
            
            
            (0.99
            )
            
            (1.51
            )
            
            (1.72
            )
            
            (0.26
            )
            
            0.08Diluted
            
            
            (0.99
            )
            
            (1.51
            )
            
            (1.72
            )
            
            (0.26
            )
            
            0.08Weighted
                average number of common andcommon
                equivalent shares used in calculation:Basic
            
            
            8,542
            
            
            5,714
            
            
            4,723
            
            
            4,734
            
            
            5,033Diluted
            
            
            8,542
            
            
            5,714
            
            
            4,723
            
            
            4,734
            
            
            5,043


_________


(a)
            Includes
                $1.1 million of expenses in the year ended March 31, 2005, for payments
                made to two officers of the Company in connection with the Pequot
                Investment.





(b)
            Includes
                $3.4 million of non cash interest related to convertible debt and
                a
                secured promissory note in the year ended March 31, 2006. Includes
                $4.1
                million of non cash interest related to convertible debt in the year
                ended
                March 31, 2005.




**Balance
      Sheet Data:**





**As
                of March 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(as
          restated)****(In
                thousands of dollars)**Total
                assets
            
            $
            166,253
            
            $
            91,169
            
            $
            19,475
            
            $
            22,954
            
            $
            26,386Total
                liabilities
            
            
            89,535
            
            
            63,591
            
            
            14,311
            
            
            9,713
            
            
            11,581Long
                term obligations
            
            
            24,653
            
            
            7,383
            
            
            
            
            
            110
            
            
            485Working
                capital (deficiency)
            
            
            10,704
            
            
            (11,350
            )
            
            (1,277
            )
            
            (6,256
            )
            
            (8,409
            )Accumulated
                deficit
            
            
            (27,298
            )
            
            (18,824
            )
            
            (10,205
            )
            
            (2,096
            )
            
            (885
            )Shareholders’
                equity
            
            
            76,718
            
            
            27,578
            
            
            5,164
            
            
            13,242
            
            
            14,806





**Item
      7.** ***Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.***




**Overview**




The
      following discussion and analysis of our results of operations and financial
      condition should be read in conjunction with our updated consolidated financial
      statements and related notes included elsewhere in this Annual Report on Form
      10-K. As discussed in Notes 1 and 12 of the consolidated financial statements, all references
	  to 2006 and 2005 amounts reflect the restatement.





15
   *Table
            of Contents*





**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principals
      generally accepted in the United States of America requires management to make
      estimates and assumptions that effect the amount 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. Actual results could differ from those estimates.





**Critical
      Accounting Policies**




We
      prepare our financial statements in accordance with U.S. generally accepted
      accounting principles. As such, management is required to make certain
      estimates, judgments and assumptions it believes are reasonable based on the
      information available. These estimates and assumptions affect the reported
      amounts of assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses for the periods presented. 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,
      impairment 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 Staff Accounting Bulletin No. 104. We
      recognize revenue from the sales of hardware when the rights and risks of
      ownership have passed to the client, upon shipment or receipt by the client,
      depending on the terms of the sales contract with the client. Revenue from
      the
      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 of the terms and
      conditions of the client contract. Service contracts generally do not extend
      over one year, and are billed when 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 client acceptance criteria. For arrangements with multiple
      deliverables, delivered items are accounted for separately, provided that the
      delivered item has value to the client 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.




16
   *Table
            of Contents*





We
      periodically receive discretionary cost reimbursements from suppliers. These
      reimbursements are accounted for as reductions to the cost of product sales,
      when estimable.




**Goodwill
      and Intangibles**




We
      test
      goodwill for impairment on a consolidated basis at least annually in the fourth
      quarter or more frequently if we believe indicators of impairment exist.
      Circumstances that could trigger an impairment test include but are not limited
      to: a significant adverse change in the business climate or legal factors;
      an
      adverse action or assessment by a regulator; unanticipated competition and
      loss
      of key personnel. We did not record any impairment charges during the reporting
      periods.




**Intangible
      Assets**




We
      recorded intangible assets related to the acquisitions of DataVox Technologies,
      Inc., Network Catalyst, Inc., Vector ESP, Inc. and Vector ESP Management, Inc.,
      Info Systems, Inc. and Nexl, Inc.




Intangibles
      consist of the following:





**March
                31****2006**
            
            **2005****Gross
                Amount**
            
            **Accumulated
                Amortization**
            
            **Gross
                Amount**
            
            **Accumulated
                Amortization**Client
                relationships
            
            $
            8,915
            
            $
            3,043
            
            $
            6,588
            
            $
            768Know-how
            
            
            710
            
            
            237
            
            
            710
            
            
            59Non-compete
                agreements
            
            
            250
            
            
            21
            
            
            0
            
            
            0Total
            
            $
            9,875
            
            $
            3,301
            
            $
            7,298
            
            $
            827




The
      intangibles are being amortized over periods of up to 5 years.




Amortization
      expense amounted to $2.5 million and $0.8 million for the years ended March
      31,
      2006 and 2005. Estimated amortization expense for the next five years is as
      follows (in thousands):




Year
                ending March 31,2007
            
            $
            2,7652008
            
            
            2,0262009
            
            
            9392010
            
            
            5062011
            
            
            338





**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 clients’ ability to pay and current economic trends.
      We write off accounts receivable against the allowance when a balance is
      determined to be uncollectible.




17
   *Table
            of Contents*





**Inventories**





Inventories,
      comprised principally of computer hardware and software, are stated at the
      lower
      of cost or market using the first-in, first-out method.




**Property
      and Equipment**





Property
      and equipment is stated at cost and is depreciated using the straight-line
      method. Furniture, fixtures and other equipment and software development costs
      have useful lives ranging from 3-7 years. Leasehold improvements are amortized
      over the shorter of the lease term or economic life of the related improvement.
      Expenditures which extend the useful lives of the existing assets are
      capitalized. Maintenance and repairs are charged to operations as
      incurred.




We
      incurred approximately $3.6 million, $1.7 million and $1.6 million of
      depreciation and amortization expense for the years March 31, 2006, 2005 and
      2004, respectively.




**Contractual
      Obligations**




The
      following table set forth as of March 31, 2006 the Company’s known contractual
      obligations (in thousands).





**Payment
                Due by Period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than**
              **1
                year**
            
            **1-2**
              **years**
            
            **3-5**
              **years**
            
            **More
                than**
              **5
                years****(in
          thousands of dollars)**Secured
                promissory note
            
            $
            22,947
            
            
            
            
            
            
            
            $
            22,947Promissory
                notes
            
            
            667
            
            $
            667Capital
                lease obligations
            
            
            1,572
            
            
            573
            
            $
            899
            
            
            100Operating
                lease obligations
            
            
            17,911
            
            
            3,213
            
            
            5,707
            
            $
            8,991
            
            $
            -Total
            
            $
            43,097
            
            $
            4,453
            
            $
            6,606
            
            $
            32,038
            
            $
            -





**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:





**Year
          Ended March 31,****2006**
      
      **2005**
      
      **2004****(as restated)**Net
          revenue:Products
      
      
      74.3
      %
      
      72.3
      %
      
      74.6
      %Services
      
      
      25.7
      %
      
      27.7
      %
      
      25.4
      %Total
          net revenue
      
      
      100.0
      %
      
      100.0
      %
      
      100.0
      %Cost
          of products
      
      
      85.7
      %
      
      87.8
      %
      
      96.9
      %Cost
          of services
      
      
      60.1
      %
      
      64.8
      %
      
      91.1
      %Gross
          profitProducts
      
      
      14.3
      %
      
      12.2
      %
      
      3.1
      %Services
      
      
      39.9
      %
      
      35.2
      %
      
      8.9
      %Total
          net gross profit
      
      
      20.9
      %
      
      18.6
      %
      
      4.6
      %Selling,
          general and administrative(a)
      
      
      22.1
      %
      
      22.4
      %
      
      19.2
      %Operating
          loss
      
      
      (1.2
      )%
      
      (3.8
      )%
      
      (14.6
      )%Interest
          expense(b)
      
      
      2.3
      %
      
      4.6
      %
      
      0.9
      %Net
          loss
      
      
      (3.6
      )%
      
      (8.5
      )%
      
      (15.5
      )%


__________




(a)
            Includes
                $1.1 million of expenses in the year ended March 31, 2005, for payments
                made to two officers of the Company in connection with the Pequot
                Investment.




(b)
            Includes
                $3.4 million of non cash interest related to convertible debt and
                a
                secured promissory note in the year ended March 31, 2006. Includes
                $4.1
                million of non cash interest related to convertible debt in the year
                ended
                March 31, 2005.





18
   *Table
            of Contents*





**Years
      Ended March 31, 2006, 2005 and 2004**





*Net
      Revenue*




Net
      revenue was $236.7 million for the fiscal year ended March 31, 2006 compared
      to
      $101.2 million for the fiscal year ended March 31, 2005 and $52.3 million for
      the fiscal year ended March 31, 2004.





Product
      revenue was $175.9 million in fiscal year 2006, $73.1 million in fiscal year
      2005 and $39.0 million in fiscal year 2004, representing 74.3% of consolidated
      revenue in 2006, 72.3% in 2005 and 74.6% in 2004.





Service
      revenue was $60.9 million in fiscal year 2006, $28.0 million in 2005 and $13.3
      million in 2004, representing 25.7% of consolidated revenue in 2006, 27.7%
      in
      2005 and 25.4% in 2004.





The
      revenue increases in fiscal year 2006 and 2005 were principally due to the
      acquisitions of NEXL, Inc in December 2005, Info Systems, Inc., in March 2005,
      Vector Global ESP Inc., in December 2004 and Network Catalyst in September
      2004.
      Our product revenue as a percentage of consolidated revenue increased
      in 2006 due to the acquisition of NEXL.




*Gross
      Profit*




Gross
      profit was $49.4 million for the fiscal year ended March 31, 2006 compared
      to
      $18.8 million in fiscal year 2005 and $2.4 million in fiscal year 2004. Blended
      gross margin was 20.9% in fiscal year 2006, 18.6% in fiscal year 2005 and 4.6%
      in fiscal year 2004.





Product
      gross margin was 14.3% in fiscal year 2006, 12.2% in fiscal year 2005 and 3.1%
      in fiscal year 2004. Service gross margin was 39.9% in fiscal year 2006, 35.2%
      in fiscal year 2005 and 8.9% in fiscal year 2004.





Improved
      gross margins resulted primarily from the impact of our
      acquisitions.




*Selling,
      General and Administrative*




Selling,
    general and administrative expenses increased to $52.1 million in fiscal year
    2006 from $22.7 million in fiscal year 2005 and $10 million in fiscal year
    2004, due to costs associated with our acquisitions and transitional integration
    and national program costs.





*EBITDA*




Earnings
  before interest, taxes, depreciation and amortization (“EBITDA”)
  amounted to $3.2 million in fiscal year 2006, compared to a negative $1.3 million
  in fiscal year 2005 and a negative $6.0 million in fiscal year 2004. The EBITDA
  improvements resulted from both increased net revenue and improved gross margins
  discussed above, partially offset by the increased selling, general and administrative
  expenses. The following table sets forth a reconciliation of EBITDA to the net
  loss for the years presented.





Years
                Ended March 31,2006
            
            2005
            
            2004(as
          restated)(In thousands of dollars)Net
                loss
            
            $
            (8,474
            )
            $
            (8,619
            )
            $
            (8,109
            )Depreciation
                and amortization
            
            
            6,047
            
            
            2,558
            
            
            1,636Interest
                expense(a)
            
            
            5,425
            
            
            4,686
            
            
            488Income
                taxes
            
            
            241
            
            
            13EBITDA
            
            $
            3,239
            
            $
            (1,362
            )
            $
            (5,985
            )


_________




(a)  Year
      ended March 31, 2006 includes $3.4 million related to the convertible notes
      and
      a secured promissory note. The year ended March 31, 2005 includes $4.1 million
      of non-cash interest expense related to the convertible notes.




19
   *Table
            of Contents*




We
      believe that our non-GAAP measure of EBITDA provides investors with a useful
      supplemental measure of its operating performance by excluding the impact of
      interest, taxes, depreciation, and amortization. Management uses EBITDA to
      assist in evaluating operating performance. These non-GAAP results should be
      evaluated in light of our financial results prepared in accordance with GAAP.
      EBITDA is not a recognized measure for financial statement presentation under
      GAAP. Non-GAAP earnings measures do not have any standardized definition and
      are
      therefore unlikely to be comparable to similar measures presented by other
      reporting companies. This non-GAAP measure is provided to assist readers in
      evaluating our operating performance. Readers are encouraged to consider this
      non-GAAP measure in conjunction with our GAAP results.




*Interest
      Expense*




Interest
      expense was $5.4 million in fiscal year 2006, $4.7 million in fiscal year 2005,
      and $0.5 million in fiscal year 2004. The increase in 2006 was due to higher
      average interest rates, the issuance of a $25 million secured promissory note
      in
      November 2005, bearing 2% annual cash interest, paid quarterly and an overall
      11% internal rate of return to be paid at maturity and $3.4 million related
      to
      the convertible notes and a secured promissory note. In 2005, the Company had
      non-cash interest expense of $4.1 million related to the convertible
      subordinated notes issued in December 2004 and March 2005. On June 23, 2005
      the
      convertible notes were converted into Series A-4 Preferred Stock.




*Net
      Income (Loss)*




The
  Company had a net loss of $8.5 million in fiscal year 2006 compared to $8.6
  million for the year ended March 31, 2005 and as compared to a net loss of $8.1
  million in fiscal year 2004.




**Liquidity
      and Capital Resources**





The
      Company measures its liquidity in a number of ways, including the
      following:





**March
                31,**
            
            **March
                31,***(in
                thousands)*
            
            **2006**
            
            **2005**Cash
            
            $
            18,154
            
            $
            4,010Working
                capital
            
            $
            10,704
            
            $
            (11,350
            )Current
                ratio
            
            
            1.16:1
            
            
            0.80:1Secured
                financing facilities
            
            $
            20,557
            
            $
            16,544Secured
                promissory note
            
            $
            22,947
            
            $
            -




For
  the year ended March 31, 2006 cash increased $14.2 million to $18.2 million
  compared with $4.0 million at March 31, 2005, due primarily to cash provided
  from financing activities. Working capital at March 31, 2006 was $10.7 million
  compared to a working capital deficit of $11.4 million at March 31, 2005. Included
  in current liabilities at March 31, 2006 are obligations of $20.6 million relating
  to the Company’s secured financing facilities, described below.




On
      November 23, 2005 the Company entered into a secured credit agreement with
      Columbia Partners, L.L.C. Investment Management, as Investment Manager, and
      National Electric Benefit Fund, as Lender (the "Lender"), whereby the Company
      issued and sold to the Lender a promissory note in the principal amount of
      $25.0
      million (the "Note") and the Company issued and sold to the Lender a warrant
      entitling the Lender to purchase 700,000 shares of the Company's Common Stock
      at
      an exercise price of $4.06 per share (the "Lender Warrant"). The
      Company used a portion of the funds to finance the acquisition of Nexl, Inc.
      on
      December 1, 2005 and expects to use the remainder of the proceeds from this
      loan
      to finance the continued execution of its acquisition strategy and to support
      its organic growth initiatives.





The
      Note
      is a four year $25 million secured subordinated term loan with the Note coming
      due at the earlier of maturity or the occurrence of certain fund raisings or
      other liquidity events. The amount outstanding on the Note bears interest equal
      to 4.52%, of which 2% per annum is payable quarterly in cash and all remaining
      interest will accrue and only become due at maturity.  In addition, upon
      maturity or upon the occurrence of certain liquidity events, the Company will
      pay a payment premium in respect of the Note equal to an amount which, when
      combined with previous payments made, will yield an internal rate of return
      to
      the Lender of 11%. As of March 31, 2006, $0.9 million in interest has been
      accrued on the Note, of which none has been paid in cash, $0.2, is accrued
      and
      payable within the next quarter, and $0.7
      million is
      accrued and is payable at maturity. The Note is secured by a subordinated
      lien on the assets of the Company. In
      connection with the issuance of the Note and the related Lender Warrant, the
      Company allocated and charged $2.2 million to debt discount,





20
   *Table
            of Contents*





which
      will be amortized over the life of the Note to interest expense, and assigned
      and credited $2.2 million to additional paid-in capital for the fair value
      of
      the Lender Warrant. The value attributed to the Lender Warrant was determined
      by
      an independent valuation utilizing the Black Scholes Model.





The
      Note
      requires, among other things, that the Company maintain certain financial
      covenants including that the Company maintain Consolidated Senior Leverage
      of
      not greater than 4.40 to 1.00 as of the end of March 31, 2006, and for the
      trailing four quarters and consecutive four quarters ending thereafter and
      that
      the Company maintain a Consolidated Fixed Charge Coverage Ratio of not less
      than
      .90 to 1.00 for the trailing four quarters ended March, 31, 2006 and consecutive
      four quarters ending thereafter. It also restricts the Company’s ability to
      incur certain additional indebtedness, and contains various customary
      provisions, including affirmative and negative covenants, representations and
      warranties and events of default. As of March 31, 2006, the Company was not
      compliant with all covenants relating to the Note, however, the Company received
      a waiver letter from Columbia Partners LLC, which included a waiver of the
      Fixed
      Charge Coverage Ratio covenant until June 30, 2007. The Company’s outstanding
      debt under the Note including accrued interest was approximately $23.8 million
      as of March 31, 2006.





On
      June
      8, 2005, the Company entered into a secured revolving credit facility (the
“CIT
      Facility”) with CIT Group/Business Credit Inc. (“CIT”) and a new Amended and
      Restated Loan and Security Agreement (the “New Textron Facility”) with Textron,
      providing a combined maximum availability of up to $40 million. The CIT Facility
      and the New Textron Facility will be used to fund working capital and
      floor-planning needs, and were also used to refinance the Old Textron
      Facility.





The
      CIT
      Facility is a three year revolving credit facility for up to $25 million,
      subject to a borrowing base consisting of eligible accounts receivable, eligible
      in-transit inventory (up to $0.5 million) and eligible finished goods inventory
      (up to $0.5 million). The CIT Facility requires, among other things, that the
      Company maintain certain financial covenants including that the Company maintain
      Consolidated Senior Leverage of not greater than 4.00 to 1.00 for the trailing
      four quarters and that the Company maintain a Consolidated Fixed Charge Coverage
      Ratio of not less than 1.00 to 1.00 for the trailing four quarters. It also
      restricts the Company’s ability to incur certain additional indebtedness, and
      contains various customary provisions, including affirmative and negative
      covenants, representations and warranties and events of default. Amounts
      borrowed under the CIT Facility bear interest at either the prime rate or at
      LIBOR plus 3%, in each case at the Company’s option.




The
      New
      Textron Facility allows the Company to finance inventory purchases up to $15
      million from approved vendors on a 45-day interest-free basis in most cases.
      Interest accrues after expiration of the applicable interest free period at
      the
      rate equal to a specified prime rate plus 4%. The financial and other covenants
      in the New Textron Facility are substantially the same as those in the CIT
      Facility.





As
      of
      March 31, 2006, the Company did not meet a certain financial covenant prescribed
      under the CIT Facility and the New Textron Facility; however, the Company
      received waiver letters from CIT and Textron.





The
      Company’s outstanding debt under its secured revolving credit facility was
      approximately $14.9 million as of March 31, 2006 and $13.6 million at March
      31,
      2005, respectively. The amount outstanding under the Company’s inventory
      financing agreements was approximately $5.6 million as of March 31, 2006 and
      $2.9 million at March 31, 2005, respectively.




As
      of
      March 31, 2006 the Pequot and Constellation investment totaled $60.0 million.
      The Company has used these funds to execute a growth through acquisition
      strategy, as well as for working capital needs. The Company currently does
      not
      have any other agreements, arrangements or understandings with respect to any
      prospective material acquisitions.




Cash
  used in operating activities was $6.2 million for the year ended March 31, 2006,
  derived from a net loss of $8.5 million plus an increase in net operating assets
  of $5.8 offset by non-cash charges of $8.1 million during the period. The increase
  in net operating assets relates primarily to an increase in accounts receivable
  due to the timing of client payments and the increase in receivables as a result
  of revenues related to Nexl, a business acquired in December 2005 and inventory
  to meet the needs of one large client. Accounts payable and accrued expenses,
  net of the impact of the NEXL acquisition, were down slightly due to the timing
  of payments.




Cash
  used in investing activities was $25.6 million for the year ended March 31,
  2006 due primarily to costs associated with the acquisition of Nexl in December
  2005 of approximately $14.0 million as well as post closing adjustments on earlier
  business acquisitions of $2.9 million. Capital expenditures approximated $9.6
  million for the year including capitalized costs related to internal deployment
  of purchased and developed software of $4.9 million. These uses of cash were
  partially offset by the receipt of $1.0 million of proceeds previously held
  as restricted cash.




21
   *Table
            of Contents*




Cash
      provided by financing activities was $46.0 million for the year, primarily
      the
      result of net cash proceeds received from the issuance of shares of Series
      A
      Preferred Stock in the amount of $18.6 million, net proceeds received from
      the
      issuance of a secured promissory note in the amount of $24.3 million, and net
      borrowings received under our secured revolving credit facilities and inventory
      financing of $3.3 million.




**Item
      7A.** ***Quantitative
      and Qualitative Disclosures about Market Risk.***




Our
      risk
      investments only consisted of cash deposited in a money market fund. 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.




**Item
      8.** ***Financial
      Statements and Supplementary Data.***




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




**Item**
              
              **Page***Report
                  of Goldstein Golub Kessler LLP
              
              F-1MTM
                  Technologies, Inc. and subsidiaries consolidated balance sheet
                  at March
                  31, 2006 and 2005
              
              F-2MTM
                  Technologies, Inc. and subsidiaries consolidated statements of
                  operations
                  for the years ended March 31, 2006, 2005 and 2004
              
              F-3MTM
                  Technologies, Inc. and subsidiaries consolidated statements of
                  shareholders’ equity for the years ended March 31, 2006, 2005 and
                  2004
              
              F-4MTM
                  Technologies, Inc. and subsidiaries consolidated statements of cash
                  flows for the years ended March 31, 2006, 2005 and
                  2004
              
              F-5MTM
                  Technologies, Inc. and subsidiaries notes to consolidated financial
                  statements
              
              F-6Report
                  of UHY LLP
              
              F-23Nexl,
                  Inc. balance sheet at November 30, 2005 and December 31,
                  2004
              
              F-24Nexl,
                  Inc. statement of operations for the 11 months ended November 30,
                  2005 and
                  the years ended December 31, 2004 and 2003
              
              F-25Nexl,
                  Inc. statements of stockholders equity for the 11 months ended
                  November
                  30, 2005 and the years ended December 31, 2004 and 2003
              
              F-26Nexl,
                  Inc. statements of cash flow for the 11 months ended November 30,
                  2005 and
                  the years ended December 31, 2004 and 2003
              
              F-27Nexl,
                  Inc. notes to final statements for the 11 months ended November
                  30, 2005
                  and the years ended December 31, 2004 and 2003
              
              F-28





____________





*
      Page
      F-1 follows Part III to this Annual Report on Form 10-K.





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




Not
      applicable.




**Item
      9A.** ***Controls
      and Procedures.***




An
      evaluation was performed, as of March 31, 2006, under the supervision and with
      the participation of our management, including our chief executive officer
      and
      chief financial officer, of the effectiveness of the design and operation of
      our
      disclosure controls and procedures. Based on such evaluation, our chief
      executive officer and chief financial officer have concluded that our disclosure
      controls and procedures were effective as of March 31, 2006. There has been
      no
      change in our internal controls over financial reporting that has materially
      affected, or is reasonably likely to materially affect, our internal controls
      over financial reporting.




22
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            of Contents*





**PART
      III**





**Item
      10.** ***Directors
      and Executive Officers of the Registrant.***





**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. Each
      director currently serving has been elected to a term that expires at the next
      Annual Meeting of shareholders.





**Name**
            
            **Age**
            
            **Principal
                Positions and****Offices
                with our Company**
            
            **Director**
              **Since**Gerald
                A. Poch
            
            59
            
            Chairman
                of the Board of Directors
            
            2004Francis
                J. Alfano
            
            45
            
            Chief
                Executive Officer and Director
            
            2004Richard
                R. Heitzmann
            
            34
            
            Director
            
            2004William
                Lerner
            
            71
            
            Director
            
            1995Alvin
                E. Nashman
            
            79
            
            Director
            
            1998Steven
                H. Rothman
            
            57
            
            Director
            
            1986Arnold
                J. Wasserman
            
            68
            
            Director
            
            1998Thomas
                Wasserman
            
            31
            
            Director
            
            2005Steven
                Stringer
            
            51
            
            President
                and Chief Operating Officer
            
            N/AMichael
                El-Hillow
            
            54
            
            Senior
                Vice President and Chief Financial Officer
            
            N/AJohn
                F. Kohler
            
            42
            
            Senior
                Vice President and General Counsel
            
            N/A





**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 1999. Mr. Poch also served as 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 and Andrew Corporation, each a publicly-traded company.
      In
      addition, Mr. Poch is a director of a number of private companies.





**Francis
      J. Alfano** has
      served as our Chief Executive Officer since May 2004. He 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 2002, 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. Prior
      to
      that time Mr. Alfano served as Vice President of Business Development at G.E.
      Capital Information Technology Solutions, Inc., (the successor to AmeriData
      Technologies, Inc.) and was with Ernst & Young.





**Richard
      R. Heitzmann**  has
      served as a Senior Vice President at Pequot Capital Management, Inc., focusing
      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, Mr. Heitzmann was the Senior Vice
      President of Corporate Development and a member of the board of directors of
      US
      Search.Com, Inc. 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 August 1998 and with Booz-Allen and Hamilton in its Financial
      Services and Healthcare Group from September 1997 to December 1997. Mr.
      Heitzmann was a financial analyst and associate at Houlihan Lokey Howard and
      Zukin from July 1994 to September 1997.





**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 Rent-way, Inc., New York Stock Exchange listed company
      engaged in





23
   *Table
            of Contents*





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
      been
      an independent consultant in the field of computer service for the past ten
      years. Dr. Nashman is a director of James Monroe Bancorp Inc.





**Steven
  H. Rothman** served as an Executive Vice President of the Company from May 2004 to July 2007.
  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.  Mr.
  Rothman is also a director of Coach Industries Group, Inc., a publicly-traded
  company.





**Arnold
      J. Wasserman** has
      served as chairman of our audit committee since March 1999. 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.





**Thomas
      Wasserman** has
      served as a Vice President with Constellation Ventures since June of 2001.
      From
      March of 2000 to June of 2001, he served as a senior manager of corporate
      development for 360Networks, a global telecommunications service provider.
      Earlier, , Mr. Wasserman worked at Charterhouse Group International, a private
      equity firm, and at the investment banking firm of Donaldson, Lufkin and
      Jenrette. Mr. Wasserman is a director of Broadband National, a private
      company.





**Steven
      Stringer**  has
      served as our President since June 2005 and as our Chief Operating Officer
      since
      October 1, 2004. From June through September 2004 he was employed by Pequot
      as a
      consultant and was made available by Pequot to us to assist with the selection,
      evaluation and integration of acquisitions. From January 2002 through May 2004,
      Mr. Stringer pursued private investment opportunities. Prior to that time he
      served in a number of senior executive roles with Rhythms NetConnections Inc.
      (“Rhythms”), including as Chief Executive Officer and President from July
      through December 2001, Chief Executive Officer, President and Chief Operating
      Officer from April through July 2001, and President and Chief Operating Officer
      from April 1999 through March 2001. On August 1, 2001, Rhythms filed for
      protection under title 11 of the U.S. Bankruptcy Code. Rhythms was a national
      provider of digital subscriber line services and operated one of the largest
      DSL
      networks in the United States, serving 60 major markets with 67,000 digital
      subscriber lines in service.





**Michael
      El-Hillow** has
      served as a Senior Vice President, as well as our Chief Financial Officer,
      since
      January 2006. From October 2001 to December 2005 he served as Executive Vice
      President, Finance and Administration and Chief Financial Officer of Advanced
      Energy Industries, Inc. Prior to that time, he served as Chief Financial Officer
      of Helix Technology Corporation from April 1997 to July 2001, Chief Financial
      Officer of A. T. Cross Company from January 1991 to April 1997 and an Audit
      Partner with Ernst & Young. Mr. El-Hillow is also Chairman of the Board of
      Evergreen Solar, Inc., a publicly traded company.




**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.




Under
      the
      terms of the Restated Shareholders Agreement, each of Mr. Poch and Mr. Heitzmann
      are directors designated by Pequot Capital Management, Inc. and Mr. T. Wasserman
      is a director designated by Constellation. Additionally, under that agreement
      Pequot and Constellation are obligated to vote their shares to elect Mr. Alfano
      and Mr. Rothman to the Board of Directors. See Item 12 “Security Ownership of
      Certain Beneficial Owners and Management - Restated Shareholders’
Agreement.”





**Board
      Committees**




Our
      board
      of directors currently has four standing committees, consisting of an audit
      committee, a compensation committee, a corporate governance and nominating
      committee and an independent directors 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 is “independent,” within the meaning





24
   *Table
            of Contents*





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:




·
            selecting
                and retaining the independent auditors, as well as ascertaining the
                auditors’ independence;





·
            reviewing
                the scope of the audits to be conducted, as well as the results of
                their
                audits;





·
            approving
                non-audit services provided to our company by the independent
                auditors;





·
            reviewing
                the organization and scope of our internal system of audit, financial
                and
                disclosure controls;





·
            appraising
                our financial reporting activities, including our Annual Report on
                Form
                10-K, and the accounting standards and principles followed;
                and





·
            conducting
                other reviews relating to compliance by employees with our internal
                policies and applicable laws.




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 and other equity incentives granted
      pursuant to our various stock plans and recommending the establishment of and
      monitoring a compensation and incentive program for all of our executive
      officers.




Our
      corporate governance and nominating committee currently is composed of Richard
      Heitzmann, William Lerner, Arnold J. Wasserman and Thomas Wasserman, with Mr.
      Lerner serving as its chairman. The duties of our corporate governance and
      nominating 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.




Our
      independent directors committee was formed by our Board in September 2004.
      It
      consists only of directors who are neither members of the management nor
      associated with Pequot or Constellation (or other similar investors) and is
      to
      consider, review and provide guidance and oversight regarding transactions
      or
      other situations in which other board members, who are either members of
      management or employees of Pequot or Constellation (or other similar investors),
      have interests that may be in addition to, or different from, the interests
      of
      the shareholders in general. This committee currently is composed of William
      Lerner, Alvin E. Nashman and Arnold J. Wasserman, with Mr. Wasserman serving
      as
      its chairman.




*Meetings
      of Our Board of Directors and its Committees*




Our
      board
      of directors held 10 formal meetings during our fiscal year ended March 31,
      2006. Our audit committee held 8 formal meetings, our compensation committee
      held 6 formal meetings, our corporate governance and nominating committee held
      2
      formal meetings, and our independent directors committee held 4 formal meetings,
      during our 2006 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 or who is not appointed to the
      board of directors by either Pequot or Constellation receives an annual fee
      of
      $16,000 as compensation for serving on our board of directors, plus an
      additional $1,500 for each board meeting attended in person and $750 for each
      board meeting attended by telephonic conference call. Each such member of the
      board’s audit, compensation and corporate governance and nominating committees
      receives $2,500 per year, and each chairman of the committees receives $3,500
      (except the chairman of the audit committee who receives $5,000), as
      compensation for serving on such committees, as well as an additional $1,000
      for
      each committee meeting attended in person and $500 for each committee meeting
      attended by telephonic conference call, in each case if the committee meeting
      is
      held on a day other than a day on which the board itself is
      meeting.




*Audit
      Committee Charter*





25
   *Table
            of Contents*





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 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 2006 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
      was
      filed as exhibit 14.1 to our Annual Report on Form 10-K for fiscal year
      2004.




**Item
      11.** ***Executive
      Compensation***




**Summary
      Compensation**




The
      following table sets forth, with respect to the our fiscal years ended March
      31,
      2006, 2005 and 2004, all compensation earned by our chief executive officer
      during our 2006 and 2005 fiscal years, and the five most highly compensated
      persons who were serving as executive officers at the end of our 2006 fiscal
      year or who would have been among the most highly compensated officers except
      for the fact that such person was not serving as an executive officer at the
      end
      of our 2006 fiscal year, in each case other than with respect to our chief
      executive officer.




**Annual
                Compensation**
            
            **Long-Term
                Compensation Awards****Name
                and Principal Position(s)**
            
            **Fiscal****Year**
            
            **Salary**
            
            **Bonus**
            
            **Restricted
                Stock****Awards
                (1)**
            
            
            
            **Securities
                Underlying****Options**Francis
                J. Alfano (2)
            
            
            2006
            
            $
            350,000
            
            $
            118,750
            
            $
            32,400
            
            
            (3)
            
            
            64,000Chief
                Executive Officer
            
            
            2005
            
            $
            215,800
            
            $
            50,000
            
            
            
            
            
            
            
            
            400,000Steven
                Stringer (4)
            
            
            2006
            
            $
            308,750
            
            $
            133,438
            
            $
            23,895
            
            
            (3)
            
            
            47,200President
                and Chief Operating Officer
            
            
            2005
            
            $
            112,500
            
            $
            37,500
            
            $
            114,800
            
            
            (3)
            
            
            215,000Michael
                El-Hillow (5)
            
            
            2006
            
            $
            72,500
            
            $
            25,500
            
            $
            162,750
            
            
            (3)
            
            
            250,000Senior
                Vice President and Chief Financial OfficerJohn
                F. Kohler (6)
            
            
            2006
            
            $
            200,000
            
            $
            58,000
            
            $
            6,075
            
            
            (3)
            
            
            12,000Senior
                Vice President and General Counsel
            
            
            2005
            
            $
            156,900
            
            $
            25,000
            
            
            
            
            
            
            
            
            75,000Alan
                Schwartz (7)
            
            
            2006
            
            $
            250,000
            
            $
            55,000
            
            $
            12,150
            
            
            (3)
            
            
            24,000Senior
                Vice President - Acquisitions
            
            
            2005
            
            $
            169,400
            
            $
            25,000
            
            
            
            
            
            
            
            
            150,000Steven
                H. Rothman (8)
            
            
            2006
            
            $
            265,000
            
            $
            19,875
            
            $
            8,100
            
            
            (3)
            
            
            8,000Executive
                Vice President
            
            
            2005
            
            $
            265,0002004
            
            $
            265,000
            
            $
            8,200





(1)
      Represent restricted stock units.


(2)
      Chief
      Executive Officer since May 21, 2004.


(3)
      Value
      of restricted stock units at March 31, 2006 was as follows:





Name
            
            FiscalYear
            
            Value
                at March31,
                2006Francis
                J. Alfano
            
            
            2006
            
            $
            30,640Steven
                Stringer
            
            
            2006
            
            $
            22,5972005
            
            $
            153,200Michael
                El-Hillow
            
            
            2006
            
            $
            134,050John
                F. Kohler
            
            
            2006
            
            $
            5,745Alan
                Schwartz
            
            
            2006
            
            $
            11,490Steven
                H. Rothman
            
            
            2006
            
            $
            7,660





(4)
      Chief
      Operating Officer since October 1, 2004 and President and Chief Operating
      Officer since June 10, 2005.


(5)
      Senior Vice President and Chief Financial Officer since January 1,
      2006.


(6)
      Senior Vice President and General Counsel since May 21, 2004.


(7)
      Senior Vice President and Chief Financial Officer from May 21, 2004 until
      January 1, 2006.


(8)
      Chairman of the Board and Chief Financial Officer until May 21,
      2004.





26
   *Table
            of Contents*





*Option
      Grants In Last Fiscal Year*




The
      following table sets forth, with respect to our fiscal year ended March 31,
      2006, all grants of stock options to each named executive officer listed in
      the
      Summary Compensation Table contained in this Item 11.




**Name**
            
            **Number
                of Securities Underlying****Option**
            
            **Percent
                of Total Options Granted to Employees in****Fiscal
                Year**
            
            **Exercise****Price**
            
            **Expiration
                Date**
            
            **Grant
                Date****Value
                (1)**Francis
                J. Alfano
            
            
            64,000
            
            
            7%
            
            $
            4.05
            
            
            April
                15, 2015
            
            $
            184,960Steven
                Stringer
            
            
            47,200
            
            
            5%
            
            $
            4.05
            
            
            April
                15, 2015
            
            $
            136,408Michael
                El-Hillow
            
            
            250,000
            
            
            26%
            
            $
            4.75
            
            
            January
                3, 2016
            
            $
            825,000John
                F. Kohler
            
            
            12,000
            
            
            1%
            
            $
            4.05
            
            
            April
                15, 2015
            
            $
            34,680Alan
                Schwartz
            
            
            24,000
            
            
            2%
            
            $
            4.05
            
            
            April
                15, 2015
            
            $
            69,360Steven
                H. Rothman
            
            
            8,000
            
            
            1%
            
            $
            4.05
            
            
            April
                15, 2015
            
            $
            23,120




(1)
      Valuation done using the Black Scholes Option Pricing Model assuming a 4 year
      life expectancy, volatility of 115.4%, a risk free interest rate of 4.3% and
      no
      turnover.




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




The
      following table sets forth:




·
            the
                total number of share acquired by named executive officers on the
                exercise
                of options during the year ended March 31, 2006 and the value realized
                upon such exercise,




·
            the
                total number of unexercised options held, as of March 31, 2006, by
                each of
                the named executive officers, separately identified between those
                exercisable and those not exercisable,
                and




·
            the
                aggregate value of in-the-money, unexercised options held, as of
                March 31,
                2006, by each of the named executive officers, separately identified
                between those exercisable and those not
                exercisable.





**Shares
                acquired on exercise (#)**
            
            **Value
                realized ($)**
            
            **Number
                of Unexercised Options as of March 31, 2006**
            
            **Value
                of Unexercised In-the-Money Options as of March 31, 2006
                (1)****Name**
            
            
            
            
            
            **Exercisable**
            
            **Unexercisable**
            
            **Exercisable**
            
            **Unexercisable**Francis
                J. Alfano
            
            
            
            
            
            
            
            
            150,000
            
            
            314,000
            
            $
            252,000
            
            $
            420,000Steven
                Stringer
            
            
            
            
            
            
            
            
            80,624
            
            
            181,576
            
            $
            77,399
            
            $
            129,001Michael
                El-Hillow
            
            
            
            
            
            
            
            
            0
            
            
            250,000
            
            $
            0
            
            $
            0John
                F. Kohler
            
            
            
            
            
            
            
            
            28,185
            
            
            58,815
            
            $
            47,351
            
            $
            78,649Alan
                Schwartz
            
            
            
            
            
            
            
            
            56,250
            
            
            117,750
            
            $
            94,500
            
            $
            157,500Steven
                H. Rothman
            
            
            2,741
            
            $
            8,497
            
            
            105,200
            
            
            8,000
            
            $
            211,941
            
            $
            0




(1)
          The
          value of unexercised in-the-money options is calculated by subtracting
          the
          aggregate exercise price of the options from the aggregate market price
          of the
          shares underlying the options as of March 31, 2006 of $3.83 per
          share.




*Stock
      Plans*




We
      have
      adopted the following stock plans:




·
            a
                1993 Stock Option Plan, which provides for the grant of options to
                purchase an aggregate of 250,000 shares of our common stock, of which,
                as
                of March 31, 2006, 26,666 shares have been issued upon exercise
                of
                options and 125,834 shares are subject to outstanding
                options;





·
            a
                1996 Stock Option Plan, which provides for the grant of options to
                purchase an aggregate of 350,000 shares of our common stock, of which,
                as
                of March 31, 2006, 77,600 shares have been issued upon exercise
                of
                options and 51,600 shares are subject to outstanding
                options;





27
   *Table
            of Contents*





·
            a
          1998 Stock Option Plan, which provides for the grant of options to purchase
          an aggregate of 250,000 shares of our common stock, of which, as of
          March 31, 2006, 6,000 shares have been issued upon exercise of options
          and 86,900 shares are subject to outstanding options;





·
            a
                2000 Long Term Performance Plan, which provides for the award of
                an
                aggregate of 350,000 shares of our common stock, of which, as of
                March 31,
                2006, 78,100 shares have been issued upon the exercise of options
                and
                254,000 shares are subject to outstanding
                awards;





·
            a
                2002 Long Term Performance Plan, which provides for the award of
                an
                aggregate of 250,000 shares of our common stock, of which, as of
                March 31,
                2006, 92,500 shares have been issued upon the exercise of options
                and
                15,000 shares are subject to outstanding awards;
                and





·
            a
                2004 Equity Incentive Plan, which provides for the award of an aggregate
                of 4,000,000 shares of our common stock, of which, as of March 31,
                2006,
                12,500 shares have been issued upon the exercise of options and
                2,883,094****shares
                are subject to outstanding
                awards.





The
      1993
      Stock Option Plan and the 1996 Stock Option Plan have expired. Accordingly,
      we
      can no longer grant options under such plans.





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. 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
      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 and
      subsequently approved an increase in the number of shares subject to the 2004
      plan to 4 million. We have reserved a total of 4 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:




·
            options,
                including incentive stock options and non-qualified
                options;





·
            stock
                appreciation rights;





·
            restricted
                stock;





·
            performance
                grants;





·
            stock
                bonuses; and





·
            any
                other type of award deemed by the administrator of the 2004 plan
                to be
                consistent with the purposes of the 2004 plan (including, but not
                limited
                to, awards of or options or similar rights granted with respect to
                unbundled stock units or components thereof, and awards to be made
                to
                participants who are foreign nationals or are employed or performing
                services outside the United
                States).




*Employment
      Agreements*





28
   *Table
            of Contents*





We
      entered into an employment agreement, dated June 28, 2006, with Francis J.
      Alfano (as amended, the “Alfano Employment Agreement”) to employ Mr. Alfano as
      our Chief Executive Officer. The Alfano Employment Agreement has an initial
      term
      of three (3) years (the “Initial Term”). On the third and each subsequent
      anniversary of the commencement of such agreement, the term of the agreement
      shall automatically be extended for an additional period of twelve (12) months;
      provided, however, that either party may elect not to extend the agreement
      by
      giving written notice to the other party at least twelve (12) months prior
      to
      any such anniversary date. Mr. Alfano is paid a base salary of $350,000 per
      annum and is eligible to receive an annual bonus based upon the achievement
      of
      performance targets of up to 75% of his base salary payable 67% in cash and 33% in common stock consisting of 35,000 shares of common
      stock, subject to certain limitations on the number of shares to be issued.
      In
      the event of a termination of Mr. Alfano’s employment during the term of the
      agreement by us other than for “cause” or by Mr. Alfano for “good reason” or as
      a result of his death or permanent and total disability we shall provide him,
      among other things, a continuance of his then current base salary for a period
      equal to the greater of (i) one (1) year from the date of termination or (ii)
      the period ending on the last day of the Initial Term (the “Severance Period”).
      Additionally, in the event of termination for other than “cause” or for “good
      reason,” any unvested stock options or restricted stock units shall become fully
      vested and immediately exercisable and shall remain exercisable for the
      remainder of their term.





We
      entered into an employment agreement, dated October 1, 2004, with Steven
      Stringer (as amended, the “Stringer Employment Agreement”) to employ Mr.
      Stringer as our President and Chief Operating Officer. The Stringer Employment
      Agreement has an initial term of two (2) years (the “Initial Term”). On the
      second and each subsequent anniversary of the commencement of such agreement,
      the term of the agreement shall automatically be extended for an additional
      period of twelve (12) months; provided, however, that either party may elect
      not
      to extend the agreement by giving written notice to the other party at least
      twelve (12) months prior to any such anniversary date. As of October 1, 2005
      neither party have given notice of non-renewal and the Stringer Employment
      Agreement was automatically extended until October 1, 2007. Mr. Stringer is
      paid
      a base salary of $335,000 per annum. In addition to the base salary payable
      to
      Mr. Stringer, he shall also be eligible to receive, as additional compensation,
      an annual bonus (the “Total Bonus”) equal to fifty percent (50%) of his base
      salary. The Total Bonus consists of two parts, an “EBITDA Bonus” in an amount
      equal to seventy - five percent (75%) of the Total Bonus, which is payable
      upon
      the achievement of our quarterly and annual earnings before interest, taxes,
      depreciation and amortization (“EBITDA”) targets and a “Strategic Bonus” in an
      amount equal to twenty-five percent (25%) of the Total Bonus, which is payable
      annually upon the achievement of designated strategic objectives. In the event
      of a termination of Mr. Stringer’s employment during the term of the agreement
      by us other than for “cause” or by Mr. Stringer for “good reason” or as a result
      of his death or permanent and total disability we shall provide him, among
      other
      things, a continuance of his then current base salary for a period equal to
      the
      greater of (i) one (1) year from the date of termination or (ii) the period
      ending on the last day of the Initial Term (the “Severance Period”).
      Additionally, in the event of termination for other than “cause” or for “good
      reason,” any unvested stock options or restricted stock units shall become fully
      vested and immediately exercisable and shall remain exercisable for the
      remainder of their term.





Additionally,
      we entered into a severance agreement, dated December 12, 2005, with Michael
      El-Hillow (the “El-Hillow Severance Agreement”) and severance agreements, dated
      May 21, 2004, with Alan Schwartz (as amended the “Schwartz Severance Agreement”)
      and John Kohler (as amended the “Kohler Severance Agreement” and together with
      the El-Hillow Severance Agreement and the Schwartz Severance Agreement, the
      “Severance Agreements”) to employ Mr. El-Hillow as our Senior Vice President and
      Chief Financial Officer, Mr. Schwartz as our Senior Vice President -
      Acquisitions, and Mr. Kohler as our Senior Vice President and General Counsel.
      In the event of a termination of Mr. El-Hillow’s, Mr. Schwartz’s or Mr. Kohler’s
      employment during the first four (4) years of his agreement by the Company
      other
      than for “cause” or by such executive for “good reason” or as a result of his
      death or permanent and total disability we shall provide such executive, among
      other things, a continuance of his then current base salary for a period equal
      to one (1) year. Mr. El-Hillow is paid a base salary of $290,000 per annum,
      Mr.
      Schwartz is paid a base salary of $250,000 per annum and Mr. Kohler is paid
      a
      base salary of $200,000. Additionally, in the event of termination of the
      executive for other than “cause” or for “good reason,” any





29
   *Table
            of Contents*





unvested
      stock options or restricted stock units shall become fully vested and
      immediately exercisable and shall remain exercisable for the remained of their
      term.





**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
      of Directors**





Each
      director who is not an employee of our company, or designated as a director
      by
      Pequot or Constellation, receives an annual fee of $16,000 as compensation
      for
      serving on our board of directors, plus an additional $1,500 for each board
      meeting attended in person and $750 for each board meeting attended by
      telephonic conference call. Each member of the board's audit, compensation
      and
      corporate governance and nominating committees receives $2,500 per year, and
      each chairman of the committees receives $3,500 (except the chairman of the
      audit committee who receives $5,000), as compensation for serving on such
      committees, as well as an additional $1,000 for each committee meeting attended
      in person and $500 for each committee meeting attended by telephonic conference
      call, in each case if the committee meeting is held on a day other than a day
      on
      which the board itself is meeting.





During
      the fiscal year ended March 31, 2006 restricted stock units and common stock
      were granted to directors as follows:





**Name**
            
            **Date
                of Grant**
            
            **Equity
                Award**
            
            **Number
                of Shares**William
                Lerner
            
            April
                15, 2005
            
            Restricted
                Stock Units
            
            1,750November
                9, 2005
            
            Common
                Stock
            
            10,000Alvin
                Nashman
            
            April
                15, 2005
            
            Restricted
                Stock Units
            
            1,750November
                9, 2005
            
            Common
                Stock
            
            10,000Arnold
                Wasserman
            
            April
                15, 2005
            
            Restricted
                Stock Units
            
            1,750November
                9, 2005
            
            Common
                Stock
            
            11,000




**Compensation
      Committee Interlocks and Insider Participation**




No
      member
      of our compensation committee is or was an officer or 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:




·
            served
                as a member of a compensation committee (or other board committee
                performing equivalent functions or, in the absence of any such committee,
                the entire board of directors) of another entity, one of whose executive
                officers served on our compensation
                committee;





·
            served
                as a director of another entity, one of whose executive officers
                served on
                our compensation committee; nor





·
            served
                as a member of a compensation committee (or other board committee
                performing equivalent functions or, in the absence of any such committee,
                the entire board of directors) of another entity, one of whose executive
                officers served as a director of our
                company.





**Performance
      Graph**





The
      following graph and table sets forth the annual changes for the five-year period
      indicated in a theoretical cumulative total shareholder return of an investment
      of $100 in our common stock and each comparison indices, assuming reinvestment
      of dividends, if any.




30
   *Table
            of Contents*




COMPARISON
      OF FIVE-YEAR CUMULATIVE TOTAL RETURN




$400.00 $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 $130.58 $100.00 $121.78 $121.07 $61.56 $90.23 $91.39 $122.21 $128.89 $139.98 $101.40 $156.88 $192.81 $111.23 $340.46 $396.46 3/31/2002 3/31/2003 3/31/2004 3/31/2005 3/31/2006 3/31/2001 Peer Group Standard & Poors Small Cap MTM Technologies, Inc.





Assumes
      $100 invested at the close of trading on 3/01 in MTM Technologies, Inc. common
      stock, Standard & Poors SmallCap and Peer Group (which consists of
      Affiliated Computer Services, Inc., Computer Horizons Corp, Eplus, Inc., Keane,
      Inc. Perot Systems, Inc., Pomeroy Computer Resources Inc., Tier Technologies,
      Inc. and Unisys Corp.)




Cumulative
      total return assumes reinvestment of dividends.





3/31/2001
            3/31/2002
            3/31/2003
            3/31/2004
            3/31/2005
            3/31/2006MTM
                Technologies, Inc.
            100
            121.78
            51.56
            128.89
            396.46
            340.46Standard
                & Poors SmallCap
            100
            121.07
            90.23
            139.98
            156.88
            192.81Peer
                Group
            100
            130.58
            91.39
            122.21
            101.4
            111.23





**R** **eport
      by the Compensation Committee**





The
      compensation of the Company's executive officers is determined by the
      Compensation Committee of the Board. The Committee has three members, each
      of
      whom is independent of management. None of the members of the Committee has
      any
      insider or interlocking relationship with the Company, and each of them is
      a
      non-employee director, as these terms are defined in applicable rules and
      regulations of the SEC.





*Compensation
      Philosophy*





The
      Company's executive compensation philosophy is to align the interests of
      executive management with shareholder interests and with the Company's business
      strategy and success, through an integrated executive compensation program
      that
      considers short-term performance, the achievement of long-range strategic goals
      and growth in total shareholder value. The key elements of executive
      compensation are competitive base salary, quarterly and annual incentives,
      and
      equity participation. The aggregate compensation package is designed to attract
      and retain individuals critical to the long-term success of the Company, to
      motivate these persons to perform at their highest levels, and to reward
      exceptional performance.





31
   *Table
            of Contents*




In
      December 2004, based on a report from a firm of recognized compensation
      specialists, the Committee established ranges of base compensation for the
      Chief
      Executive Officer and senior executive management and for targeted bonuses.
      For
      the year ended March 31, 2006 the target bonuses required performance in two
      principal areas, achieving EBITDA growth and achieving strategic objectives
      linked to the company’s acquisition and internal growth program, and individual
      performance. The Committee retains discretion in light of company performance
      and achievement of individual goals, and its own compensation objective to
      offer
      competitive compensation in a highly competitive market place, to determine
      overall and individual compensation and the funding of bonus payments. The
      average bonus payment for the year was approximately 75% of the target bonus
      amounts. The
      Committee continues to use recognized compensation specialists to assist with
      issues pertaining to compensation.





*Base
      Salary*





Base
      salary levels for executive officers are determined not only on the basis of
      the
      Committee's assessment of individual performance, but also on the total
      compensation, including salaries, paid by companies engaged in similar
      businesses, to persons holding equivalent positions. As noted above, those
      surveys, as well as related data analyses, were conducted by external
      compensation consultants. The Compensation Committee believes that any increases
      in base salary should be based upon a favorable evaluation of individual
      performance relative to individual goals, the functioning of the executive's
      team within the corporate structure, success in furthering the corporate
      strategy and goals, and individual management skills, responsibilities and
      anticipated workload.





Apart
      from contractual commitments, the Compensation Committee also considers
      demonstrated loyalty and commitment and the competitive salaries offered by
      similar companies to attract and retain executives. Merit increases for
      executives are to be subject to the same budgetary guidelines as apply to any
      other employees. In those cases where an executive has entered into an
      employment agreement, the base salary is determined pursuant to the terms of
      the
      agreement, and renewals of contracts will be considered on the basis of the
      performance of the individual, the performance of the Company and the
      compensation philosophy of the Company.





*Quarterly
      and Annual Bonuses*





The
      Company's Management Bonus Plan is designed to provide an incentive to
      executives and to reward executives based on the overall performance of the
      Company, as well as on the performance of each executive officer's area of
      responsibility or operating group. Measures of performance are both financial
      and strategic. Financial elements are based on achieving quarterly and annual
      EDITDA targets and strategic elements include, but are limited to technological
      or quality improvements, improvements in operations and contributions to
      business success. The goals are also structured to provide the kinds of
      objectivity and checks and balances required to ensure compliance with SEC
      regulations and the Sarbanes-Oxley Act. The Committee reviewed the levels of
      bonus payments with an external consultant and compared those levels to a
      analysis of publicly available compensation information.





*Equity
      Awards*





In
      2005
      the Compensation Committee approved a plan to expanded the number of employees
      eligible for equity awards so as to award equity more broadly and deeply
      throughout the organization and thus provide additional incentive to employees
      to maximize shareholder value.





Executives
      are eligible for equity awards in the form of stock options and restricted
      stock
      units under the Company's equity plans. Awards are made at the discretion of
      the
      Compensation Committee. The number of shares awarded to any individual depends
      on individual performance, salary level and competitive data, and the impact
      that such employee's productivity may make to shareholder value over time.
      In
      addition, in determining the number of stock options or restricted stock units
      granted to each executive, the Compensation Committee reviews the unvested
      options and units of each executive to determine the future benefits potentially
      available to the executive. The number of options or units granted will depend
      in part on the total number of unvested options and units deemed necessary
      to
      provide an incentive to that individual to make a long term commitment to remain
      with the Company. By giving to executives an equity interest in our company,
      the
      value of which depends upon stock performance, the policy seeks to further
      align
      management and shareholder interests. The Committee believes that using
      restricted stock units as part of the overall equity awards program better
      aligns the interest of management and shareholders as restricted stock units
      closely replicate the economic characteristics of capital stock.





32
   *Table
            of Contents*





The
      Compensation Committee of the Board of Directors of MTM Technologies,
      Inc.





Richard
      Heitzmann, Chairman


Alvin
      E.
      Nashman, Member


William
      Lerner, Member





**Item
      12.** ***Security
      Ownership of Certain Beneficial Owners and
      Management.***




**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, but such number of votes
      shall not exceed such number of shares of common stock which would be received
      based on a conversion price of $1.45 per preferred share (in the case of Series
      A-1, A-2 and A-3 shares) or the market price of the common stock on the date
      of
      issuance of the preferred shares (in the case of Series A-4 and A-5
      shares).




The
      following table sets forth as of June 20, 2006 the beneficial ownership of
      the
      following persons:




·
            each
                person known by us to beneficially own 5% or more of our Series A
                Preferred Stock and/or our common stock, based on filings with the
                SEC and
                certain other information;





·
            each
                of our “named executive officers” and directors; and





·
            all
                of our executive officers and directors as a
                group.




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, we believe
      that all shares are beneficially owned, and investment and voting power is
      held
      by, the persons named as owners; and the address for each beneficial owner
      listed in the table, except where otherwise noted, is MTM Technologies, Inc.,
      1200 High Ridge Road, Stamford, Connecticut 06905.





33


---



*Table
          of Contents*




Series
                  A Preferred Stock
              
              Common
                  StockName
                  of Shareholder
              
              Amount
                  and Nature of BeneficialOwnership
              
              
              Percentage
                  of OutstandingShares
              
              Amount
                  and Nature of BeneficialOwnership
              
              
              Percentage
                  of OutstandingSharesPequot
                  Capital Management, Inc.(1)
              
              
              14,894,960
              (2)
              
              
              
              
              74.38%
              
              
              17,179,576
              (3)
              
              
              
              
              59.8%Gerald
                  A. Poch (4)
              
              
              14,894,960
              (5)
              
              
              
              
              74.38%
              
              
              17,189,576
              (6)
              
              
              
              
              59.8%Constellation
                  Group(7)
              
              
              5,129,872
              (8)
              
              
              
              
              25.62%
              
              
              6,052,949
              (9)
              
              
              
              
              34.4%Clifford
                  Rucker(10)
              
              
              0
              
              
              
              
              
              0.00%
              
              
              2,355,000
              
              
              
              
              
              20.4%Mark
                  Stellini
              
              
              0
              
              
              
              
              
              0.00%
              
              
              599,840
              
              
              
              
              
              5.2%Howard
                  A. Pavony
              
              
              0
              
              
              
              
              
              0.00%
              
              
              895,656
              (11)
              
              
              
              
              7.7%Steven
                  H. Rothman
              
              
              0
              
              
              
              
              
              0.00%
              
              
              895,303
              (12)
              
              
              
              
              7.7%Arnold
                  Wasserman
              
              
              0
              
              
              
              
              
              0.00%
              
              
              130,750
              (13)
              
              
              
              
              1.1%William
                  Lerner
              
              
              0
              
              
              
              
              
              0.00%
              
              
              99,750
              (14)
              
              
              
              
              0.9%Alvin
                  E. Nashman
              
              
              0
              
              
              
              
              
              0.00%
              
              
              97,250
              (15)
              
              
              
              
              0.8%Francis
                  J. Alfano
              
              
              0
              
              
              
              
              
              0.00%
              
              
              256,333
              (16)
              
              
              
              
              2.2%Steven
                  Stringer
              
              
              0
              
              
              
              
              
              0.00%
              
              
              92,424
              (17)
              
              
              
              
              0.8%Michael
                  El-Hillow
              
              
              0
              
              
              
              
              
              0.00%
              
              
              0
              (18)
              
              
              
              
              0.0%John
                  F. Kohler
              
              
              0
              
              
              
              
              
              0.00%
              
              
              46,750
              (19)
              
              
              
              
              0.4%Richard
                  R. Heitzmann(20)
              
              
              0
              (21)
              
              
              
              
              0.00%
              
              
              0
              (22)
              
              
              
              
              0.0%Thomas
                  Wasserman(23)
              
              
              0
              (24)
              
              
              
              
              0.00%
              
              
              0
              (25)
              
              
              
              
              0.0%All
                  directors and executive officers as a group(11
                  persons)
              
              
              14,894,960
              (26)
              
              
              
              
              74.38%
              
              
              18,808,136
              (27)
              
              
              
              
              63.7%
  (1)
              According
                  to a Schedule 13D/A filed with the SEC on December 16, 2005, Pequot
                  Capital Management, Inc. is the investment advisor/manager for
                  both the
                  Pequot Fund and Pequot Partners and exercises sole investment discretion
                  over the Pequot Fund and Pequot Partners. The address for Pequot
                  Capital
                  Management, Inc., as well as the Pequot Fund and Pequot Partners
                  is 500
                  Nyala Farm Road, Westport, Connecticut
                  06880.
  (2)
              Represents
                  (a) 2,853,555 shares of Series A-1 Preferred Stock owned of record
                  by the
                  Pequot Fund, (b) 402,259 shares of Series A-1 Preferred Stock owned
                  of
                  record by Pequot Partners, (c) 1,752,898 shares of Series A-2 Preferred
                  Stock owned of record by the Pequot Fund, (d) 247,102 shares of
                  Series A-2
                  Preferred Stock owned of record by Pequot Partners, (e) 1,685,479
                  shares
                  of Series A-3 Preferred Stock owned of record by Pequot Fund, (f)
                  237,598
                  shares of Series A-3 Preferred Stock owned of record by Pequot
                  Partners,
                  (g) 4,470,490 shares of Series A-4 Preferred Stock owned of record
                  by
                  Pequot Fund, (h) 630,194 shares of Series A-4 Preferred Stock owned
                  of
                  record by Pequot Partners, (i) 2,292,252 shares of Series A-5 Preferred
                  Stock owned of record by Pequot Fund, and (j) 323,133 shares of
                  Series A-5
                  Preferred Stock owned of record by Pequot Partners. Does not include
                  any
                  shares of Series A Preferred Stock that we may issue in lieu of
                  cash
                  dividends on the Series A Preferred Stock for the period between
                  May 21,
                  2006 and May 20, 2008. Accrual of dividends on the Series A Preferred
                  Stock commenced on May 21, 2006.
  (3)
              Represents
                  (a) the maximum 14,884,960 shares of our common stock issuable
                  upon
                  conversion of all of the Series A Preferred Stock currently owned
                  of
                  record by Pequot Fund and Pequot Partners, as discussed in note
                  (2) to
                  this Beneficial Ownership Table, which shares are convertible within
                  the
                  60 days following the date of the Beneficial Ownership Table, (b)2,002,350
                  shares of our common stock issuable upon exercise of warrants held
                  of
                  record by the Pequot Fund, which shares are exercisable within
                  the 60 days
                  following the date of this Beneficial Ownership Table, (c) 282,266
                  shares
                  of our common stock issuable upon exercise of warrants held of
                  record by
                  Pequot Partners, which shares are exercisable within the 60 days
                  following
                  the date of this Beneficial Ownership Table. The numbers of shares
                  of our
                  common stock issuable upon conversion of the Series A Preferred
                  Stock and
                  exercise of the warrants which the Pequot Fund and Pequot Partners
                  own of
                  record are subject to anti-dilution adjustment. Does not include
                  (x) any
                  shares of Series A Preferred Stock that we may issue in lieu of
                  cash
                  dividends on the Series A Preferred Stock for the period between
                  May 21,
                  2006 and May 20, 2008 or (y) 335,242 warrants held by Pequot Fund
                  or
                  47,258 warrants held by Pequot Partners and in each case acquired
                  in
                  connection with our Series A-5 Preferred Stock as such warrants
                  are not
                  exercisable until approved by our shareholders. Accrual of dividends
                  on
                  the Series A Preferred Stock commenced May 21,
                  2006.  34
   *Table
              of Contents*




(4)
              The
                  address for Mr. Poch is c/o Pequot Capital Management, Inc., 500
                  Nyala
                  Farm Road, Westport, Connecticut
                  06880.




(5)
              Includes
                  the shares of Series A Preferred Stock beneficially owned by Pequot
                  Capital Management, Inc. (see note (2) to this Beneficial Ownership
                  Table), of which Mr. Poch is a Managing Director. Mr. Poch disclaims
                  beneficial ownership to the Series A Preferred Stock beneficially
                  owned by
                  Pequot Capital Management, Inc., except to the extent of his pecuniary
                  interest therein.




(6)
              Represents
                  10,000 shares of our common stock held by Mr. Poch in his personal
                  account
                  plus the 17,179,576 shares of our common stock beneficially owned
                  by
                  Pequot Capital Management, Inc. (see note (3) to this Beneficial
                  Ownership
                  Table), of which Mr. Poch is a Senior Managing Director. Mr. Poch
                  disclaims beneficial ownership to our common stock beneficially
                  owned by
                  Pequot Capital Management, Inc., except to the extent of his pecuniary
                  interest therein.




(7)
              The
                  Constellation Group consists of (i) Constellation Venture, Constellation
                  Offshore, BSC and CVC.(collectively,
                  “Constellation”) (ii) Constellation Ventures Management II, LLC, which is
                  the sole general partner of Constellation Venture, the sole general
                  partner of Constellation Offshore and the sole managing general
                  partner of
                  BSC, (iii) Bear Stearns Asset Management Inc., which is the managing
                  member of CVC and the investment adviser to each Constellation
                  fund, (iv)
                  Clifford Friedman, who is a member of Constellation Ventures Management
                  II, LLC and a senior managing director of Bear Stearns Asset Management
                  Inc., and (v) Bear Stearns Companies Inc., which is the sole managing
                  member of Constellation Ventures Management II, LLC and the parent
                  corporation of Bear Stearns Asset Management Inc. Constellation
                  Ventures
                  Management II, LLC, Bear Stearns Asset Management Inc. and Mr.
                  Friedman
                  share investment and voting control of shares beneficially owned
                  by
                  Constellation Venture, Constellation Offshore and BSC. Bear Stearns
                  Asset
                  Management Inc. exercises sole investment and voting control of
                  the shares
                  beneficially owned by CVC. The address for each entity and person
                  in the
                  Constellation Groupis
                  383 Madison Avenue, New York, New York
                  10179.




(8)
              Represents
                  (a) 960,068 shares of Series A-3 Preferred Stock owned of record
                  by
                  Constellation Venture, (b) 510,903 shares of Series A-3 Preferred
                  Stock
                  owned of record by Constellation Offshore, (c) 428,131 shares of
                  Series
                  A-3 Preferred Stock owned of record by BSC, (d) 23,975 shares of
                  Series
                  A-3 Preferred Stock owned of record by CVC, (e) 1,370,530 shares
                  of Series
                  A-4 Preferred Stock owned of record by Constellation Venture, (f)
                  729,332
                  shares of Series A-4 Preferred Stock owned of record by Constellation
                  Offshore, (g) 611,170 shares of Series A-4 Preferred Stock owned
                  of record
                  by BSC, (h) 34,225 shares of Series A-4 Preferred Stock owned of
                  record by
                  CVC, (i) 230,416 shares of Series A-5 Preferred Stock owned of
                  record by
                  Constellation Venture (j) 122,617 shares of Series A-5 Preferred
                  Stock
                  owned of record by Constellation Offshore, (k) 102,751 shares of
                  Series
                  A-5 Preferred Stock owned of record by BSC, and (l) 5,754 shares
                  of Series
                  A-3 Preferred Stock owned of record by CVC. Does not include any
                  shares of
                  Series A Preferred Stock that we may issue in lieu of cash dividends
                  on
                  the Series A Preferred Stock for the period between May 21, 2006
                  and May
                  20, 2008. Accrual of dividends on the Series A Preferred Stock
                  commenced
                  May 21, 2006.




(9)
              Represents
                  (a) the maximum 5,129,872 shares of our common stock issuable upon
                  conversion of all of the Series A Preferred Stock currently owned
                  of
                  record by the Constellation Group, as discussed in note (8) to
                  this
                  Beneficial Ownership Table, which shares are convertible within
                  the 60
                  days following the date of the Beneficial Ownership Table, (b)
                  460,833
                  shares of our common stock issuable upon exercise of warrants held
                  of
                  record by Constellation Venture, which shares are exercisable within
                  the
                  60 days following the date of this Beneficial Ownership Table,
                  (c) 245,234
                  shares of our common stock issuable upon exercise of warrants held
                  of
                  record by Constellation Offshore, which shares are exercisable
                  within the
                  60 days following the date of this Beneficial Ownership Table,
                  (d) 205,502
                  shares of our common stock issuable upon exercise of warrants held
                  of
                  record by BSC, which shares are exercisable within the 60 days
                  following
                  the date of this Beneficial Ownership Table, and (e) 11,508 shares
                  of our
                  common stock issuable upon exercise of warrants held of record
                  by CVC,
                  which shares are exercisable within the 60 days following the date of this
                  Beneficial Ownership Table. The numbers of shares of our common
                  stock
                  issuable upon conversion of the Series A Preferred Stock and exercise
                  of
                  the warrants which the Constellation Group owns of record are subject
                  to
                  anti-dilution adjustment. Does not include (x) any shares of Series
                  A
                  Preferred Stock that we may issue in lieu of cash dividends on
                  the Series
                  A Preferred Stock for the period between May 21, 2006 and May 20,
                  2008 or
                  (y) 33,698 warrants held by Constellation Venture, 17,933 warrants
                  held by
                  Constellation Offshore, 15,027 warrants held by BSC or 842 warrants
                  held
                  by CVC and in each case acquired in connection with out Series
                  A-5
                  Preferred Stock as such warrants are not exercisable until approved
                  by our
                  shareholders. Accrual of dividends on the Series A Preferred Stock
                  commenced May 21, 2006.  35
   *Table
              of Contents*




(10)
              The
                  address for Mr. Rucker is 5 Bridle Spur Road, Danvers, MA
                  01923.




(11)
              Included
                  105,200 shares of our common stock issuable upon exercise of options
                  granted to Mr. Pavony, which are exercisable within the 60 days
                  following
                  the date of this Beneficial Ownership
                  Table.




(12)
              Includes
                  107,200 shares of our common stock issuable upon exercise of options
                  granted to Mr. Rothman, which shares are exercisable within the
                  60 days
                  following the date of this Beneficial Ownership Table. Does not
                  include
                  6,000 shares of our common stock issuable upon exercise of options,
                  which
                  shares are not exercisable within the 60 days following the date
                  of this
                  Beneficial Ownership table nor does it include 2,000 restricted
                  share
                  units which do not vest within the 60 days following the date of
                  this
                  Beneficial Ownership table, or 1,125 shares of our common stock
                  held by
                  Mr. Rothman’s spouse.




(13)
              Includes
                  108,000 shares of our common stock issuable upon exercise of options
                  granted to Mr. Wasserman, which are exercisable within the 60 days
                  following the date of this Beneficial Ownership
                  Table.




(14)
              Includes
                  88,000 shares of our common stock issuable upon exercise of options
                  granted to Mr. Lerner, which are exercisable within the 60 days
                  following
                  the date of this Beneficial Ownership
                  Table.




(15)
              Includes
                  85,500 shares of our common stock issuable upon exercise of options
                  granted to Dr. Nashman, which are exercisable within the 60 days
                  following
                  the date of this Beneficial Ownership
                  Table.




(16)
              Includes
                  249,333 shares of our common stock issuable upon exercise of options
                  granted to Mr. Alfano, which are exercisable within the 60 days
                  following
                  the date of this Beneficial Ownership Table. Does not include 214,667
                  shares of our common stock issuable upon exercise of options, which
                  are
                  not exercisable within the 60 days following the date of this Beneficial
                  Ownership Table nor does it include 8,000 restricted stock units
                  which do
                  not vest within the 60 days following the date of this Beneficial
                  Ownership table.




(17)
              Represents
                  92,424 shares of our common stock issuable upon exercise of options
                  granted to Mr. Stringer, which are exercisable within 60 days following
                  the date of this Beneficial Ownership Table. Does not include 169,776
                  shares of our common stock issuable upon exercise of options, which
                  are
                  not exercisable within the 60 days following the date of this Beneficial
                  Ownership Table nor does it include 45,900 restricted stock units
                  which do
                  not vest within the 60 days following the date of the Beneficial
                  Ownership
                  table.




(18)
              Does
                  not include 250,000 shares of our common stock issuable upon exercise
                  of
                  options, which are not exercisable within 60 days following the
                  date of
                  the Beneficial Ownership Table nor does it include 35,000 units
                  which do
                  not vest with 60 days following the date of the Benefit Ownership
                  Table.




(19)
              Represents
                  46,750 shares of our common stock issuable upon exercise of options
                  granted to Mr. Kohler, which shares are exercisable within the
                  60 days
                  following the date of this Beneficial Ownership Table. Does not
                  include
                  40,250 shares of our common stock issuable upon exercise of options,
                  which
                  shares are not exercisable within the 60 days following the date
                  of this
                  Beneficial Ownership Table nor does it include the 1,500 restricted
                  stock
                  units which do not vest within the 60 days following the date of
                  this
                  Beneficial Ownership Table.




(20)
              The
                  address for Mr. Heitzmann is c/o Pequot Capital Management, Inc.,
                  500
                  Nyala Farm Road, Westport, Connecticut
                  06880.




(21)
              Does
                  not include the shares of Series A Preferred Stock beneficially
                  owned by
                  Pequot Capital Management, Inc. (see note (2) to this Beneficial
                  Ownership
                  Table), of which Mr. Heitzmann is a Senior Vice President. Mr.
                  Heitzmann
                  does not have voting power nor investment power with respect to
                  the Series
                  A Preferred Stock beneficially owned by Pequot Capital Management,
                  Inc.




(22)
              Does
                  not include the shares of our common stock beneficially owned by
                  Pequot
                  Capital Management, Inc. (see note (3) to this Beneficial Ownership
                  Table), of which Mr. Heitzmann is a Senior Vice President. Mr.
                  Heitzmann
                  does not have voting power nor investment power with respect to
                  our common
                  stock beneficially owned by Pequot Capital Management,
                  Inc.




(23)
              The
                  address for Mr. Wasserman is c/o Bear Stearns Asset Management
                  Inc., 383
                  Madison Avenue, New York, New York
                  10179.  36
   *Table
              of Contents*




(24)
              Does
                  not include the shares of our Series A Preferred Stock beneficially
                  owned
                  by Constellation Venture, Constellation Offshore, BSC and CVC (see
                  note
                  (8) to this Beneficial Ownership Table). Mr. Wasserman is a Vice
                  President
                  of Constellation Ventures. Mr. Wasserman does not have voting power
                  nor
                  investment power with respect to the Series A Preferred Stock beneficially
                  owned by Constellation Venture, Constellation Offshore, BSC or
                  CVC.




(25)
              Does
                  not include the shares of our common stock beneficially owned by
                  Constellation Venture, Constellation Offshore, BSC and CVC (see
                  note (9)
                  to this Beneficial Ownership Table). Mr. Wasserman is a Vice President
                  of
                  Constellation Ventures. Mr. Wasserman does not have voting power
                  nor
                  investment power with respect to the common stock beneficially
                  owned by
                  Constellation Venture, Constellation Offshore, BSC or
                  CVC




(26)
              Includes
                  those Series A Preferred Stock beneficially owned by our current
                  executives officers and directors, as set forth in notes to this
                  Beneficial Ownership Table.




(27)
              Includes
                  those common shares beneficially owned by our current executives
                  officers
                  and directors, as set forth in notes to this Beneficial Ownership
                  Table.




**Restated
        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 our Series
        A-1 Preferred Stock. On December 10, 2004, simultaneously with, and as a
        condition to, the closing of the transactions contemplated by the December
        10,
        2004 Purchase Agreement with Pequot and Constellation providing for the issuance
        and sale of our Series A-4 with A-5 Preferred Stock, we amended and restated
        the
        Shareholders’ Agreement to set forth certain new restrictions and obligations
        for us and for Mr. Pavony and Mr. Rothman. Additionally, on December 21,
        2004,
        we further amended the Shareholders’ Agreement in connection with the
        resignation of Mr. Pavony from the Board of Directors, which resignation
        was
        effective March 31, 2005.




On
        August
        1, 2005 we entered into an Amended and Restated Shareholders’ Agreement (the
“Restated Shareholders Agreement”) with Pequot, Constellation, Howard A. Pavony
        and Steven H. Rothman. The Restated Shareholders’ Agreement reflected an
        extension of the lock-up period with respect to the shares owned by Mr. Pavony
        entered into in connection with the termination of his employment with us.
        Mr.
        Pavony’s agreed that (i) prior to May 21, 2006, he would not transfer any
        securities of the Company owned by him and (ii) from May 21, 2006 to January
        1,
        2007, he would not transfer more than 42.5%, in the aggregate, of such
        securities. After January 1, 2007, Mr. Pavony may, subject to certain other
        rights of the company, Pequot and Constellation, sell his shares free of
        the
        foregoing limitations.





The
  Restated Shareholders Agreement provides that parties agree to vote, or cause
  to be voted, all securities of the Company owned by such party or over which
  such party has voting control so that the number of directors will consist of:
  (i) the company’s chief executive officer (“CEO”); (ii) two
  directors designated by Pequot Capital Management, Inc., or its assignee; (iii)
  one director designated by Constellation or its assignee; (iv) Mr. Rothman;
  (v) three “independent” directors, within the meaning of “independent”
  under the current rules of Nasdaq, selected by the Company’s nominating
  and corporate governance committee; and (vi) two additional independent directors
  to be selected by the CEO and reasonably acceptable to the Company’s nominating
  and corporate governance committee. Under certain circumstances where Pequot
  holds less than 25% of the securities Pequot purchased pursuant to the Purchase
  Agreement, the right to designate two directors in (ii) above will be reduced
  to one director and the above voting provisions will be adjusted in the manner
  described in the Restated Shareholders’ Agreement. On July 7, 2006, in
  connection with the termination of his employment with the Company, Mr. Rothman
  waived the obligation that the Investors vote in favor of his appointment as
  a Director and agreed that he would not stand for reelection to the Board of
  Directors at the Company’s 2006 Annual Meeting of Shareholders.




The
        obligation of the parties under the Restated Shareholders’ Agreement will expire
        upon the earliest to occur of (i) the completion of any voluntary or involuntary
        liquidation or dissolution of the Company, (ii) the sale of all or substantially
        all of the Company’s assets or of a majority of the outstanding equity of the
        Company to any person that is not a party to the Restated Shareholders’
Agreement, or (iii) December 10, 2009. Messrs. Rothman and Pavony’s
        obligation to vote for (i) two directors designated by Pequot Capital
        Management, Inc., and (ii) one director designated by Constellation or its
        assignee, shall terminate if (a) Pequot or their assignees own less than
        10% of
        the outstanding Series A Preferred Stock (or shares of our common stock issuable
        upon conversion thereof) issued to Pequot, (b) Constellation or its assignees
        own less than 10% of the Series A-3 Preferred Stock (or shares of our common
        stock issuable upon conversion thereof) issued to Constellation, or (c) any
        other shareholders that are introduced to the company by Pequot own less
        than
        10% of the shares acquired by such shareholders from the company in a
        transaction not including a public offering or (ii) if Messrs. Pavony
        and


37


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*Table
            of Contents*


Rothman
        individually own less than less than 10% of the number of shares of common
        stock
        owned by such person on December 10, 2004.





The
        Restated Shareholders Agreement also contains provisions (i) restricting
        the
        transfer of any securities by shareholders party to the Restated Shareholders
        Agreement in certain circumstances and (ii) granting the Investors certain
        rights of first refusal and tag-along rights with respect to any dispositions
        by
        Messrs. Pavony and Rothman of their shares of Common Stock.





**Item
        13.*****Certain
        Relationships and Related Party Transactions.***





We
        are a
        party to a lease agreement, dated December 31, 2004, for our facility located
        in
        Peabody, MA. We became a party to this lease as part of the December 2005
        acquisition of Nexl, Inc. The landlord for this facility is C&S Realty
        Peabody Trust, a nominee trust controlled by Clifford Rucker and his affiliates.
        Mr. Rucker owns approximately 20% of our outstanding common stock and was
        formerly the president of our Northeast region. The lease covers approximately
        38,000 square feet, has a monthly rent of approximately $35,000, terminates
        in
        December 2009, and is subject to our option to renew for an additional five
        year
        term.





Mr.
        Rucker also operates a lease financing company called Nexl Financial Services,
        Inc. (“Nexl Financial”). From time to time, Nexl Financial has provided lease
        financing to certain of our clients. During the year ended March 31, 2006
        Nexl
        Financial provided equipment leasing to our clients on two occasions for
        equipment having a purchase price approximately of $165,000 and $114,000,
        respectively.




On
  August 1, 2005, we entered into a consulting agreement with Howard Pavony in
  connection with the termination of his employment with the Company. This agreement
  provides that Mr. Pavony will perform certain consulting services for us until
  May 21, 2007 in exchange for an annual consulting fee of $265,000, plus an automobile
  allowance and health benefits. Mr. Pavony owns approximately 8% of our outstanding
  common stock.


On
    July 7, 2006, we entered into a consulting agreement with Steven Rothman in
    connection with the termination of his employment with the Company. This agreement
    provides that Mr. Rothman will perform certain consulting services for us
    until March 31, 2008. We will pay Mr. Rothman an annual consulting fee of
    $265,000, plus health benefits through December 31, 2007. Thereafter we will
    pay Mr. Rothman certain transaction fees in the event we complete an acquisition
    introduced to the Company by Mr. Rothman. Mr. Rothman owns approximately 8%
    of our outstanding common stock and is a Director of the Company.


**Item
        14.** ***Principal
        Accountant Fees and Services.***




**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.




**2006**
                
                **2005**Audit
                    fees(1)
                
                $
                300,000
                
                $
                200,000Audit-related
                    fees(2)
                
                
                -
                
                
                6,500Tax
                    fees(3)
                
                
                -
                
                
                6,750All
                    other fees(4)
                
                
                68,200
                
                
                44,990


__________




(1)
              Consists
                  of fees billed for the audit of our annual financial statements,
                  review of
                  financial statements included in our Quarterly Reports on Form
                  10-Q and
                  services that are normally provided by the accountant in connection
                  with
                  statutory and regulatory filings or
                  engagements.





(2)
              Consists
                  of assurance and related services that are reasonably related to
                  the
                  performance of the audit and reviews of our financial statements
                  and are
                  not included in “audit fees” in this table. The services provided by our
                  accountants within this category consisted of advice relating to
                  SEC
                  matters and employee benefit
                  matters.





(3)
              Consists
                  of professional services rendered by a company aligned with our
                  principal
                  accountant for tax compliance, tax advice and tax
                  planning.





(4)
              The
                  services provided by our accountants within this category consisted
                  of
                  advice and other services relating to our transaction with the
                  Pequot
                  entities and other matters.





Such
        fees
        have been pre-approved by our Audit Committee.





**Audit
        Committee Pre-Approval Policy**


38


---



*Table
            of Contents*


In
        addition to retaining Goldstein Golub Kessler LLP to audit our consolidated
        financial statements for the years ended March 31, 2006 and 2005, we retained
        Goldstein Golub Kessler to provide other auditing and advisory services to
        us in
        our 2006 and 2005 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.


39


---



*Table
            of Contents*


**Item
        15.**  ***Exhibits,
        Financial Statements Schedules.***





**Exhibits**





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





**E****xhibit****Number**
              
              **Description**2.1
              
              Merger
                  Agreement, dated August 16, 2005, among NEXL, Inc., a Massachusetts
                  corporation, MTM Technologies (Massachusetts), LLC, a Delaware
                  limited
                  liability company, MTM Technologies, Inc., a New York corporation
                  and the
                  sole shareholder of Merger Subsidiary, and Clifford L. Rucker*2.2
              
              Asset
                  Purchase Agreement, dated September 17, 2004 by and among Network
                  Catalyst, Inc., William Corbin, Rocci J. Della Maggiore and MTM
                  Technologies, Inc.*2.3
              
              Asset
                  Purchase Agreement, dated December 1, 2004, by and among Vector
                  ESP, Inc.,
                  Vector ESP Management, Inc. and Vector Global Services, Inc. and
                  MTM
                  Technologies, Inc.*2.4
              
              Stock
                  Purchase Agreement, dated January 27, 2005, by and among Info Systems,
                  Inc., Mark Stellini, Emidio F. Stellini, Jr., Jay Foggy, Richard
                  Roux,
                  Jennifer McKenzie and MTM Technologies, Inc.*3.1
              
              Restated
                  Certificate of Incorporation*3.2
              
              Amended
                  and Restated By-Laws*4.1
              
              Purchase
                  Agreement, dated January 29, 2004, among Micros-to-Mainframes,
                  Inc.,
                  Pequot Private Equity Fund III, L.P. and Pequot Offshore Private
                  Equity
                  Partners III, L.P.*4.2
              
              Purchase
                  Agreement, dated December 7, 2004, among MTM Technologies, Inc.,
                  Pequot
                  Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners
                  III, L.P., Constellation Venture Capital II, L.P., Constellation
                  Venture
                  Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC
                  Partners
                  II, LLC*4.3
              
              Amendment
                  No. 1 to the Purchase Agreement, dated December 7, 2004, among
                  MTM
                  Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot
                  Offshore
                  Private Equity Partners III, L.P., Constellation Venture Capital
                  II, L.P.,
                  Constellation Venture Capital Offshore II, L.P., The BSC Employee
                  Fund VI,
                  L.P. and CVC Partners II, LLC*4.4
              
              Amendment
                  No. 2 to the Purchase Agreement, dated December 7, 2004, among
                  MTM
                  Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot
                  Offshore
                  Private Equity Partners III, L.P., Constellation Venture Capital
                  II, L.P.,
                  Constellation Venture Capital Offshore II, L.P., The BSC Employee
                  Fund VI,
                  L.P. and CVC Partners II, LLC*4.5
              
              Amended
                  and Restated Shareholders’ Agreement, dated August 1, 2005, among MTM
                  Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private
                  Equity
                  Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P.,
                  Constellation Venture Capital II, L.P., Constellation Venture Capital
                  Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC Partners
                  II,
                  LLC*4.6
              
              Amended
                  and Restated Registration Rights Agreement, dated August 1, 2005,
                  among
                  MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private
                  Equity Fund III, L.P., Pequot Offshore Private Equity Partners
                  III, L.P.,
                  Constellation Venture Capital II, L.P., Constellation Venture Capital
                  Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC Partners
                  II,
                  LLC*4.7
              
              Amendment
                  No. 1 to the Amended and Restated Registration Rights Agreement
                  dated
                  December 10, 2005, among MTM Technologies, Inc., Steven Rothman,
                  Howard
                  Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private
                  Equity Partners III, L.P., Constellation Venture Capital II, L.P.,
                  Constellation Venture Capital Offshore II, L.P., The BSC Employee
                  Fund VI,
                  L.P. and CVC Partners II, LLC*4.8
              
              Warrant
                  Certificate, evidencing 438,225 warrants registered in the name
                  of Pequot
                  Private Equity Fund III, LLP*4.9
              
              Warrant
                  Certificate, evidencing 61,775 warrants registered in the name
                  of Pequot
                  Offshore Private Equity Partners III, L.P.*4.10
              
              Warrant
                  Certificate, evidencing 350,580 warrants registered in the name
                  of Pequot
                  Private Equity Fund III, L.P.*4.11
              
              Warrant
                  Certificate, Evidencing 49,420 warrants registered in the name
                  of Pequot
                  Offshore Private Equity Partners III, L.P.*4.12
              
              Form
                  of Series A-3 Warrant Certificate*4.13
              
              Form
                  of Series A-4 Warrant Certificate*4.14
              
              Form
                  of Series A-5 Warrant Certificate*4.15
              
              Warrant
                  Certificate issued to National Electrical Benefit Fund*4.16
              
              Columbia
                  Voting Agreement*4.17
              
              Series
                  A-5 Voting Agreement*10.1
              
              Financing
                  Agreement among the CIT Group/Business Credit, Inc., the Lenders
                  that are
                  parties thereto, MTM Technologies, Inc., and its subsidiaries that
                  are
                  parties thereto, dated as of June 8, 2005*10.2
              
              Loan
                  and Security Agreement among Textron Financial Corporation, MTM
                  Technologies, Inc. MTM Technologies (California) Inc., MTM Technologies
                  (Texas) Inc., MTM Technologies (US), Inc., and Info Systems, Inc.,
                  dated
                  as of June 8, 2005*10.3
              
              Credit
                  Agreement, dated November 23, 2005, among MTM Technologies, Inc.,
                  MTM
                  Technologies (California), Inc., MTM Technologies (Texas), Inc.,
                  MTM
                  Technologies (US), Inc., MTM Technologies (Massachusetts), LLC,
                  and Info
                  Systems, Inc. as borrowers and Columbia Partners, LLC Investment
                  Management as Investment Manager and National Electrical Benefit
                  Fund as
                  Lender*10.4
              
              MTM
                  Technologies, Inc. 2004 Equity Incentive Plan*10.5
              
              Micros-to-Mainframes,
                  Inc. 2002 Long-Term Incentive Plan*10.6
              
              Micros-to-Mainframes,
                  Inc. 2000 Long-Term Incentive Plan*10.7
              
              Micros-to-Mainframes,
                  Inc. 1998 Stock Option Plan*


40
   *Table
              of Contents*





10.8
              
              Micros-to-Mainframes,
                  Inc. 1996 Stock Option Plan*10.9
              
              Micros-to-Mainframes,
                  Inc. Revised 1993 Employee Stock Option Plan*10.10
              
              MTM
                  Technologies, Inc. Associates Stock Purchase Plan*10.11
              
              Employment
                  Agreement, dated June 28, 2006, between MTM Technologies, Inc.
                  and Francis
                  J. Alfano*10.12
              
              Waiver
                  Letter, dated June 26, 2006, between MTM Technologies, Inc., Columbia
                  Partners, LLC Investment Management and the National Electrical
                  Benefit
                  Fund10.13
              
              Employment
                  Agreement, dated October 1, 2004 by and between MTM Technologies,
                  Inc. and
                  Steven Stringer*10.14
              
              Amendment
                  No. 1 to Steve Stringer’s Employment Agreement*10.15
              
              Severance
                  Letter, dated December 12, 2005, between MTM Technologies, Inc.
                  and
                  Michael El-Hillow*10.16
              
              Waiver
                  Letter dated December 9, 2005, by Pequot Private Equity Fund III,
                  L.P.,
                  Pequot Offshore Private Equity Partners III, L.P., Constellation
                  Venture
                  Capital II, L.P., Constellation Venture Capital Offshore II, L.P.,
                  The BSC
                  Employee Fund VI, L.P. and CVC Partners II, LLC*10.17
              
              Lease
                  Agreement, dated August 15, 2005, between 1200 High Ridge Company,
                  LLC and
                  MTM Technologies, Inc. *10.18
              
              Form
                  of Employee Stock Option Agreement*10.19
              
              Form
                  of Executive Stock Option Agreement10.20
              
              Form
                  of Employee Restricted Stock Unit Agreement10.21
              
              Form
                  of Executive Restricted Stock Option Agreement10.22
              
              Consulting Agreement, dated July 7, 2006 between
				MTM Technologies, Inc. and Steven Rothman*10.23
              
              Letter
          Agreement, dated July 7, 2007 between MTM Technologies, Inc. and Steven
          Rothman*
              
			  14.1
              
              Code
                  of ethics*
            
            21.1
              
              Subsidiaries
                  of MTM Technologies, Inc.23.1
              
              Consent
                  from Goldstein Golub Kessler LLP23.2
              
              Consent
                  of UHY LLP31.1
              
              Certification
                  pursuant to Exchange Act Rule 13a-14(a) of Francis J.
                  Alfano31.2
              
              Certification
                  pursuant to Exchange Act Rule 13a-14(a) of Michael
                  El-Hillow32.1
              
              Certification
                  pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Francis
                  J.
                  Alfano32.2
              
              Certification
                  pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Michael
                  El-Hillow




_________


*
        Incorporated by Reference. See Exhibit Index.





**Financial
        Statements and Schedules**





We
        have
        provided in Item 8 to this annual Report on form 10K a complete list of the
        financial statements being filed with this Form 10K. There are no financial
        statement schedules applicable to this Form 10K.


41


---



*Table
            of Contents*





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Shareholders


MTM T ECHNOLOGIES , I NC.




We
      have
      audited the accompanying consolidated balance sheets of MTM Technologies, Inc.
      and Subsidiaries as of March 31, 2006 and 2005, and the related consolidated
      statements of operations, shareholders’ equity and cash flows for each of the
      three years in the period ended March 31, 2006. These financial statements
      are
      the responsibility of the Company’s management. Our responsibility is to express
      an opinion on these financial statements based on our audits.




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




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of MTM Technologies, Inc.
      and
      Subsidiaries as of March 31, 2006 and 2005 and the results of their operations
      and their cash flows for each of the three years in the period ended March
      31,
      2006 in conformity with United States generally accepted accounting
      principles.




As discussed in Note 1, the
	accompanying 2005 consolidated financial statements have been restated.




G OLDSTEIN G OLUB K ESSLER LLP


New
      York,
      New York




June
      6,
      2006





F-1
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


CONSOLIDATED
        BALANCE SHEETS
 *(In
        thousands, except share data)*
  **March
            31,****2006**
        
        **2005****(As
            restated - 
            See Note 1)****ASSETS**Current
            assets:Cash
        
        $
        18,154
        
        $
        4,010Restricted
            cash
        
        
        
        
        
        1,000Accounts
            receivable - trade, net of allowance of $977and $741, respectively
        
        
        48,930
        
        
        34,180Inventories
        
        
        3,762
        
        
        3,408Prepaid
            expenses and other current assets
        
        
        4,740
        
        
        2,360Total
            current assets
        
        
        75,586
        
        
        44,958Property
            and equipment, net
        
        
        15,942
        
        
        5,218Goodwill
        
        
        67,134
        
        
        34,190Identified
            intangible assets, net of amortization
        
        
        6,574
        
        
        6,471Other
            assets
        
        
        1,017
        
        
        332**TOTAL
            ASSETS**
        
        $
        166,253
        
        $
        91,169**LIABILITIES
            AND SHAREHOLDERS’ EQUITY**Current
            liabilities:Secured
            revolving credit facilities
        
        $
        14,916
        
        $
        13,614Inventory
            financing agreements
        
        
        5,641
        
        
        2,930Current
            portion of promissory notes
        
        
        667
        
        
        366Accounts
            payable and accrued expenses
        
        
        37,727
        
        
        21,370Convertible
            subordinated promissory notes
        
        
        
        
        
        13,321Deferred
            revenue
        
        
        5,370
        
        
        4,522Current
            portion of capital lease obligations
        
        
        561
        
        
        185Total
            current liabilities
        
        
        64,882
        
        
        56,308Secured
            promissory note
        
        
        22,947Warrants
            and future rights liability
        
        
        
        
        
        6,335Non-current
            portion of promissory notes
        
        
        
        
        
        667Non-current
            portion of capital lease obligation
        
        
        1,011
        
        
        281Other
            long-term liabilities
        
        
        695Total
            liabilities
        
        
        89,535
        
        
        63,591Shareholders’
            equity:Series
            A preferred stock, $.001 par value; 31,000,000 and 14,000,000 shares
            authorized; 20,024,832 and 9,101,968 shares issued and outstanding
            respectively
        
        
        49,883
        
        
        16,997Common
            stock, $.001 par value; authorized 80,000,000 shares; issued and outstanding
            11,490,537 and 7,376,239 shares, respectively
        
        
        12
        
        
        8Additional
            paid-in capital
        
        
        54,121
        
        
        29,397Accumulated
            deficit
        
        
        (27,298
        )
        
        (18,824
        )Total
            shareholders’ equity
        
        
        76,718
        
        
        27,578**TOTAL
            LIABILITIES AND SHAREHOLDERS’ EQUITY**
        
        $
        166,253
        
        $
        91,169
 
 See
        Notes
        to Consolidated Financial Statements
  F-2
   *Table
            of Contents*




**MTM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**


CONSOLIDATED
        STATEMENTS OF OPERATIONS


*(In
        thousands, except per share data)*




**Years
          Ended March 31,****2006**
      
      **2005**
      
      **2004****(As
          restated - 
          See Note 1)**Net
          revenues:Products
      
      $
      175,851
      
      $
      73,161
      
      $
      38,976Services
      
      
      60,868
      
      
      28,033
      
      
      13,288Total
          net revenue
      
      
      236,719
      
      
      101,194
      
      
      52,264Costs
          and expenses:Cost
          of products sold
      
      
      150,783
      
      
      64,246
      
      
      37,757Cost
          of services provided
      
      
      36,580
      
      
      18,160
      
      
      12,103Selling,
          general and administrative
      
      
      52,164
      
      
      22,708
      
      
      10,025Total
          costs and expenses
      
      
      239,527
      
      
      105,114
      
      
      59,885Loss
          from operations
      
      
      (2,808
      )
      
      (3,920
      )
      
      (7,621
      )Interest
          expense, net of interest income
      
      
      (5,425
      )
      
      (4,686
      )
      
      (488
      )Loss
          before income tax provision
      
      
      (8,233
      )
      
      (8,606
      )
      
      (8,109
      )Provision
          for income taxes
      
      
      241
      
      
      13
      
      
      —Net
          loss
      
      $
      (8,474
      )
      $
      (8,619
      )
      $
      (8,109
      )Net
          loss per common share:Basic
          and Diluted
      
      $
      (0.99
      )
      $
      (1.51
      )
      $
      (1.72
      )Weighted
          average number of common shares outstanding:Basic
          and Diluted
      
      
      8,542
      
      
      5,714
      
      
      4,723




See
      Notes
      to Consolidated Financial Statements





F-3
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENT OF SHAREHOLDERS’ EQUITY


*(In
  thousands)*




**Preferred
                  Stock**
              
              **Common
                  Stock****Number
                  of****Shares**
              
              **Amount**
              
              **Number
                  of****Shares**
              
              **Amount**
              
              **Additional
                  Paid-in****Capital**
              
              **Accumulated****Deficit**
              
              **Total**Balance
                  at March 31, 2003
              
              
              
              
              
              
              
              
              4,723
              
              $
              5
              
              $
              15,333
              
              $
              (2,096
              )
              $
              13,242Issuance
                  of stock options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              31
              
              
              
              
              
              31Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (8,109
              )
              
              (8,109
              )Balance
                  at March 31, 2004
              
              
              
              
              
              
              
              
              4,723
              
              
              5
              
              
              15,364
              
              
              (10,205
              )
              
              5,164Issuance
                  of preferred stock
              
              
              9,102
              
              $
              16,997
              
              
              
              
              
              
              
              
              6,776
              
              
              
              
              
              23,773Exercise
                  of stock options
              
              
              
              
              
              
              
              
              59
              
              
              
              
              
              87
              
              
              
              
              
              87Issuance
                  of common stock in connection with acquisitions
              
              
              
              
              
              
              
              
              2,567
              
              
              3
              
              
              7,115
              
              
              
              
              
              7,118Stock-based
                  compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10
              
              
              
              
              
              10Issuance
                  of common stock for consulting services
              
              
              
              
              
              
              
              
              27
              
              
              
              
              
              45
              
              
              
              
              
              45Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (8,619
              )
              
              (8,619
              )Balance
            at March 31, 2005 (As restated - See Note 1)
              
              
              9,102
              
              
              16,997
              
              
              7,376
              
              
              8
              
              
              29,397
              
              
              (18,824
              )
              
              27,578Issuance
                  of preferred stock
              
              
              5,847
              
              
              16,387
              
              
              
              
              
              
              
              
              2,182
              
              
              
              
              
              18,569Series
                  A notes converted to preferred stock
              
              
              5,076
              
              
              16,499
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              16,499Warrant
                  and future rights liability converted to equity
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,043
              
              
              
              
              
              5,043Warrants
                  issued with secured promissory note
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,240
              
              
              
              
              
              2,240Exercise
                  of stock options
              
              
              
              
              
              
              
              
              121
              
              
              
              
              
              183
              
              
              
              
              
              183Issuance
                  of common stock in connection with acquisitions
              
              
              
              
              
              
              
              
              3,958
              
              
              4
              
              
              14,843
              
              
              
              
              
              14,847Stock-based
                  compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              139
              
              
              
              
              
              139Issuance
                  of common stock to Board
              
              
              
              
              
              
              
              
              36
              
              
              
              
              
              94
              
              
              
              
              
              94Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (8,474
              )
              
              (8,474
              )Balance
                  at March 31, 2006
              
              
              20,025
              
              $
              49,883
              
              
              11,491
              
              $
              12
              
              $
              54,121
              
              $
              (27,298
              )
              $
              76,718





See
      Notes
      to Consolidated Financial Statements





F-4
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENT OF CASH FLOWS


*(In
      thousands)*




**Year
          Ended March 31,****2006**
      
      **2005**
      
      **2004**(As
          restated - 
          See Note 1)CASH
        FLOWS FROM OPERATING ACTIVITIES:Net
          loss
      
      $
      (8,474
      )
      $
      (8,619
      )
      $
      (8,109
      )Adjustments
          to reconcile net loss to net cash used in operating activities:Provision
          for uncollectible accounts
      
      
      (222
      )Depreciation
      
      
      3,573
      
      
      1,731
      
      
      1,636Amortization
          of intangibles
      
      
      2,474
      
      
      827Amortization
          of debt discount
      
      
      3,102
      
      
      3,882Non-cash
          interest on subordinated promissory notes
      
      
      263Non-cash
          stock compensation
      
      
      233
      
      
      11Gain
          in fair value of warrants
      
      
      (1,292
      )
      
      (462
      )Stock
          options issued for services
      
      
      
      
      
      
      
      
      32Changes
          in operating assets and liabilities net of effects of acquisitions:(Increase)decrease
          in assets:Accounts
          receivable
      
      
      (3,283
      )
      
      923
      
      
      2,181Inventories
      
      
      (1,238
      )
      
      (431
      )
      
      482Prepaid
          expenses and other current assets
      
      
      (551
      )
      
      (1,038
      )
      
      368Other
          assets
      
      
      (630
      )
      
      498Increase(decrease)
          in liabilities:
      
      
      
      
      
      
      
      
      (311
      )Accounts
          payable and accrued expenses
      
      
      293
      
      
      (8,316
      )
      
      1,138Deferred
          revenue
      
      
      (445
      )
      
      (1,422
      )
      
      1,584Net
          cash used in operating activities
      
      
      (6,197
      )
      
      (12,416
      )
      
      (999
      )CASH
          FLOWS FROM IN INVESTING ACTIVITIES:Acquisition
          of businesses, net of cash acquired
      
      
      (14,044
      )
      
      (27,857
      )Purchases
          of property and equipment
      
      
      (9,636
      )
      
      (1,624
      )
      
      (649
      )Adjustment
          to purchase price related to acquisition of businesses
      
      
      (2,942
      )Decrease(Increase)
          in restricted cash
      
      
      1,000
      
      
      (1,000
      )Net
          cash used in investing activities
      
      
      (25,622
      )
      
      (30,481
      )
      
      (649
      )CASH
          FLOWS FROM FINANCING ACTIVITIES:Borrowing
          on secured revolving credit facilities
      
      
      540
      
      
      7,695
      
      
      1,153Borrowing
          (repayment) on inventory financing
      
      
      2,712
      
      
      (526
      )
      
      1,123Proceeds
          from issuance of preferred stock, net
      
      
      18,569
      
      
      23,818Proceeds
          from issuance of secured promissory note
      
      
      24,319Proceeds
          from issuance of subordinated promissory notes
      
      
      
      
      
      16,000Common
          stock issued for stock options exercised
      
      
      183
      
      
      87Payments
          on capital lease obligations
      
      
      (318
      )
      
      (87
      )
      
      (376
      )Principal
          payments on promissory note
      
      
      (42
      )
      
      (450
      )Net
          cash provided by financing activities
      
      
      45,963
      
      
      46,537
      
      
      1,900NET
          INCREASE IN CASH
      
      
      14,144
      
      
      3,640
      
      
      252CASH
          AT BEGINNING OF PERIOD
      
      
      4,010
      
      
      370
      
      
      118CASH
          AT END OF PERIOD
      
      $
      18,154
      
      $
      4,010
      
      $
      370Supplemental
          disclosures of cash flow information:Cash
          paid during the year for:Interest
      
      $
      1,443
      
      $
      568
      
      $
      451Income
          taxes
      
      $
      18
      
      $
      0
      
      $
      0Supplemental
          disclosure of non-cash financing activities:Exchange
          of convertible subordinated promissory notes for Series A Preferred
          Stock
      
      $
      16,499Reclassification
          of warrants and future rights liability to additional paid-in capital
      
      $
      5,043Equipment
          acquired by capital lease
      
      $
      1,440Supplemental
          disclosure of non-cash investing activities:Adjustment
          to purchase price of subsidiary consisting of common stock
      
      $
      4,107Common
          stock issued in acquisition
      
      $
      10,740
      
      $
      7,118Non-cash additions to goodwill
      
      $
      15,958
      
      $
      2,166





See
      Notes
      to Consolidated Financial Statements





F-5
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





**NOTE
      1.** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**




***Principles
      of Consolidation and Nature of Operations***




The
      accompanying consolidated financial statements include the accounts of MTM
      Technologies, Inc. and its wholly owned subsidiaries, MTM Technologies (US),
      Inc., Info Systems, Inc. and MTM Technologies (Massachusetts) LLC, collectively
      referred to as (the “Company”). All significant intercompany accounts and
      transactions have been eliminated.





The
      Company is a leading national provider of sophisticated information technology
      solutions services including information technology networking, communications,
      software applications and data center services, including secure access, voice
      over internet protocol, storage, security and messaging solutions. The Company
      serves as a single source provider of advanced technology solutions to support
      its clients’ mission-critical business processes. The Company’s clients consist
      of divisions of Global 2000 corporations, middle market corporations (generally
      those with $50 million to $1 billion in revenues), municipal, state and federal
      government agencies, and educational institutions. The Company serves clients
      in
      most major metropolitan markets in the United States.





The
      Company purchases software, computers and related products directly from
      suppliers as either an authorized dealer or a value-added reseller. The Company
      has entered into authorization agreements with major suppliers, which can be
      terminated by the suppliers, with or without cause, upon short notice, or
      immediately upon the occurrence of certain events. The sales of products from
      the Company’s two largest suppliers accounted for 16% and 15% of all product
      sales for the year ended March 31, 2006. The sales of products from the
      Company’s four largest suppliers accounted for 27%, 14%, 13% and 12% of all
      product sales for the year ended March 31, 2005. The sales from the Company’s
      two largest suppliers accounted for 40% and 23% of all product sales for the
      year ended March 31, 2004. The Company believes that it has excellent
      relationships with its major suppliers; however, there can be no assurance
      that
      the aforementioned agreements will be renewed. If these agreements are not
      renewed, the Company may have difficulty in obtaining inventory at an amount
      to
      allow for profitable resale at a competitive market price.





***Liquidity***




The
  Company sustained net losses during the years ended March 31, 2006, 2005 and
  2004 and at March 31, 2006 had net working capital of $10.7 million. The Company
  has improved its working capital position as a result of cost control initiatives
  and integration efforts, the discontinuation of certain sales of low margin
  products, obtaining new credit facilities, issuing a promissory note and issuing
  equity capital. The Company anticipates that its available cash together with
  its debt financing and credit facilities will provide the Company with the capital
  necessary to meet its obligations as they come due in the foreseeable future.





***Estimates***




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the amount 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. Actual results could differ from those estimates.




***Financial
      Statement Reclassification***





Certain
      amounts in the prior year financial statements have been reclassified to conform
      to the March 31, 2006 presentation. Prior to April 1, 2005, the warrants and
      future rights liability had been shown as a current liability. There was no
      impact on previously reported net loss and cash flows as a result of this
      reclassification. Additionally, certain amounts in the prior year cash flow
      statement have been reclassified to conform to the current year's
      presentation.





***Restricted
      Cash***




At
      March
      31, 2005, the Company had restricted $1.0 million cash in a blocked account
      for
      the benefit of a lender as defined in Note 2.




***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. The Company estimates doubtful accounts based on
      historical





F-6
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





bad
      debts, factors related to specific clients’ ability to pay and current economic
      trends. The Company writes off accounts receivable against the allowance when
      a
      balance is determined to be uncollectible.




***Inventories***




Inventories,
      comprised principally of computer hardware and software, are stated at the
      lower
      of cost or market using the first-in, first-out method.




***Fair
      Value of Financial Instruments***




The
      estimated fair value of amounts reported in the consolidated financial
      statements has been determined by using available market information and
      appropriate valuation methodologies. All current assets are carried at their
      cost and current liabilities are recorded at their contract amount, which
      approximates fair value because of their short term nature. The fair value
      of
      the convertible subordinated promissory notes approximate their principal amount
      due to their short term nature. The fair value of the long term secured
      promissory note and related warrants approximates its contract amount because the transaction was completed close to the end of the year.




***Property
      and Equipment***




Property
      and equipment, which includes assets under capital leases, is stated at cost
      and
      is depreciated using the straight-line method over estimated useful lives,
      generally ranging from three to seven years. Leasehold improvements are
      amortized over the shorter of the lease term or economic life of the related
      improvement. Expenditures which extend the useful lives of the existing assets
      are capitalized. The costs of maintenance and repairs are charged to operations
      as incurred.




The
      Company incurred approximately $3.6 million, $1.7 million and $1.6 million
      of
      depreciation and amortization expense for the years March 31, 2006, 2005 and
      2004, respectively.




The
      following is a summary of property and equipment held by the
      Company:





**March
                31,***(in
                thousands***)**
            
            **2006**
            
            **2005**Furniture,
                fixtures and office equipment
            
            $
            14,069
            
            $
            5,353Capitalized
                lease equipment
            
            
            2,036
            
            
            1,564Software
                and software development costs
            
            
            12,425
            
            
            8,074Leasehold
                Improvements
            
            
            1,921
            
            
            911Vehicles
            
            
            247
            
            
            33230,698
            
            
            16,234Less
                accumulated depreciation and amortization
            
            
            14,756
            
            
            11,016Property
                and equipment, net
            
            $
            15,942
            
            $
            5,218




***Software
      Development Costs***




The
      cost
      of software developed for internal use incurred during the preliminary project
      stage is expensed as incurred. Direct costs incurred during the application
      development stage are capitalized. Costs incurred during the post
      implementation/operation stage are expensed as incurred. Capitalized software
      development costs are amortized on a straight-line basis over their estimated
      useful lives, generally 3 years.




***Goodwill***




Goodwill
  is tested for impairment on an annual basis and more frequently if facts and
  circumstances indicate goodwill carrying values exceed estimated fair values.
  Because the Company has fully integrated the recent acquisitons, it has determined
  that it has only one reporting unit for purposes of testing for goodwill impairment.
  Circumstances that could trigger an impairment test include but are not limited
  to: significant adverse change in the business climate or legal factors; an
  adverse action or assessment by a regulator; unanticipated competition; and
  loss of key personnel. Based on a positive EBITDA during fiscal 2006, the Company
  concluded that there was no impairment of goodwill in the years ended March
  31, 2006, 2005 and 2004.




***Impairment
      of Long- Lived Assets***




The
      Company reviews long-lived assets for impairment whenever events or changes
      in
      circumstances indicate that the carrying amount of a long-lived asset may not
      be
      recoverable. An asset is considered to be impaired when the sum of the
      undiscounted future net cash flows expected to result from the use of the asset
      and its eventual disposition exceeds its





F-7
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





carrying
      amount. The amount of impairment loss, if any, is charged by the Company to
      current operations. For each of the three fiscal years ended March 31, 2006,
      2005 and 2004, no such impairment existed.




***Revenue
      Recognition***




The
  Company recognizes revenue in accordance with Staff Accounting Bulletin No.
  104. The Company recognizes revenue from the sales of hardware when the rights
  and risks of ownership have passed to the client, upon shipment or receipt by
  the client, depending on the terms of the sales contract with the client. Revenue
  from the 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 of the terms and
  conditions of the client contract. Service contracts generally do not extend
  over one year, and are recognized when persuasive evidence of an arrangement
  exists, the sales price is fixed and determinable, and collection of the resulting
  receivables is reasonably assured. Revenue is recognized as services are performed
  or over the contracted period, as specified in the agreement. For arrangements
  with multiple deliverables, delivered items are accounted for separately, provided
  that the delivered item has value to the client 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.




The
      Company periodically receives discretionary cost reimbursements from suppliers.
      These reimbursements are accounted for as reductions to the cost of sales
      products.




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




***Per
      Share Data***




Basic
      net
      loss per share is calculated using the weighted-average number of common shares
      outstanding during the period. Diluted net income per share is calculated using
      the weighted-average number of common shares plus dilutive potential common
      shares outstanding during the period. Dilutive securities, which are convertible
      into 26.9 million, 23.0 million and 0.9 million common shares as of March 31,
      2006, 2005 and 2004, respectively, have not been included in the
      weighted-average shares used for the calculation of earnings per share for
      the
      years then ended since the effect of such securities would be
      anti-dilutive.




***Accounting
      for Stock-Based Compensation***




The
      Company maintains several stock equity incentive plans under which incentive
      stock options and non-qualified stock options may be granted to employees,
      consultants, and non-employee directors. The Company has elected, in accordance
      with the provisions of Statement of Financial Accounting Standards (‘SFAS”) No.
      123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS
      No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,”
to apply the current accounting rules under Accounting Principles Board Opinion
      No. 25, “Accounting for Stock Issued to Employees”, and related interpretations
      in accounting for employee stock options and, accordingly, has presented the
      disclosure-only information as required by SFAS 123. If the Company had elected
      to recognize compensation cost based on the estimated fair value of the options
      granted at the grant date, as prescribed by SFAS 123, the Company’s net loss and
      loss per common share for the years ended March 31, 2006, 2005 and 2004 would
      have been the pro forma amounts indicated below:




**Years
          Ended March 31,***(in
          thousands, except per share data)*
      
      **2006**
      
      **2005**
      
      **2004****(as
          restated 
          - See Note 1)**Net
          loss - as reported
      
      $
      (8,474
      )
      $
      (8,619
      )
      $
      (8,109
      )Deduct:
          Total stock-based compensation expense using the fair value method for
          all awards
      
      
      (2,944
      )
      
      (1,564
      )
      
      (176
      )Net
          loss - pro forma
      
      
      (11,418
      )
      
      (10,183
      )
      
      (8,285
      )Basic
          and diluted net loss per common share - as reported
      
      $
      (.99
      )
      $
      (1.51
      )
      $
      (1.72
      )Basic
          and diluted net loss per common share - pro forma
      
      $
      (1.34
      )
      $
      (1.78
      )
      $
      (1.75
      )





Pro
      forma
      information regarding net loss and loss per share is required by SFAS 123,
      and
      has been determined as if the Company accounted for its employee stock options
      under the fair value method of the statement. The fair value of these stock
      options was estimated at the date of grant using a Black-Scholes option pricing
      model (“Black Scholes”) with the following weighted-average assumptions for the
      years ended March 31, 2006, 2005, and 2004: risk-free interest rate of
      5.0%,





F-8
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





4.1%,
      and
      3% - 4%, respectively: no dividend yield; a volatility factor of the expected
      market price of the Company’s common stock of 100%, 113% and 100%, respectively;
      and an expected life of 4.0 years..




Black-Scholes
      was developed for use in estimating the fair value of publicly traded options
      which have no vesting restrictions and are fully transferable. In addition,
      Black-Scholes requires the input of highly subjective assumptions including
      the
      expected stock price volatility. In management’s opinion, the Company’s employee
      stock options have characteristics significantly different from those of
      publicly traded options, and changes in the subjective input assumptions can
      materially affect the fair value estimate.





***Income
      Taxes***




Deferred
      income taxes are provided, using the asset and liability method, for temporary
      differences between financial and tax reporting purposes which arise principally
      from the deduction related to the allowances for doubtful accounts, certain
      capitalized software costs, the basis of inventory and differences arising
      from
      book versus tax depreciation methods.






***Concentrations
      of Credit Risk***




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




The
      Company does not have any client at March 31, 2006 or 2005 which accounts for
      more than 10% of its total accounts receivable.




Credit
      is
      extended to clients 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.




***Intangible
      Assets***




The
      company recorded intangible assets which related to the acquisitions of the
      assets of DataVox Technologies, Inc., Network Catalyst, Inc., Vector ESP, Inc.
      and Vector ESP Management, Inc. and the capital stock of Info Systems, Inc.
      and
      Nexl, Inc.




Intangibles
      consist of the following (in thousands):




**March
                31****2006**
            
            **2005****Gross
                Amount**
            
            **Accumulated
                Amortization**
            
            **Gross
                Amount**
            
            **Accumulated
                Amortization**Client
                relationships
            
            $
            8,915
            
            $
            3,043
            
            $
            6,588
            
            $
            768Know-how
            
            
            710
            
            
            237
            
            
            710
            
            
            59Non-compete
                agreements
            
            
            250
            
            
            21
            
            
            0
            
            
            0Total
            
            $
            9,875
            
            $
            3,301
            
            $
            7,298
            
            $
            827




The
      intangibles are being amortized over periods of up to 5 years.




Amortization
      expense amounted to $2.5 million and $0.8 million for the years ended March
      31,
      2006 and 2005. Estimated amortization expense for the next five years is as
      follows (in thousands):




Year
                ending March 31,2007
            
            $
            2,7652008
            
            
            2,0262009
            
            
            9392010
            
            
            5062011
            
            
            338




***Recently
      Issued Accounting Pronouncements***




In
      December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS
      123R”), a revision of SFAS 123. SFAS 123R will require the Company to, among
      other things, measure all employee stock-based compensation awards





F-9
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





using
      a
      fair value method and record such expense in the Company’s consolidated
      financial statements. The pro forma disclosures previously permitted under
      SFAS
      123 no longer will be an alternative to financial statement recognition. The
      provisions of SFAS 123R, as amended by SEC Staff Accounting Bulletin No. 107,
      “Share-Based Payment,” are effective no later than the beginning of the next
      fiscal year that begins after June 15, 2005. The Company is required to adopt
      the provisions of SFAS 123R in the quarter ending June 30, 2006. The adoption
      of
      SFAS 123R will reduce the Company’s future net earnings. Management continues to
      evaluate the impacts of SFAS 123R and related interpretations to quantify the
      expected financial impacts.





In
      November 2004, the FASB issued Statement No. 151, “Inventory Costs, an amendment
      of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 clarifies that abnormal
      inventory costs such as costs of idle facilities, excess freight and handling
      costs, and wasted materials (spoilage) are required to be recognized as current
      period charges. The provisions of SFAS 151 are effective for fiscal years
      beginning after June 15, 2005. The adoption of SFAS 151 in fiscal 2007, which
      begins April 1, 2006, is not expected to have a significant impact on the
      Company’s consolidated balance sheet or statement of operations.





Management
      does not believe any other recently issued, but not yet effective, accounting
      standards if currently adopted would have a material effect on the accompanying
      consolidated financial statements.




***Restatement of Prior Financial Statements***





The
  Company has restated its operating results for fiscal year 2005 for the manner
  in which it accounted for certain acquisition related costs. As disclosed in
  prior SEC filings, the Company considered all transition related compensation
  expense for acquired company employees planned to be separated after acquisition
  to be additional acquisition cost and accordingly an increase in goodwill. The
  Company has adjusted its reported results to reflect only the expense specifically
  identified as severance for acquired company terminated employees as additional
  acquisition cost and reclassified the remaining related compensation costs to
  operating expense. The information below reflects the restatement.




|                                    |  | Year Ended March 31, 2005
|----------------------------------- |  | -------------------------
|                                    |  | As Reported              
|Statement of Operations             |  |                          
|Selling, general and administrative |  | $                        
|Total cost and expenses             |  |                          
|Loss from operations                |  |                          
|Loss before income tax provision    |  |                          
|Net loss                            |  |                          
|Net loss per common share           |  | $                        
|                                    |  |                          



|                                                          |  | Year Ended March 31, 2005
|--------------------------------------------------------- |  | -------------------------
|                                                          |  | As Reported              
|Cash Flow Statement                                       |  |                          
|Net loss                                                  |  | $                        
|Net cash used in operating activities                     |  |                          
|Acquisitions
        of businesses - net of cash acquired |  |                          
|Net cash used in investing activities                     |  | $                        
|                                                          |  |                          



|                                           |  | March 31, 2005
|------------------------------------------ |  | --------------
|                                           |  | As Reported   
|Balance sheet                              |  |               
|Goodwill                                   |  | $             
|Total assets                               |  |               
|Accounts payable and accrued expenses      |  |               
|Total current liabilities                  |  |               
|Total liabilities                          |  |               
|Accumulated deficit                        |  |               
|Total shareholders' equity                 |  |               
|Total liabilities and shareholders' equity |  | $             
|                                           |  |               




(1)
  The company reclassified $6,335 of warrants and future rights liabilities to
  long-term liabilities to reflect that such amounts were converting to equity





For
  the reasons noted above, the Company will also restate the second, third and
  fourth quarters of fiscal year 2005 and the first, second and third quarters
  of fiscal year 2006. As a result of the restatement, the net loss for the second
  and fourth quarters of fiscal 2005 will increase by $0.01 and $0.12 per share,
  respectively. The change in net loss in the third quarter will not impact the
  loss per share. Net loss for the first, second and third quarters of fiscal
  2006 will increase by $0.07, $0.10 and $0.02 per share, respectively.




**NOTE
      2.** **CREDIT
      FACILITIES**




On
      May
      21, 2004, the Company and its subsidiaries entered into an Amended and Restated
      Financing Facility (the “Old Textron Facility”) with Textron Financial
      Corporation (“Textron”). The Old Textron Facility provided for an initial credit
      facility of up to $15 million and was secured by all of the Company’s assets,
      except for permitted encumbrances.





On
      June
      8, 2005, the Company entered into a secured revolving credit facility (the
“CIT
      Facility”) with CIT Group/Business Credit Inc. (“CIT”) and a new Amended and
      Restated Loan and Security Agreement (the “New Textron Facility”) which provide
      a combined availability of $40 million.





The
      CIT
      Facility is a three year revolving credit facility for up to $25 million,
      subject to a borrowing base consisting of eligible accounts receivable, eligible
      in-transit inventory (up to $0.5 million) and eligible finished goods inventory
      (up to $0.5 million). The amounts available to the company from CIT are also
      reduced by amounts borrowed under the Textron Facility if the CIT borrowing
      base, as defined, is $25 million or less. The CIT Facility requires, among
      other
      things, that the Company maintain certain financial covenants including that
      the
      Company maintain Consolidated Senior Leverage of not greater than 4.00 to 1.00
      for the trailing four quarters and that the Company maintain a Consolidated
      Fixed Charge Coverage Ratio of not less than 1.00 to 1.00 for the trailing
      four
      quarters. It also restricts the Company’s ability to incur certain additional
      indebtedness, and contains various customary provisions, including affirmative
      and negative covenants, representations and warranties and events of default.
      Amounts borrowed under the CIT Facility bear interest at either the prime rate
      or at LIBOR plus 3%, in each case at the Company’s option.





The
      New
      Textron Facility allows the Company to finance inventory purchases up to $15
      million from approved vendors on a 45-day interest-free basis in most cases.
      Interest accrues after expiration of the applicable interest free period at
      the
      rate equal to a specified prime rate plus 4%. The financial and other covenants
      in the New Textron Facility are substantially the same as those in the CIT
      Facility.





As
      of
      March 31, 2006, the Company did not meet one of the covenants prescribed under
      the CIT Facility and the New Textron Facility; however, the Company received
      waiver letters from CIT and Textron.





The
      Company’s outstanding debt under its secured revolving credit facilities was
      approximately $14.9 million as of March 31, 2006 and $13.6 million at March
      31,
      2005, respectively. The amount outstanding under the Company’s inventory
      financing agreements was approximately $5.6 million as of March 31, 2006 and
      $2.9 million at March 31, 2005, respectively.





F-10
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS







**NOTE
      3** **.
      SHAREHOLDERS’ EQUITY**




***Preferred
      Stock***




As
      of
      March 31, 2006, the Company had authorized 40.0 million shares of preferred
      stock, 31.0 million of which are designated Series A Preferred Stock, par value
      $.001 per share and 9.0 million of which are “blank check” preferred stock, par
      value $.001 per share. As of March 31, 2006, there were 20.0 million shares of
      Series A Preferred Stock issued. As of March 31, 2005, the Company had
      authorized 20 million shares of preferred stock, 14 million of which are
      designated Series A Preferred Stock, par value $.001 per share and 6 million
      of
      which are “blank check” preferred stock, par value $.001 per share. As of March
      31, 2005 there were 9.1 million shares of Series A Preferred Stock issued.
      See
      Note 10 for a discussion of the issuance of Series A Preferred Stock.




***Stock
      Options***




The
      1993
      Employee Stock Option Plan (the “1993 Plan”) was adopted by the Company in May
      1993; the 1996 Stock Option Plan (the “1996 Plan”) was approved by the
      shareholders of the Company on August 20, 1996; and the 1998 Stock Option Plan
      (the “1998 Plan”) was approved by the shareholders of the Company on October 16,
      1998. The 2000 Employee Stock Option Plan (the “2000 Plan”) was adopted by the
      Company in September 2000. The 2002 Long-Term Performance Plan (the “2002 Plan”)
      was approved by the shareholders of the Company on November 8, 2002. The 2004
      Equity Incentive Plan (the “2004 Plan”) was approved by the shareholders of the
      Company on May 21, 2004 and amendments to the 2004 Plan was approved by the
      shareholders of the Company on November 19, 2004 and November 9,
      2005.




The
  plans provide for granting of options, including incentive stock options, nonqualified
  stock options and stock appreciation rights to qualified employees, outside
  directors, independent contractors, consultants and other individuals, to purchase
  up to an aggregate of 250,000, 350,000, 250,000, 350,000, 250,000 and 4,000,000
  shares of the Company’s common stock under the 1993 Plan, the 1996 Plan,
  the 1998 Plan, the 2000 Plan, the 2002 Plan and the 2004 Plan, respectively.
  The exercise price of options generally may not be less than 100% of the fair
  market value of the Company’s common stock at the date of grant. Options
  may not be exercised more than 10 years after the date of grant. Options granted
  under the plans become exercisable in accordance with different vesting schedules
  determined at the time of grant. Currently, the Company has no stock appreciation
  rights outstanding.




A
      summary
      of the status of the Company’s options as of March 31, 2006, 2005 and 2004, and
      changes during the years then ended, is presented below (in
      thousands):




**2006**
            
            **2005**
            
            **2004****Number
                of Shares**
            
            **Weighted-Average
                Exercise Price**
            
            **Number
                of Shares**
            
            **Weighted-Average
                Exercise Price**
            
            **Number
                of Shares**
            
            **Weighted-Average
                Exercise Price**Outstanding
                at beginning of year
            
            
            2,952
            
            $
            2.93
            
            
            983
            
            $
            2.19
            
            
            887
            
            $
            2.21Canceled/Expired
            
            
            (336
            )
            
            4.18
            
            
            (116
            )
            
            3.22
            
            
            (27
            )
            
            1.19Granted
            
            
            974
            
            
            4.13
            
            
            2,144
            
            
            2.90
            
            
            123
            
            
            1.19Exercised
            
            
            (121
            )
            
            1.84
            
            
            (59
            )
            
            1.48
            
            
            —
            
            
            —Outstanding
                at end of year
            
            
            3,469
            
            $
            3.21
            
            
            2,952
            
            $
            2.93
            
            
            983
            
            $
            2.19




The weighted-average contractual life of the total options outstanding at March 31, 2006 was 7.4 years.




There
  were approximately 1.4, 1.0 and 1.0 million options exercisable at March 31,
  2006, 2005 and 2004, respectively. The exercise price of options outstanding
  as of March 31, 2006 ranged from $0.75 to $5.22. The weighted-average exercise
  price of the total options exercisable at March 31, 2006 was $2.42.




The
      2004
      Plan allows for the issuance of restricted stock units which typically vest
      over
      four years. For the years ended March 31, 2006 and 2005, the Company granted
      410,000 and 58,000 restricted stock units. For the years ended March 31, 2006
      and 2005, the value of these restricted stock units was $200,000 and $15,000
      and
      was charged to operations. At March 31, 2006 and 2005, the Company had 424,000
      and 58,000 restricted stock units outstanding, respectively.





F-11
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





**NOTE
      4.** **ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES**




Accounts
      payable and accrued expenses consist of the following (in
      thousands):




**March
          31,****2006**
      
      **2005****(as restated-
            See Note 1)**Trade
          accounts payable
      
      $
      28,131
      
      $
      15,455Acquisition
          related costs
      
      
      2,732
      
      
      352Compensation
          related costs
      
      
      2,925
      
      
      4,783Accrued
          other
      
      
      3,939
      
      
      780$
      37,727
      
      $
      21,370





**NOTE**  **5.** **INCOME
      TAXES**




The
      asset
      and liability method is used in accounting for income taxes. Under this method,
      deferred tax assets and liabilities are determined based on differences between
      financial reporting and tax bases of assets and liabilities and are measured
      using the enacted tax rates and laws that will be in effect when the differences
      are expected to reverse.




The
      provision (benefit) for income taxes consists of the following (in thousands):




**Year
                  Ended March 31,****2006**
            
            **2005**
            
            **2004**Federal:Current
            
            $
            —
            
            $
            —
            
            $
            —Deferred
            
            
            —
            
            
            —
            
            
            ——
            
            
            —
            
            
            —State:Current
            
            
            241
            
            
            13
            
            
            —Deferred
            
            
            —
            
            
            —
            
            
            —$
            241
            
            $
            13
            
            $
            —




The
      reconciliations of income tax provision (benefit) computed at the federal
      statutory tax rates to actual income tax provision (benefit) are as
      follows (in thousands):




**Year
          Ended March 31,****2006**
      
      **2005**
      
      **2004**Tax
          expense at statutory rates applied to pretax earnings
      
      $
      (2,799
      )
      $
      (2,926
      )
      $
      (2,757
      )State
          income taxes, net of federal benefit
      
      
      241
      
      
      (391
      )
      
      (405
      )Changes
          in valuation allowance
      
      
      2,539
      
      
      3,075
      
      
      3,150Other
          items
      
      
      260
      
      
      255
      
      
      12$
      241
      
      $
      13
      
      $
      0


The
      tax
      effects of temporary differences that give rise to the net short-term deferred
      income tax asset at March 31, 2006 and 2005 are presented below (in thousands):




**March
                31,****2006**
            
            **2005**Reserve
                for bad debts
            
            $
            303
            
            $
            302Inventory
            
            
            240
            
            
            87Accrued
                compensation
            
            
            366Valuation
                allowance
            
            
            (909
            )
            
            (389
            )Total
                short-term deferred income tax asset
            
            $
            0
            
            $
            0





F-12
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





The
      tax
      effects of temporary differences that give rise to the net long-term deferred
      income tax asset (liability) are presented below (in thousands):




**March
                31,****2006**
            
            **2005**Property
                and Equipment, net
            
            $
            (1,151
            )
            $
            (477
            )Goodwill
            
            
            (871
            )
            
            (234
            )Other
            
            
            43
            
            
            77Net
                operating loss
            
            
            9,134
            
            
            6,612Research
                and development credit
            
            
            190
            
            
            190Valuation
                allowance
            
            
            (7,345
            )
            
            (6,168
            )Net
                long-term deferred income liability
            
            $
            0
            
            $
            0




The
  Company has net operating loss carry forwards of approximately $25 million to
  offset taxable income through the year 2026. Realization of the benefit
  of the carry forward losses depends on earning sufficient taxable income before
  expiration of loss carry forwards. The utilization of the net operating loss
  carry forwards may also be limited as a result of ownership changes. At March
  31, 2006 and 2005, the Company has established a valuation allowance that offsets
  the deferred tax assets.




**NOTE
      6.** **COMMITMENTS
      AND CONTINGENCIES**




**Lease
      Commitments**




The
      Company leases 25 locations for its administrative and operational functions
      under operating leases expiring at various dates through 2016. Certain leases
      are subject to escalation based on the Company’s share of increases in operating
      expenses for the locations. In addition, the Company leases equipment, software
      and vehicles used in operations under both operating and capital
      leases.





Future
  annual minimum lease payments including estimated escalation amounts under non-cancelable
  operating and capital leases as of March 31, 2006 are as follows (in thousands):





Year
                Ending March 31,
            
            Total
            
            Operating
            
            Capital2007
            
            
            3,877
            
            
            3,213
            
            
            6642008
            
            
            3,598
            
            
            2,997
            
            
            6012009
            
            
            3,082
            
            
            2,710
            
            
            3722010
            
            
            2,571
            
            
            2,457
            
            
            1142011
            
            
            1,821
            
            
            1,815
            
            
            6Thereafter
            
            
            4,719
            
            
            4,719
            
            
            0$
            19,668
            
            $
            17,911
            
            $
            1,757




Rental
  expense for operating leases including amounts from non-cancelable leases approximated
  $2.6 million, $1.1 million and $0.7 million for the years ended March 31, 2006,
  2005 and 2004, respectively. Future annual minimum capital lease payments include
  $0.2 million of interest expense.




***Employment
      Agreements***




The
      Company has entered into employment agreements, which require the following
      payments (in thousands):




Year
                ending March 31,2007
            
            $
            2,5092008
            
            
            352$
            2,861





In
      addition, certain other agreements provide for bonus compensation based on
      certain performance goals.




***Litigation***





F-13
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





The
      Company is involved in various claims and legal actions arising in the ordinary
      course of business. Management is of the opinion that the ultimate outcome
      of
      these matters would not have a material adverse impact on the financial position
      of the Company or the results of its operations.




**7.
      Employee Savings Plan**





As
      a
      result of its acquisitions, the Company has 3 employee savings plans which
      qualify under Section 401-K of the Internal Revenue Code with essentially the
      same terms on eligibility and deferral amounts. One plan requires a match,
      while
      matches for the other plans are discretionary.





The
      Company contributed $311,000, $26,000 and $29,000 to the plans for the years
      ended March 31, 2006, 2005 and 2004, respectively.





**8.
      Allowance for Doubtful Accounts**




Information
      relating to the allowance for doubtful accounts is as follows:




**Beginning
                of Year**
            
            **Additions(a)**
            
            **Deductions(b)**
            
            **End
          of Year**Year
                ended March 31,2004
            
            $
            873
            
            $
            
            
            $
            640
            
            $
            2332005
            
            
            233
            
            
            615
            
            
            107
            
            
            7412006
            
            
            741
            
            
            788
            
            
            552
            
            
            977




______________




(a)
            Includes
          bad debt provisions and allowance assumed through acquisitions




(b)
            Includes
                write-offs for uncollectible accounts receivables and net changes
                to
                allowance estimates




**9.
      Acquisitions**




Beginning
      in fiscal 2005, the Company has completed the following
      acquisitions:




On
  July 2, 2004, the Company acquired the assets and business operations of DataVox
  Technologies, Inc. (“DataVox”), a Cisco AVVID (Architecture for
  Voice, Video and Integrated Data) authorized partner, offering advanced technology
  solutions, including IP telephony, security, storage, networking and wireless
  technology solutions, as well as network facilities engineering and data center
  technology consulting services. The results of operations are included in the
  Company’s financial results as of July 2, 2004. The purchase price of
  DataVox was initially recorded as $2.1 million and was allocated to specific
  assets acquired and liabilities assumed. The purchase price was paid in the
  form of cash in amount of $0.7 million, promissory notes in the amount of $0.2
  million, 753,012 shares (at $1.58 per share, or $1.2 million total), plus transaction
  costs of $0.1 million. For the years ended March 31, 2006 and 2005, the Company
  issued 12,122 and 34,504 shares of common stock as payment for the promissory
  notes issued at acquisition.




The
      following table summarizes the estimated fair values of the assets acquired
      and
      the liabilities assumed at the date of acquisition. The Company performed a
      valuation of certain intangible assets and allocated a portion of the purchase
      price to Client Relationships.





Current
                assets
            
            $
            1,023Property,
                plant and equipment
            
            
            187Intangible
                assets
            
            
            265Other
                non-current assets
            
            
            57Total
                assets acquired
            
            
            1,532Current
                liabilities
            
            
            (822
            )Long-term
                debt
            
            
            (205
            )Net
                assets acquired
            
            $
            505


F-14
   *Table
            of Contents*




**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




On
  September 17, 2004, the Company acquired the assets and business operations
  of Network Catalyst Inc. (“Network Catalyst”). Network Catalyst
  provided advanced technology solutions in the VOIP (Voice Over Internet Protocol),
  infrastructure and security fields to clients located throughout the Southern
  California region. Network Catalyst was acquired to improve the geographical
  presence and deepen the technical capabilities of the Company. The results of
  operations are included in the Company’s financials results beginning
  September 18, 2004. The purchase price of the Network Catalyst acquisition was
  initially recorded as $4.8 million and was allocated to the specific assets
  acquired and liabilities assumed. The purchase price was paid in the form of
  cash in the amount of $4.0 million, 500,000 shares (at $1.60 per share, or $0.8
  million total) of the Company’s common stock, plus transaction costs of
  $0.3 million. As part of the purchase price, the Company agreed to pay to the
  former shareholders of Network Catalyst additional cash amounts as well as transfer
  to the former shareholders of Network Catalyst additional shares of common stock
  on the achievement of certain financial targets. More particularly, in the event
  that as of the end of any fiscal quarter, the earnings before interest, taxes,
  depreciation and amortization (“EBITDA”) attributable to the acquired
  business during the period beginning October 1, 2004 and ending on September
  30, 2005 (the “Network Catalyst Earnout Period”) equals or exceeds
  $2.0 million then the Company was required to (x) pay to the former shareholders
  of Network Catalyst $1.0 million in cash, and (y) issue to the former shareholders
  of Network Catalyst that number of shares of common stock determined by dividing
  $0.2 million by the greater of (A) the average trading price of the common stock
  for the 20 business days ending immediately preceding the end of the Network
  Catalyst Earnout Period and (B) $2.15. The certain financial targets were achieved
  and in July 2005 the Company paid $1.0 million in cash and 67,416 shares of
  common stock. Related to this earnout achievement, the Company adjusted goodwill
  by $1.2 million.




The
      following table summarizes the estimated fair values of the assets acquired
      and
      liabilities assumed at the date of acquisition. The Company obtained a third
      party valuation estimate of certain intangible assets and allocated a portion
      of
      the purchase price to Client Relationships.




Current
                assets
            
            $
            7,806Property,
                plant and equipment
            
            
            253Intangible
                assets
            
            
            1,779Other
                non-current assets
            
            
            61Total
                assets acquired
            
            
            9,899Current
                liabilities
            
            
            (9,395
            )Long-term
                debt
            
            
            (48
            )Net
                assets acquired
            
            $
            456




On
      December 10, 2004, the Company acquired the assets and business operations
      of
      Vector ESP, Inc. and Vector ESP Management, Inc. (collectively, “Vector”).
      Vector provided advanced technology solutions in application delivery and
      deployment, network infrastructure, messaging and collaboration, remote office
      connectivity and workforce mobility products and services. Vector was acquired
      to improve the geographical presence and deepen the technical capabilities
      of
      the Company. The results of operations are included in the Company’s financial
      results beginning December 1, 2004. The purchase price of the Vector acquisition
      was initially recorded as $19.8 million and was allocated to the specific assets
      acquired and liabilities assumed. The purchase price was paid in the form of
      cash in the amount of $16.8 million, promissory notes in the amount of $0.7
      million, and 433,840 shares (at $5.22 per share or $2.3 million total) of the
      Company’s common stock, plus transaction costs of $0.7 million. As part of the
      Vector purchase price, the Company agreed to issue to Vector Global Services,
      Inc. (the “Vector Shareholder”) additional shares of common stock on the
      achievement of certain financial targets. More particularly, if the EBITDA
      attributable to the acquired business during the period beginning on January
      1,
      2005 and ending on the date one year thereafter (the “Vector Earnout Period”)
      equals or exceeds $3.0 million, then, as additional consideration the Company
      would issue to the Vector Shareholder the number of shares of common stock
      determined by (x) dividing $3.0 million by the greater of (A) the weighted
      average trading price of the Company’s common stock for the 10 business days
      immediately preceding the end of the Vector Earnout Period and (B) $2.75 and
      (y)
      multiplying such amount by a fraction, the numerator of which shall equal the
      EBITDA of the acquired business for the year ending on the last day of the
      Vector Earnout Period and the denominator of which shall equal $3.5 million
      (the
“Vector Earnout Consideration”);





F-15
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





provided,
  however, that the value of the Vector Earnout Consideration was subject to certain
  contractual limitations. The certain financial targets were achieved and in
  the fourth quarter of fiscal year 2006 the Company issued 731,587 shares to
  the Vector Shareholders. Related to these earnout achievements, the Company
  adjusted goodwill by $3.6 million.




The
      following table summarizes the estimated fair values of the assets acquired
      and
      liabilities assumed at the date of acquisition (in thousands). The Company
      obtained a third party valuation of certain intangible assets and allocated
      a
      portion of the purchase price to Client Relationships and Know-How.




Current
                assets
            
            $
            8,404Property,
                plant and equipment
            
            
            799Intangible
                assets
            
            
            3,880Other
                non-current assets
            
            
            70Total
                assets acquired
            
            
            13,153Current
                liabilities
            
            
            (11,188
            )Long-term
                debt
            
            
            (8
            )Net
                assets acquired
            
            $
            1,957




On
      March
      11, 2005, the Company acquired all of the stock of Info Systems, Inc. (“Info
      Systems). Info Systems conducted an information technology business and certain
      management and consulting businesses consisting of providing connectivity
      (network infrastructure), server architecture (applications, directory and
      computing infrastructure), convergence (legacy and VOIP, security (assessment,
      policy design) and storage (SAN, data migration) solutions, as well as
      telecommunications and structured cabling services, outsourced information
      technology (IT), staff augmentation and remote network monitoring, management
      and support services through its Network Operations Center. Info Systems was
      acquired to improve the geographical presence and deepen the technical
      capabilities of the Company. The results of operations are included in the
      company’s financial results beginning March 1, 2005. The aggregate purchase
      price for the stock of Info Systems initially was recorded as $11.1 million,
      and
      consisted of $8.3 million in cash, an aggregate of 868,150 shares (at $3.25
      per
      share or $2.8 million total) of the Company’s common stock, plus transaction
      costs of $0.4 million. The Earnout Consideration was as follows: if the EBITDA
      attributable to the Business during the six months following March 11, 2005
      (the
“Earnout Period”) equals or exceeds $0.6 million, then the Company at its
      option, either (i) pays $0.5 million in cash to the shareholders of Info
      Systems, or (ii) issues to the shareholders of Info Systems, the number of
      shares of the Company’s common stock determined by dividing $0.5 million by the
      greater of (A) the average NASDAQ closing price of the common stock for the
      10
      business days ending immediately prior to the end of the Earnout Period and
      (B)
      $2.75 (the amounts payable to the shareholders of Info Systems pursuant to
      this
      paragraph, the “Initial Earnout Consideration”). For each $1.00 of the EBITDA
      attributable to the acquired business during the Earnout Period in excess of
      $0.6 million, the Company shall, at its option, either (i) pay to the
      shareholders of Info Systems cash in an amount equal to 30% of such excess,
      or,
      (ii) issue to the shareholders of Info Systems the number of shares of common
      stock determined by dividing 30% of such excess by the greater of (x) the
      average NASDAQ closing price of common stock for the 10 business days ending
      immediately prior to the end of the Earnout Period and (y) $2.75, (the amounts
      payable to the shareholders of Info Systems pursuant to Section 3.2(b) of the
      stock purchase agreement), the “Additional Earnout Consideration” and together
      with the Initial Earnout Consideration, the “Earnout Consideration”); provided,
      however, that in no event shall the value of the Additional Earnout
      Consideration exceed $0.2 million. The EBITDA target was achieved and in the
      fourth quarter of fiscal year 2006 the Company paid $0.3 million in cash and
      124,109 shares of common stock. Related to this earnout achievement, the Company
      adjusted goodwill by $1.7 million.




The
      following table summarizes the estimated fair values of the assets acquired
      and
      liabilities assumed at the date of acquisition (in thousands). The Company
      obtained a third party valuation of certain intangible assets and allocated
      a
      portion of the purchase price to Client Relationships.





Current
                assets
            
            $
            10,902Property,
                plant and equipment
            
            
            973Intangible
                assets
            
            
            1,374Other
                non-current assets
            
            
            20




F-16


---



*Table
          of Contents*




**MTM
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS


Total
                assets acquired
            
            
            13,269Current
                liabilities
            
            
            (9,650
            )Long-term
                debt
            
            
            (542
            )Net
                assets acquired
            
            $
            3,077




On
  December 1, 2005, the Company acquired all of the outstanding stock of Nexl,
  Inc. (“Nexl”), a Massachusetts corporation. Nexl provided complete
  infrastructure computing in the areas of enterprise computing and storage, networking
  and security and managed services. Nexl’s practice and service areas included
  enterprise storage, network infrastructure, security, IP telephony, and managed
  services. The results of operations are included in the Company’s financial
  results beginning December 1, 2005. The aggregate purchase price for the Nexl
  acquisition was $24.0 million consisting of $13.3 million in cash and 2,999,998
  shares (at $3.58 per share or $10.7 million) of MTM stock , plus transaction
  costs of approximately $1.0. Goodwill related to the purchase was recorded at
  approximately $25 million, including expected costs related to employee severance,
  facilities consolidation and asset valuations. As part of the consideration
  paid, the shareholders of Nexl may receive an additional payout of $1.0 million
  in cash and $1.0 in common shares, not to exceed 250,000 shares upon the achievement
  of certain EBITDA targets for the twelve months ending December 31, 2006. The
  Company plans to exit or consolidate certain Nexl facilities and to reduce employees
  accordingly, and finalize the determination of the fair value of assets and
  liabilities.





The
  following table summarizes the estimated fair values of the assets acquired
  and liabilities assumed at the date of acquisition (in thousands). The Company
  obtained a preliminary third party valuation of certain tangible and intangible
  assets and allocated a portion of the purchase price to Client Relationships
  and Non-compete agreements (in thousands).




Current
                assets
            
            $
            12,599Property,
                plant and equipment
            
            
            2,704Intangible
                assets
            
            
            2,577Other
                non-current assets
            
            
            54Total
                assets acquired
            
            
            17,934Current
                liabilities
            
            
            (15,476
            )Net
                assets acquired
            
            $
            2,458





On
    April 20, 2006, the Company purchased the operating assets of Axcent Solutions,
    Inc. (“Axcent”), a provider of access, infrastructure and availability
    solutions based in the southern California area. The aggregate purchase price
    for Axcent was approximately $680,000, consisting of $450,000 in cash and
    62,500 shares of stock (at $3.71 per share or $231,875). The change in goodwill during the year ended March 31, 2006
    was as follows (in thousands):


Balance
          at March 31, 2005
      
      
      34,190Purchase
          of Nexl
      
      
      24,759Earn
          out paymentsNetwork
          Catalyst
      
      
      1,197Vector
      
      
      3,608Infosys
      
      
      1,692Other
      
      
      1,688Balance
        at March 31, 2006
      
      
      67,134


F-17
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





**Unaudited
      Pro Forma Summary**




The
      following pro forma consolidated amounts give effect to the Company’s Network
      Catalyst, Vector, Info Systems and Nexl, Inc. acquisitions accounted for by
      the
      purchase method of accounting as if they had occurred at the beginning of the
      period by consolidating the results of operations of the acquired net assets
      for
      the years ended March 31, 2006 and 2005.




The
      pro
      forma consolidated statements of operations are not necessarily indicative
      of
      the operating results that would have been achieved had the transaction been
      in
      effect as of the beginning of the periods presented and should not be construed
      as being representative of future operating results.




**PRO
      FORMA CONSOLIDATED STATEMENTS OF OPERATIONS**


**(In
      thousands, except for per share amounts)**




**For
                the Year Ended March 31,****2006**
            
            **2005**Net
                revenues:
            
            
            

      **(as
          restated
          -See Note 1)******Products
            
            $
            218,004
            
            $
            200,256Services
            
            
            71,356
            
            
            74,960289,360
            
            
            275,216Costs
                and expenses:Cost
                of products sold
            
            
            184,652
            
            
            172,633Cost
                of services provided
            
            
            45,824
            
            
            47,822Selling,
                general and administrative expenses
            
            
            54,931
            
            
            55,483285,407
            
            
            275,938Provision
                for income taxes
            
            
            (241
            )
            
            (151
            )Interest
                expense(1)
            
            
            (8,017
            )
            
            (10,542
            )Net
                (loss)
            
            $
            (4,305
            )
            $
            (11,415
            )Net
                (loss) per common share:Basic
                and diluted
            
            $
            (0.38
            )
            $
            (1.01
            )Weighted
                average number of common shares outstanding:Basic
                and diluted(2)
            
            
            11,394
            
            
            11,281




(1)
            Interest
                expense includes $3.4 million and $4.1 million of non-cash interest
                related to convertible debt and secured promissory notes, for the
                years
                ended March 31, 2006 and 2005,
                respectively.




(2)
              The
                  weighted average shares used to compute pro forma basic and diluted
                  net
                  (loss) per share for the year ended March 31, 2006 and March 31,
                  2005
                  includes 4.0 million and 6.5 million shares of common stock issued as
                  if the shares were issued on April 1, 2005 and April 1, 2004,
                  respectively.




**NOTE
      10. SERIES A PREFERRED STOCK AND NOTES AND LONG TERM DEBT**




***Series
      A Preferred Stock and Notes***





“Pequot
      Fund” refers to Pequot Private Equity Fund III, L.P., “Pequot Partners” refers
      to Pequot Offshore Private Equity Partners III, L.P., and collectively with
      Pequot Fund, “Pequot,” “Constellation Venture” refers to Constellation Venture
      Capital II, L.P., “Constellation Offshore” refers to Constellation Venture
      Capital Offshore II, L.P., “BSC” refers to the BSC Employee Fund VI, L.P., “CVC
      refers to the CVC Partners II, LLC, and collectively with Constellation Venture,
      Constellation Offshore and BSC, “Constellation,” and together with Pequot, the
“Investors.”





On
      January 29, 2004, the Company entered into a purchase agreement (the “Pequot
      Agreement”) to sell to Pequot an aggregate of up to $25.0 million of Series A
      Convertible Preferred Stock, together with warrants to purchase additional
      shares of common stock and on December 7, 2004, the Company entered into an
      additional purchase agreement (the "Pequot/Constellation Purchase Agreement")
      with the Investors to sell to the Investors up to an additional $40.0 million
      of
      Series A Convertible Preferred Stock, together with warrants to purchase
      additional shares of common stock.





F-18
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





During
  the year ended March 31, 2005, the Investors received $41.0 million of Series
  A Convertible Preferred Stock, and associated common stock warrants and during
  the year ended March 31, 2006, the Investors purchased an additional $19.0 million
  of Series A Convertible Preferred Stock, and associated common stock warrants.
  Of the $41.0 million of Series A Convertible Preferred Stock $16.0 million was
  originally purchased in the form of convertible notes. The Investors have no
  further rights to acquire Series A Convertible Preferred Stock under either
  of these agreements. The following table sets forth the Series A Preferred Stock
  and associated warrants issued to the Investors under the Pequot Agreement and
  the Pequot/Constellation Purchase Agreement.





No.
                of Shares
              (in
                thousands)
            
            Conversion
                PriceSeries
                A-1 Convertible Preferred Stock
            
            
            3,256
            
            $
            2.15Series
                A-2 Convertible Preferred Stock
            
            
            2,000
            
            $
            2.75Series
                A-3 Convertible Preferred Stock
            
            
            3,846
            
            $
            3.25Series
                A-4 Convertible Preferred Stock
            
            
            7,846
            
            $
            3.25Series
                A-5 Convertible Preferred Stock
            
            
            3,077
            
            $
            3.2520,025





No.
                of Warrants
              (in
                thousands)
            
            Exercise
                PriceCommon
                Stock Warrants
            
            
            500
            
            $
            2.46Common
                Stock Warrants
            
            
            400
            
            $
            3.44Common
                Stock Warrants
            
            
            2,758
            
            $
            4.063,658




The
      funds
      raised from the sales of Series A Convertible Preferred Stock were used to
      fund
      the cash portion of the purchase price for the Company’s various acquisitions as
      follows:





·
            DataVox
                Technologies, Inc. - July 2004,


·
            Network
                Catalyst, Inc. - September 2004,


·
            Vector
                ESP, Inc./Vector ESP Management, Inc. - December
                2004,


·
            Info
                Systems, Inc. - March 2005,


·
            Nexl,
                Inc. - December 2005





Under
      the
      terms of the Pequot/Constellation Purchase Agreement, until shareholder approval
      was received for the transaction, the Investors had the right to acquire Series
      A-4 Convertible Secured Subordinated Promissory Notes (“Series A-4 Notes”) in
      lieu of Series A-4 Convertible Preferred Stock and Series A-5 Convertible
      Secured Subordinated Promissory Notes (“Series A-5 Notes”) in lieu of Series A-5
      Convertible Preferred Stock. As a result, the initial $16.0 million invested
      under the Pequot/Constellation Purchase Agreement was in the form of Series
      A-4
      Notes, together with warrants to purchase common stock. On June 23, 2005 the
      shareholders approved the transaction and the outstanding Series A-4 Notes
      converted into shares of Series A-4 Preferred Stock.





The
  Company originally assigned a value of $6.8 million to the beneficial conversion
  feature of the Series A-4 Notes and the common stock warrants issued in connection
  therewith (the “Series A-4 Warrants”), and the Investors’
  option to acquire additional Series A-4 Notes and Series A-4 Warrants and to
  acquire Series A-5 Notes based on the relative fair values using the Black Scholes
  Model at the date of issuance and recorded this value as a discount to the Series
  A-4 Notes when issued. This discount was accreted to interest expense over the
  term of the applicable Series A-4 Notes. During the years ended March 31, 2006
  and 2005 the discount accreted to interest expense amounted to approximately
  $2.9 and $3.9 million, respectively.





In
      connection with the various issuances of Series A Preferred Stock and the
      related warrants, the Company allocated and recorded $16.4 million to Series
      A
      Preferred Stock and assigned and credited to additional paid in capital $2.6
      million for the fair value of the warrants. The value attributed to the warrants
      was determined by independent valuation utilizing the Black Scholes
      Model.





In
      accordance with Emerging Issues Task Force Issue 00-19, “Accounting for
      Derivative Financial Instruments Indexed To, and Potentially Settled in, a
      Company’s Own Stock,” the Company had initially accounted for the fair value of
      the Series A-4 Warrants issued in





F-19
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





December
      2004 and March 2005 and the Investors option to acquire additional Series A-4
      Notes and Series A-4 Warrants and to acquire Series A-5 Notes as a liability
      since the Company was required to file a Registration Statement with the
      Securities and Exchange Commission for the resale by the Investors of the
      underlying common stock and to use reasonable best efforts to have such
      Registration Statement become effective or, in certain circumstances, pay cash
      liquidated damages. Such process was completed in December 2005 and the Company
      has reclassified the remaining amount of the fair value to shareholders’ equity.
      The fair value was calculated utilizing the Black Scholes Model.





Prior
      to
      the reclassification, there was a change in the market value of the Company’s
      common stock, and therefore, the Company recorded a decrease in the carrying
      value of the liability for the year ended March 31, 2006 of $1.3 million which
      is included as a reduction in selling, general and administrative
      expenses.





***Long-Term
      Debt***





On
      November 23, 2005 the Company entered into a secured credit agreement with
      Columbia Partners, L.L.C. Investment Management, as Investment Manager, and
      National Electric Benefit Fund, as Lender (the "Lender"), whereby the Company
      issued and sold to the Lender a promissory note in the principal amount of
      $25.0
      million (the "Note") and the Company issued and sold to the Lender a warrant
      entitling the Lender to purchase 700,000 shares of the Company's Common Stock
      at
      an exercise price of $4.06 per share (the "Lender Warrant"). The
      Company used a portion of the funds to finance the acquisition of Nexl, Inc.
      on
      December 1, 2005 (See Note 9 - Acquisitions) and expects to use the remainder
      of
      the proceeds from this loan to finance the continued execution of its
      acquisition strategy and to support its organic growth
      initiatives.





The
      Note
      is a four year $25 million secured subordinated term loan with the Note coming
      due at the earlier of maturity or the occurrence of certain fund raisings or
      other liquidity events. The amount outstanding on the Note bears interest equal
      to 4.52 %, of which 2% per annum is payable quarterly in cash and all remaining
      interest will accrue and only become due at maturity.  As of March 31,
      2006, $0.9 million in interest has been accrued on the Note. In addition, upon
      maturity or upon the occurrence of certain liquidity events, the Company will
      pay a payment premium in respect of the Note equal to an amount which, when
      combined with previous payments made, will yield an internal rate of return
      to
      the Lender of 11%. The Note is secured by a subordinated lien on the assets
      of
      the Company. In
      connection with the issuance of the Note and the related Lender Warrant, the
      Company allocated and charged $2.2 million to debt discount, which will be
      amortized over the life of the Note to interest expense, and assigned and
      credited to additional paid in capital $2.2 million for the fair value of the
      Lender Warrant. The Company is permitted to settle the warrants with
      unregistered shares. The value attributed to the Lender Warrant was determined
      by independent valuation utilizing the Black Scholes Model.





The
      Note
      requires, among other things, that the Company maintain certain financial
      covenants including that the Company maintain Consolidated Senior Leverage
      of
      not greater than 4.40 to 1.00 as of the end of March 31, 2006, and for the
      trailing four quarters and consecutive four quarters ending thereafter and
      that
      the Company maintain a Consolidated Fixed Charge Coverage Ratio of not less
      than
      .90 to 1.00 for the trailing four quarters ending March 31, 2006 and consecutive
      four quarters ending thereafter. It also restricts the Company’s ability to
      incur certain additional indebtedness, and contains various customary
      provisions, including affirmative and negative covenants, representations and
      warranties and events of default.





As
      of
      March 31, 2006, the Company was not in compliance with all covenants relating
      to
      the Note, however, the Company received a letter of forbearance from Columbia
      Partners.





The
      Company’s outstanding debt under the Note including accrued interest was
      approximately $23.8 million as of March 31, 2006.





The
      components of debt as of March 31 are as follows (in thousands):




**2006**
              
              **2005**Secured
                  notes payable
              
              $
              14,916
              
              $
              13,614Secured
                  promissory note
              
              
              22,9477%
                  Convertible subordinated promissory notes
              
              
              
              
              
              13,321Inventory
                  financing agreements
              
              
              5,641
              
              
              2,930Promissory
                  notes
              
              
              667
              
              
              1,033Capital
                  lease obligation
              
              
              1,572
              
              
              466Total
              
              $
              45,743
              
              $
              31,364




The
      Company’s future debt maturities at March 31, 2006 are summarized below (in
      thousands):





F-20
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




**Year
                ended**2007
            
            $
            21,7962008
            
            
            5462009
            
            
            3532010
            
            
            23,0432011
            
            
            5Total
                minimum debt payments
            
            $
            45,743Less
                current maturities
            
            
            (21,785
            )Total
                long-term debt
            
            $
            23,958




F-21
   *Table
            of Contents*





**MTM
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





**NOTE
  11.** **SEGMENT
  INFORMATION**




The
      Company currently operates only within the United States. Substantially, all
      of
      the Company’s revenue generating operations have similar economic
      characteristics, including the nature of the products and services sold, the
      type and class of clients for products and services, the methods used to deliver
      products and services and regulatory environments.





**NOTE
  12** **.
  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)**  ****





The
      following is a summary of the quarterly results of operations for the years
      ended March 31, 2006, 2005, and 2004.




**June
                30**
            
            **September
                30**
            
            **December
                31**
            
            **March
                31***(In
                thousands, except per share data)*2006Net
                revenue
            
            $
            49,560
            
            $
            47,039
            
            $
            69,002
            
            $
            71,118Cost
                of products sold
            
            
            30,006
            
            
            27,371
            
            
            47,043
            
            
            46,363Cost
                of services provided
            
            
            8,692
            
            
            8,734
            
            
            8,730
            
            
            10,424Net
          lossAs
          reported
            
            
            (4,482
            )
            
            (78
            )
            
            (330
            )
            
            (2,056
            )As
          restated
            
            
            (5,065
            )
            
            (833
            )
            
            (520
            )
            
            (2,056
            )Net
          loss per share (basic and diluted):As
          reported
            
            $
            (0.61
            )
            $
            (0.01
            )
            $
            (0.04
            )
            $
            (0.19
            )As
          restated
            
            $
            (0.68
            )
            $
            (0.11
            )
            $
            (0.06
            )
            $
            (0.19
            )2005Net
                revenue
            
            $
            15,233
            
            $
            18,722
            
            $
            29,692
            
            $
            37,547Cost
                of products sold
            
            
            11,417
            
            
            12,405
            
            
            18,696
            
            
            21,728Cost
                of services provided
            
            
            2,355
            
            
            3,634
            
            
            4,973
            
            
            7,198Net
          lossAs
          reported
            
            
            (2,505
            )
            
            (836
            )
            
            (775
            )
            
            (3,565
            )As
          restated
            
            
            (2,505
            )
            
            (938
            )
            
            (806
            )
            
            (4,370
            )Net
          loss per share (basic and diluted)As
          reported
            
            $
            (0.53
            )
            $
            (0.16
            )
            $
            (0.13
            )
            $
            (0.53
            )As
          restated
            
            $
            (0.53
            )
            $
            (0.17
            )
            $
            (0.13
            )
            $
            (0.65
            )2004Net
                revenue
            
            $
            13,638
            
            $
            15,526
            
            $
            14,744
            
            $
            8,356Cost
                of products sold
            
            
            8,039
            
            
            11,021
            
            
            10,005
            
            
            8,692Cost
                of services provided
            
            
            3,051
            
            
            2,450
            
            
            3,460
            
            
            3,142Net
                income (loss)
            
            
            37
            
            
            (668
            )
            
            (1,446
            )
            
            (6,032
            )Net
                income (loss) per common share:Basic
            
            $
            0.01
            
            $
            (0.14
            )
            $
            (0.31
            )
            $
            (1.28
            )Diluted
            
            $
            0.01
            
            $
            (0.14
            )
            $
            (0.31
            )
            $
            (1.28
            )




Earnings
    (loss) per common share calculations for each of the quarters were based on
    the weighted-average number of shares outstanding and the sum of the quarters
    may not necessarily be equal to the full year earnings per common share amount. The
    Company will restate the second and third quarters of fiscal year 2005 and
    the first, second and third quarters of fiscal year 2006. As disclosed in
    prior SEC filings, the Company considered all transition related compensation
    expense for acquired company employees planned to be separated after acquisition
    to be additional acquisition cost and accordingly an increase in goodwill.
    The Company has adjusted its reported results to reflect only the expense
    specifically identified as severance for acquired company terminated employees
    as additional acquisition cost and reclassified the remaining related conpensation
    costs to operating expense.





F-22
   *Table
            of Contents*





**UHY
        LLP**
 Certified
        Public
        Accountants
 
 **REPORT
        OF
        INDEPENDENT** **AUDITORS**
 
 
 
 
 Board
        of Directors
        and Stockholders
 Nexl,
        Inc.
 
  We
        have audited the
        accompanying balance sheets of Nexl,
        Inc.
        (the “Company”) as of November
        30,
        2005 and December
        31,
        2004 and the
        related
        statements of operations, changes in stockholders’ equity and cash flows for the
        eleven-months ended November 30, 2005 and for the years ended December 31,
        2004
        and 2003. These financial statements are the responsibility of the Company’s
        management. Our responsibility is to express an opinion on these financial
        statements based on our audits.
 
 We
        conducted our
        audits in accordance with auditing standards generally accepted in the United
        States of America. Those standards require that we plan and perform the audit
        to
        obtain reasonable assurance about whether the financial statements are free
        of
        material misstatement. An audit includes examining, on a test basis, evidence
        supporting the amounts and disclosures in the financial statements. An audit
        also includes assessing the accounting principles used and significant estimates
        made by management, as well as evaluating the overall financial statement
        presentation. We believe that our audits provide a reasonable basis for our
        opinion.
 
 In
        our opinion, the
        financial statements referred to above present fairly, in all material respects,
        the financial position of Nexl, Inc. as of November
        30,
        2005 and December
        31,
        2004 and the results of its operations and its cash flows for the eleven-months
        ended
        November 30, 2005 and for the years ended December 31, 2004 and 2003 in
        conformity with accounting principles generally accepted in the
        United States of America.
 
 /s/
        UHY
        LLP
  New
        York, New
        York
 June
        7,
        2006
 F-23
   *Table
                of Contents*




NEXL,
        INC.


**BALANCE
          SHEETS**


**November
                    30,**
                
                December
                    31,**2005**
                
                2004**ASSETS**CURRENT
                    ASSETSCash
                    and cash
                    equivalents
                
                **$**
                **552,158**
                
                $
                2,951,955Accounts
                    receivable
                
                
                **12,864,766**
                
                
                17,427,447Inventory
                
                
                **49,561**
                
                
                285,392Prepaid
                    expenses and other current assets
                
                
                **138,508**
                
                
                106,718Total
                    current
                    assets
                
                
                **13,604,993**
                
                
                20,771,512PROPERTY
                    AND
                    EQUIPMENT, NET
                
                
                **3,413,480**
                
                
                3,160,616OTHER
                    ASSETS
                
                
                **54,371**
                
                
                50,451**$**
                **17,072,844**
                
                $
                23,982,579**LIABILITIES
                    AND STOCKHOLDER’S EQUITY**CURRENT
                    LIABILITIESAccounts
                    payable
                
                **$**
                **12,506,919**
                
                $
                17,867,496Accrued
                    expenses and other current liabilities
                
                
                **1,421,641**
                
                
                1,927,837Total
                    current
                    liabilities
                
                
                **13,928,560**
                
                
                19,795,333LONG-TERM
                    DEBT
                
                
                **-**
                
                
                26,686DEFERRED
                    REVENUE
                
                
                **1,293,260**
                
                
                1,375,618**15,221,820**
                
                
                21,197,637STOCKHOLDERS’
                    EQUITYCommon
                    stock,
                    no par value; 200,000 shares authorized, 2,548 and 2,000 shares
                    issued and
                    outstanding at November 30, 2005 and December 31, 2004,
                    respectively
                
                
                **7,644**
                
                
                6,000Additional
                    paid in capital
                
                
                **5,645,021**
                
                
                2,238,084Retained
                    earnings
                
                
                **(3,801,641**
                **)**
                
                540,858**1,851,024**
                
                
                2,784,942**$**
                **17,072,844**
                
                $
                23,982,579




*See
        notes to
        financial statements.*




F-24
   *Table
                of Contents*




NEXL,
        INC.


**STATEMENT
        OF OPERATIONS**




**Eleven
                  months ended November 30,**
              
              Years
                  ended
                  December 31,**2005**
              
              2004
              
              2003**REVENUES**
              
              **$**
              **71,132,456**
              
              **$**
              67,323,185
              
              **$**
              37,122,086COST
                  OF
                  REVENUES
              
              
              **56,403,583**
              
              
              53,863,959
              
              
              25,874,897GROSS
                  PROFIT
              
              
              **14,728,873**
              
              
              13,459,226
              
              
              11,247,189SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              **18,675,330**
              
              
              11,074,997
              
              
              8,531,746INCOME
                  (LOSS)
                  FROM OPERATIONS
              
              
              **(3,946,457**
              **)**
              
              2,384,229
              
              
              2,715,443OTHER
                  (INCOME) AND EXPENSEInterest
                  income
              
              
              **(40,326**
              **)**
              
              (26,050
              )
              
              (23,922
              )Interest
                  expense
              
              
              **929**
              
              
              2,111
              
              
              1,247Other
              
              
              **(105,419**
              **)**
              
              (11,937
              )
              
              (46,862
              )**NET
                  INCOME (LOSS)**
              
              **$**
              **(3,801,641**
              **)**
              **$**
              2,420,105
              
              **$**
              2,784,980


*See
        notes to
        financial statements.*


F-25
   *Table
                of Contents*




NEXL,
          INC.
 **STATEMENTS
          OF CHANGES IN STOCKHOLDERS' EQUITY**
 **Eleven
          months ended November 30, 2005**
 **Years
          ended
          December 31, 2004 and 2003**


Common
                    StockShares
                
                Amount
                
                Additional
                    paid in capital
                
                Retained
                    Earnings
                
                Stockholder’s
                    Equity**BALANCE,
                    DECEMBER 31, 2002**
                
                
                2,000
                
                $
                6,000
                
                $
                2,238,084
                
                $
                (3,152,097
                )
                $
                (908,013
                )DISTRIBUTIONS
                
                
                
                
                
                
                
                
                
                
                
                (388,298
                )
                
                (388,298
                )NET
                    INCOME
                
                
                -
                
                
                -
                
                
                -
                
                
                2,784,980
                
                
                2,784,980**BALANCE,
                    DECEMBER 31, 2003**
                
                
                2,000
                
                
                6,000
                
                
                2,238,084
                
                
                (755,415
                )
                
                1,488,669DISTRIBUTIONS
                
                
                
                
                
                
                
                
                
                
                
                (1,123,832
                )
                
                (1,123,832
                )NET
                    INCOME
                
                
                -
                
                
                -
                
                
                -
                
                
                2,420,105
                
                
                2,420,105**BALANCE,
                    DECEMBER 31, 2004**
                
                
                2,000
                
                
                6,000
                
                
                2,238,084
                
                
                540,858
                
                
                2,784,942ADDITIONAL
                    COMMON STOCK DISTRIBUTED
                
                
                548
                
                
                1,644
                
                
                4,939,803
                
                
                
                
                
                4,941,447DISTRIBUTIONS
                
                
                
                
                
                
                
                
                (1,532,866
                )
                
                (540,858
                )
                
                (2,073,724
                )NET
                    LOSS
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,801,641
                )
                
                (3,801,641
                )**BALANCE,
                    NOVEMBER 30, 2005**
                
                
                2,548
                
                $
                7,644
                
                $
                (5,645,021
                )
                $
                (3,801,641
                )
                $
                1,851,024





*See
          notes to
          financial statements.*
  F-26
   *Table
                  of Contents*




NEXL,
          INC.
 **STATEMENTS
          OF CASH FLOWS**


**Eleven
                    months ended November 30,**
                
                Years
                    ended
                    December 31,**2005**
                
                2004
                
                2003**OPERATING
                    ACTIVITIES**Net
                    income
                    (loss)
                
                **$**
                **(3,801,641**
                **)**
                $
                2,420,105
                
                $
                2,784,980Adjustments
                    to reconcile net income to net cash provided by operating
                    activities:Depreciation
                    and amortization
                
                
                **1,215,982**
                
                
                1,002,359
                
                
                735,081Stock
                    issued
                    for services
                
                
                **4,941,447**
                
                
                -
                
                
                -Changes
                    in
                    assets and liabilities:Loss
                    on sale
                    of fixed asset
                
                
                **20,812**
                
                
                -
                
                
                -Accounts
                    receivable
                
                
                **4,562,681**
                
                
                (12,235,971
                )
                
                (555,792
                )Inventories
                
                
                **235,831**
                
                
                275,681
                
                
                (344,787
                )Prepaid
                    expenses and other current assets
                
                
                **(31,790**
                **)**
                
                15,036
                
                
                (10,607
                )Other
                    Assets
                
                
                **(3,920**
                **)**
                
                (27,034
                )
                
                (5,632
                )Accounts
                    payable and accrued expenses
                
                
                **(5,866,773**
                **)**
                
                12,018,494
                
                
                (1,344,868
                )Deferred
                    revenue
                
                
                **(82,358**
                **)**
                
                193,162
                
                
                1,114,978Net
                    cash
                    provided by operating activities
                
                
                **1,190,271**
                
                
                3,661,832
                
                
                2,373,353**INVESTING
                    ACTIVITIES**Purchase
                    of
                    property and equipment
                
                
                **(1,489,658**
                **)**
                
                (2,127,487
                )
                
                (522,847
                )Net
                    cash used
                    in investing activities
                
                
                **(1,489,658**
                **)**
                
                (2,127,487
                )
                
                (522,847
                )**FINANCING
                    ACTIVITIES**Distributions
                
                
                **(2,073,724**
                **)**
                
                (1,123,832
                )
                
                (388,298
                )Proceeds
                    from
                    long-term debt borrowings
                
                
                **-**
                
                
                30,218
                
                
                -Principal
                    payments on capital lease obligations
                
                
                **-**
                
                
                -
                
                
                (98,280
                )Principal
                    payments on long-term debt
                
                
                **(26,686**
                **)**
                
                (3,532
                )
                
                (42,204
                )Net
                    cash
                    provided by (used in) financing activities
                
                
                **(2,100,410**
                **)**
                
                (1,097,146
                )
                
                (528,782
                )**NET
                    CHANGE IN CASH AND CASH EQUIVALENTS**
                
                
                **(2,399,797**
                **)**
                
                437,199
                
                
                1,321,724**CASH
                    AND CASH EQUIVALENTS, Beginning**
                
                
                **2,951,955**
                
                
                2,514,756
                
                
                1,193,032**CASH
                    AND CASH EQUIVALENTS, End**
                
                **$**
                **552,158**
                
                $
                2,951,955
                
                $
                2,514,756**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION**Interest
                    paid
                
                **$**
                **929**
                
                $
                2,111
                
                $
                7,029




*See
          notes to
          financial statements.*
  F-27
   *Table
                  of
                  Contents*


NEXL,
          INC.
 **NOTES
            TO
            FINANCIAL STATEMENTS**
 **November
            30, 2005 and** **December
            31, 2004 and 2003**
  **NOTE
          1 -
          ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
          POLICIES**


**Organization**





NEXL,
        Inc., (the
“Company”) provides complete infrastructure computing in the areas of enterprise
        computing and storage, networking and security and managed services. The
        Company
        assesses, designs, implements and manages solutions to reduce clients’ total
        cost of ownership, enhance the value of their current and future computing
        environment and drive the success of their business. These services encompass
        the management or hosting of both the applications and infrastructure on
        behalf
        of small and medium sized enterprises. The Company was incorporated under
        the
        laws of the State of Massachusetts on February 6, 1990, and is headquartered
        in
        Peabody, Massachusetts.





**Basis
        of
        Presentation**





The
        Company
        prepares its financial statements in conformity with accounting principles
        generally accepted in the United States of America.





**Revenue
        Recognition**





Revenue
        from the
        resale of computer hardware and software is recorded upon shipment or upon
        installation when required under contract terms. The related shipping and
        handling costs for delivery of hardware and software are included in cost
        of revenues
        on the
        accompanying statement of operations.




The
        Company also
        generates revenue from consulting services, implementation services, hosting,
        and post contract support. Revenue from consulting and implementation services
        is recognized as the services are provided. Revenue from hosting and
        post-contract support, consisting principally of help desk support and
        unspecified upgrades, is recognized ratably over the period the services
        are
        provided.




**Use
        of
        Estimates**





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




F-28
   *Table
                of Contents*




NEXL,
          INC.
 **NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS**
 **November
          30, 2005 and** **December
          31, 2004 and 2003**




**NOTE
        1 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (Continued )





**Cash
        and
        Cash Equivalents**





The
        Company
        considers all highly liquid investments purchased with an original maturity
        of
        three months or less to be cash equivalents. Cash equivalents consist
        principally of certificates of deposit.





**Concentration
        of Credit Risk**





Financial
        instruments that potentially subject the Company to concentrations of credit
        risk consist of cash, cash equivalents and accounts receivable. Sales to
        the
        Company’s customers are made in the ordinary course of business and are
        generally unsecured. Collection of these receivables is dependent on the
        ability
        of these customers to generate cash flow to meet their obligations.
        Substantially all of the Company’s receivables are expected to be collected
        within one year. The Company monitors its exposure for credit losses and
        maintains allowances for anticipated losses.





The
        Company
        maintains cash deposits in bank accounts that, at times, may exceed federally
        insured limits. The Company has not experienced losses in such accounts and
        does
        not currently believe it is exposed to any significant credit risk related
        to
        its cash and cash equivalents.





**Fair
        Value
        of Financial Instruments**





The
        carrying
        amounts of the Company’s financial instruments, which include accounts
        receivable and accounts payable, approximate their fair values at November
        30,
        2005 and December
        31,
        2004 .





**Inventory**





Inventory,
        consisting principally
        of
        computer hardware and software held for resale, is recorded at the lower
        of cost
        or market. Cost is determined using the specific identification and first-in,
        first-out methods.




**Property
        and Equipment**





Property
        and
        equipment is stated at cost. Costs of major acquisitions, replacements and
        renewals that extend the useful lives of the related assets are capitalized.
        Expenditures for maintenance and repairs are charged to operations as incurred
        while renewals and betterments are capitalized. Upon retirement or other
        disposition, the costs and related accumulated depreciation and/or amortization
        are removed from the accounts with any gain or loss recognized in
        income.





Leasehold
        improvements are amortized over the shorter of the estimated useful lives
        of the
        assets or the lease term. Depreciation and amortization on all other property
        and equipment is computed using the straight-line method over the estimated
        useful lives of the assets ranging from 3-10 years.




F-29
   *Table
                of Contents*




NEXL,
        INC.


**NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS**
 **November
          30, 2005 and** **December
          31, 2004 and 2003**


**NOTE
        1 -** **SUMMARY
        OF
        SIGNIFICANT ACCOUNTING POLICIES** (Continued )





**Income
        Taxes**





The
        Company, with
        the consent of its stockholder, has elected under the Internal Revenue Code
        to
        be taxed as an S Corporation. The stockholders of an S Corporation are taxed
        on
        their proportionate share of the Company’s taxable income. Therefore, no
        provision or liability for federal income taxes has been included in the
        financial statements. Certain specific deductions and credits flow through
        the
        Company to its stockholder.




**NOTE 2
          - ACCOUNTS RECEIVABLE**
  Accounts
          receivable
          are net of allowances for doubtful accounts of approximately $ 306,200 and $363,000 at November
          30,
          2005 and December
          31,
          2004 ,
          respectively.





**NOTE 3
        - PROPERTY AND EQUIPMENT**




The
        Company’s
        property and equipment was comprised of the following at:




November
                      30,
                  
                  December
                      31,2005
                  
                  2004Property
                      and
                      equipment, at cost:Computer
                      equipment
                  
                  
                  6,330,206
                  
                  $
                  5,214,165Software
                  
                  
                  1,102,066
                  
                  
                  774,975Furniture
                      and
                      fixtures
                  
                  
                  132,963
                  
                  
                  132,963Leasehold
                      improvements
                  
                  
                  794,675
                  
                  
                  748,149Vehicle
                  
                  
                  41,585
                  
                  
                  81,8038,401,495
                  
                  
                  6,952,055Less
                      accumulated depreciation and amortization
                  
                  
                  4,988,015
                  
                  
                  3,791,439$
                  3,413,480
                  
                  $
                  3,160,616


**NOTE 4
            - LONG-TERM DEBT**


The
        Company had a
        collateralized note payable with a financial institution totaling $26,686
        at
        December 31, 2004. The note required monthly payments of $682 including interest
        at 3.9% and was scheduled to mature in June, 2008. The note was fully repaid
        in
        2005.




F-30
   *Table
                of Contents*


NEXL,
            INC.
 **NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS**
 **November
            30, 2005 and** **December
            31, 2004 and 2003**
  **NOTE 5
            - ACCRUED EXPENSES**


Accrued
        expenses
        consist of the following at:




November
                    30,
                
                December
                    31,2005
                
                2004Accrued
                    payroll and accrued vacation
                
                
                143,038
                
                $
                305,628Accrued
                    commissions
                
                
                628,576
                
                
                547,120Sales
                    tax
                    payable
                
                
                650,027
                
                
                1,075,089$
                1,421,641
                
                $
                1,927,837


**NOTE 6
            - COMMITMENTS AND CONTINGENCIES**


**Operating
        Leases**





The
        Company leases
        office facilities under noncancelable operating leases (including the related
        party lease - Note 7) expiring on various dates through December 2009. Certain
        of the operating leases provide for escalating annual rent. Rent expense
        under
        operating leases for the eleven months ending November
        30,
        2005 and for the years ended December
        31,
        2004 and 2003 was $ 561,682 ,
        $519,335, and
        $439,737, respectively.





Future
        minimum
        payments due under non-cancelable operating leases with remaining terms in
        excess of one year are as follows:








For
                  the
                  twelve months
                Ending
                  December 31,2006
              
              $
              462,3252007
              
              
              468,4582008
              
              
              432,7482009
              
              
              437,3032010
              
              
              220,816$
              2,021,650





F-31
   *Table
                of Contents*




NEXL,
          INC.
 **NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS**
 **November
          30, 2005 and** **December
          31, 2004 and 2003**


**NOTE
        6 -
        COMMITMENTS AND CONTINGENCIES** (Continued)





**Litigation**





In
        October 2004 the
        Company received a notice from legal counsel for the Business Software Alliance
        (“BSA”) claiming that some of the software programs being used by the Company in
        its business operations were not duly licensed. During 2005 the Company reached
        a tentative agreement with BSA to settle the matter for a payment of
        approximately $150,000 which the Company has provided for in accounts payable
        at
        November 30, 2005.


**NOTE 7
            - RELATED PARTY TRANSACTIONS**




The
        Company leases
        office space from a trust owned by the sole shareholder of the Company under
        terms that extend through December 31, 2009.





Total
        rent paid and
        charged to operations under the related party lease amounted to $374,000,
        $396,555, and $346,832 for the eleven months ended November
        30,
        2005 and for the years ended December
        31,
        2004 and 2003 ,
        respectively.





During
        the eleven
        months ended November
        30,
        2005 and the years ended December
        31,
        2004 and 2003 ,
        the Company had
        equipment sales to a related company wholly-owned by the sole shareholder
        amounting to $523,917, $2,130,320, and $392,174, respectively.


**NOTE 8
            - EMPLOYEE BENEFIT PLANS**




The
        Company
        maintains a 401(k) Defined Contribution Plan covering all full-time employees
        who have completed a minimum of 90 days of service and are age twenty-one
        or
        older. Employees have the option to contribute up to 15% of their annual
        salaries. No matching contributions have been made by the Company during
        each of
        the last three years.




**NOTE 9
        - SUBSEQUENT EVENTS**


**Subsequent
        sale of stock**





On
        December 1,
        2005, the Company sold all of the outstanding shares of the Company for an
        amount in excess of the carrying amount of the Company’s assets.




F-32
   *Table
            of Contents*





**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




Dated:
          July 14, 2006
            MTM
                TECHNOLOGIES,
                INC.By:
            /S/
                FRANCISJ.
                ALFANO**Francis
                J. Alfano,****Chief
                Executive Officer**




Pursuant
      to the requirements of the Securities Exchange Act, this report has been signed
      below by the following persons on behalf of the registrant and in the capacities
      and on the dates indicated.




/S/
                GERALDA.
                POCH
            
            Chairman
                of the Board of Directors
            July
          14, 2006**Gerald
                A. Poch**/S/
                FRANCISJ.
                ALFANO
            
            Chief
                Executive Officer (Principal Executive
            July
          14, 2006**Francis
                J. Alfano**
            
            Officer)
                and Director/S/
                MICHAEL EL-HILLOW
            
            Senior
                Vice President and Chief Financial Officer
            July
          14, 2006**Michael
                El-Hillow**
            
            (Principal
                Financial and Accounting Officer)/S/
                  STEVEN H. ROTHMAN
            
            Director
            July
          14, 2006**Steven
                H. Rothman**/S/
                RICHARDR.
                HEITZMANN
            
            Director
            July
          14, 2006**Richard
                R. Heitzmann**/S/
                THOMASWASSERMAN
            
            Director
            July
          14, 2006**Thomas
                Wasserman**/S/
                WILLIAMLERNER
            
            Director
            July
          14, 2006**William
                Lerner**/S/
                ALVINE.
                NASHMAN
            
            Director
            July
          14, 2006**Alvin
                E. Nashman**/S/
                ARNOLDJ.
                WASSERMAN
            
            Director
            July
          14, 2006**Arnold
                J. Wasserman**




*Table
            of Contents*





**MTM
      TECHNOLOGIES, INC.**


**ANNUAL
      REPORT ON FORM 10-K**


**Fiscal
      Year Ended March 31, 2006**





**EXHIBIT
      INDEX**





**E****xhibit****Number**
            
            **Description**2.1
            
            Merger
                Agreement, dated August 16, 2005, among NEXL, Inc., a Massachusetts
                corporation, MTM Technologies (Massachusetts), LLC, a Delaware limited
                liability company, MTM Technologies, Inc., a New York corporation
                and the
                sole shareholder of Merger Subsidiary, and Clifford L. Rucker
                [Incorporated by reference to Exhibit 2.1 to the registrant’s Current
                Report on Form 8-K (Date of Report: August 15, 2005), filed with
                the
                Securities and Exchange Commission on August 19, 2005.]2.2
            
            Asset
                Purchase Agreement, dated September 17, 2004 by and among Network
                Catalyst, Inc., William Corbin, Rocci J. Della Maggiore and MTM
                Technologies, Inc.]Incorporated by reference to exhibit 10.1 to the
                registrant’s Current Report on Form 8-K (Date of Report: September 16,
                2004), filed with the Securities and Exchange Commission on September
                22,
                2004.]2.3
            
            Asset
                Purchase Agreement, dated December 1, 2004, by and among Vector ESP,
                Inc.,
                Vector ESP Management, Inc. and Vector Global Services, Inc. and
                MTM
                Technologies, Inc. [Incorporated by reference to exhibit 2.1 to the
                registrant’s Current Report on Form 8-K (Date of Report: December 7,
                2004), filed with the Securities and Exchange Commission on December
                13,
                2004.]2.4
            
            Stock
                Purchase Agreement, dated January 27, 2005, by and among Info Systems,
                Inc., Mark Stellini, Emidio F. Stellini, Jr., Jay Foggy, Richard
                Roux,
                Jennifer McKenzie and MTM Technologies, Inc. [Incorporated by reference
                to
                Exhibit 2.1 to the registrant’s Current Report on Form 8-K (Date of
                Report: January 26, 2005) filed with the Securities and Exchange
                Commission on February 1, 2005.]3.1
            
            Restated
                Certificate of Incorporation [Incorporated by reference to Exhibit
                3 to
                the registrant’s Current Report on Form 8-K (Date of Report: June 29,
                2005) filed with the Securities and Exchange Commission on July 5,
                2005.]3.2
            
            Amended
                and Restated By-Laws. [Incorporated by reference to Exhibit 3.1 to
                the
                registrant’s Current Report on Form 8-K (Date of Report: August 5, 2004),
                filed with the Securities and Exchange Commission on August 13,
                2004.]4.1
            
            Purchase
                Agreement, dated January 29, 2004, among Micros-to-Mainframes, Inc.,
                Pequot Private Equity Fund III, L.P. and Pequot Offshore Private
                Equity
                Partners III, L.P. [Incorporated by reference to Appendix A to the
                proxy
                statement contained as part of the registrant’s definitive Schedule 14A,
                filed with the Securities and Exchange Commission on April 15,
                2004.]4.2
            
            Purchase
                Agreement, dated December 7, 2004, among MTM Technologies, Inc.,
                Pequot
                Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners
                III, L.P., Constellation Venture Capital II, L.P., Constellation
                Venture
                Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC
                Partners
                II, LLC. [Incorporated by reference to Exhibit 10.1 to the registrant’s
                Current Report on Form 8-K, (Date of Report: December 7, 2004), filed
                with
                the Securities and Exchange Commission on December 13,
                2004.]4.3
            
            Amendment
                No. 1 to the Purchase Agreement, dated December 7, 2004, among MTM
                Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot
                Offshore
                Private Equity Partners III, L.P., Constellation Venture Capital
                II, L.P.,
                Constellation Venture Capital Offshore II, L.P., The BSC Employee
                Fund VI,
                L.P. and CVC Partners II, LLC. [Incorporated by reference to Exhibit
                4.3
                to the registrant’s Quarterly Report on Form 8-K, (Date of Report:
                December 31, 2005), filed with the Securities and Exchange Commission
                on
                February 14, 2006.]4.4
            
            Amendment
                No. 2 to the Purchase Agreement, dated December 7, 2004, among MTM
                Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot
                Offshore
                Private Equity Partners III, L.P., Constellation Venture Capital
                II, L.P.,
                Constellation Venture Capital Offshore II, L.P., The BSC Employee
                Fund VI,
                L.P. and CVC Partners II, LLC. [Incorporated by reference to Exhibit
                10.1
                to the registrant’s Current Report on Form 8-K, (Date of Report: November
                22, 2005), filed with the Securities and Exchange Commission on November
                29, 2005.]4.5
            
            Amended
                and Restated Shareholders’ Agreement, dated August 1, 2005, among MTM
                Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private
                Equity
                Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P.,
                Constellation Venture Capital II, L.P., Constellation Venture Capital
                Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC Partners
                II,
                LLC.[Incorporated by reference to Exhibit 10.1 to the registrant’s Current
                Report on Form 8-K, (Date of Report: August 1, 2005), filed with
                the
                Securities and Exchange Commission on August 4, 2005.]4.6
            
            Amended
                and Restated Registration Rights Agreement, dated August 1, 2005,
                among
                MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private
                Equity Fund III, L.P., Pequot Offshore Private Equity Partners III,
                L.P.,
                Constellation Venture Capital II, L.P., Constellation Venture Capital
                Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC Partners
                II,
                LLC. [Incorporated by reference to Exhibit 10.2 to the registrant’s
                Current Report on Form 8-K, (Date of Report: August 1, 2005), filed
                with
                the Securities and Exchange Commission on August 4,
                2005.]4.7
            
            Amendment
                No. 1 to the Amended and Restated Registration Rights Agreement dated
                December 10, 2005, among MTM Technologies, Inc., Steven Rothman,
                Howard
                Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private
                Equity Partners III, L.P., Constellation Venture Capital II, L.P.,
                Constellation Venture Capital Offshore II, L.P., The BSC Employee
                Fund VI,
                L.P. and CVC Partners II, LLC. [Incorporated by reference to Exhibit
                10.3
                to the registrant’s Current Report on Form 8-K, (Date of Report: November
                22, 2005), filed with the Securities and Exchange Commission on November
                29, 2005.]4.8
            
            Warrant
                Certificate, evidencing 438,225 warrants registered in the name of
                Pequot
                Private Equity Fund III, LLP. [Incorporated by reference to exhibit
                10.6
                to the registrant’s Current Report on Form 8-K (Date of Report: May 21,
                2004), filed with the SEC on June 7,
                2004.]




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          of Contents*




4.9
            
            Warrant
                Certificate, evidencing 61,775 warrants registered in the name of
                Pequot
                Offshore Private Equity Partners III, L.P. [Incorporated by reference
                to
                exhibit 10.6 to the registrant’s Current Report on Form 8-K (Date of
                Report: May 21, 2004), filed with the SEC on June 7,
                2004.]4.10
            
            Warrant
                Certificate, evidencing 350,580 warrants registered in the name of
                Pequot
                Private Equity Fund III, L.P. [Incorporated by reference to exhibit
                4.5 to
                the registrant's Registration Statement on Form S-3 (Commission File
                No.
                333-117549) filed with the SEC on December 5, 2004.]4.11
            
            Warrant
                Certificate, Evidencing 49,420 warrants registered in the name of
                Pequot
                Offshore Private Equity Partners III, L.P. [Incorporated by reference
                to
                exhibit 4.5 to the registrant's Registration Statement on Form S-3
                (Commission File No. 333-117549) filed with the SEC on October 5,
                2004.]4.12
            
            Form
                of Series A-3 Warrant Certificate [Incorporated by reference to Exhibit
                10.7 of the registrant’s Current Report on Form 8-K (Date of Report:
                December 7, 2004), filed with the Securities and Exchange Commission
                on
                December 13, 2004.]4.13
            
            Form
                of Series A-4 Warrant Certificate [Incorporated by reference to Exhibit
                10.3 to the registrant’s Current Report on Form 8-K (Date of Report:
                December 7, 2004), filed with the Securities and Exchange Commission
                on
                December 13, 2004.]4.14
            
            Form
                of Series A-5 Warrant Certificate [Incorporated by reference to Exhibit
                10.2 to the registrant’s Current Report on Form 8-K (Date of Report:
                November 22, 2005), filed with the Securities and Exchange Commission
                on
                November 29, 2005.]4.15
            
            Warrant
                Certificate issued to National Electrical Benefit Fund. [Incorporated
                by
                reference to Exhibit 10.5 to the registrants Current Report on Form
                8-K
                (Date of Report: November 22, 2005), filed with the Securities and
                Exchange Commission on November 29, 2005.]4.16
            
            Columbia
                Voting Agreement [Incorporated by reference to Exhibit 99.1 to the
                registrant’s Current Report on Form 8-K (Date of Report: November 4,
                2005), filed with the Securities and Exchange Commission on November
                4,
                2005.]4.17
            
            Series
                A-5 Voting Agreement**[**Incorporated
                by reference to Exhibit 99.2 to the registrant’s Current Report on Form
                8-K (Date of Report: November 22, 2005), filed with the Securities
                and
                Exchange Commission on November 29, 2005.]10.1
            
            Financing
                Agreement among the CIT Group/Business Credit, Inc., the Lenders
                that are
                parties thereto, MTM Technologies, Inc., and its subsidiaries that
                are
                parties thereto, dated as of June 8, 2005 [Incorporated by reference
                to
                exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of
                Report: June 8, 2005), filed with the Securities and Exchange Commission
                on June 14, 2005.]10.2
            
            Loan
                and Security Agreement among Textron Financial Corporation, MTM
                Technologies, Inc. MTM Technologies (California) Inc., MTM Technologies
                (Texas) Inc., MTM Technologies (US), Inc., and Info Systems, Inc.,
                dated
                as of June 8, 2005 [Incorporated by reference to exhibit 10.2 to
                the
                registrant’s Current Report on Form 8-K (Date of Report: June 8, 2005),
                filed with the Securities and Exchange Commission on June 14,
                2005.]10.3
            
            Credit
                Agreement, dated November 23, 2005, among MTM Technologies, Inc.,
                MTM
                Technologies (California), Inc., MTM Technologies (Texas), Inc.,
                MTM
                Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and
                Info
                Systems, Inc. as borrowers and Columbia Partners, LLC Investment
                Management as Investment Manager and National Electrical Benefit
                Fund as
                Lender [Incorporated by reference to Exhibit 10.4 to the registrant’s
                Current Report on Form 8-K (Date of Report: November 22, 2005), filed
                with
                the Securities and Exchange Commission on November 29,
                2005.]10.4
            
            MTM
                Technologies, Inc. 2004 Equity Incentive Plan. [Incorporated by reference
                to Appendix L to the proxy statement contained as part of the Company’s
                definitive Schedule 14A, filed with the Securities and Exchange Commission
                on April 15, 2004.]10.5
            
            Micros-to-Mainframes,
                Inc. 2002 Long-Term Incentive Plan. [Incorporated by reference to
                Exhibit
                10.2 to the registrant’s Registration Statement on Form S-8, filed with
                the Securities and Exchange Commission on March 4,
                2005.]10.6
            
            Micros-to-Mainframes,
                Inc. 2000 Long-Term Incentive Plan. [Incorporated by reference to
                exhibit
                99.B1 to the Company’s definitive Schedule 14A, filed with the Securities
                and Exchange Commission on September 25, 2000.]10.7
            
            Micros-to-Mainframes,
                Inc. 1998 Stock Option Plan. [Incorporated by reference to exhibit
                4.2 to
                the registrant’s Quarterly Report on Form 10-Q for the quarter ended
                September 30, 1998, filed with the Securities and Exchange Commission
                on
                November 2, 1998.]10.8
            
            Micros-to-Mainframes,
                Inc. 1996 Stock Option Plan. [Incorporated by reference to exhibit
                4.1 to
                the registrant’s Quarterly Report on Form 10-Q for the quarter ended
                September 30, 1998, filed with the Securities and Exchange Commission
                on
                November 2, 1998.]10.9
            
            Micros-to-Mainframes,
                Inc. Revised 1993 Employee Stock Option Plan. [Incorporated by reference
                to exhibit 10.2 to Amendment Number 2 to the registrant’s Registration
                Statement on Form S-2, filed with the Securities and Exchange Commission
                on July 14, 1993.]10.10
            
            MTM
                Technologies, Inc. Associates Stock Purchase Plan [Incorporated by
                reference to exhibit 10.1 to the registrant’s Registration Statement on
                Form S-8, filed with the Securities and Exchange Commission on July
                1,
                2005.]10.11
            
            Employment
          Agreement, dated June 28, 2006, between MTM Technologies, Inc. and Francis
          J. Alfano [Incorporated by reference to exhibit 10.1 to the registrant’s
          Current Report on Form 8-K (Date of Report: June 28, 2006), filed with
          the Securities and Exchange Commission on July 5, 2006.]10.12
            
            Waiver
                Letter, dated June 26, 2006, between MTM
                Technologies, Inc., Columbia Partners, LLC Investment Management
                and the
                National Electrical Benefit Fund.10.13
            
            Employment
                Agreement, dated October 1, 2004 by and between MTM Technologies,
                Inc. and
                Steven Stringer. [Incorporated by reference to exhibit 10.2 to the
                registrant’s Current Report on Form 8-K (Date of Report: October 1, 2004),
                filed with the Securities and Exchange Commission on October 7,
                2004.]10.14
            
            Amendment
                No. 1 to Steve Stringer’s Employment Agreement [Incorporated by reference
                to Exhibit10.1 to the registrant’s Registration Statement on Form 8-K,
                filed with the Securities and Exchange Commission on March 6,
                2006.]




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          of Contents*




10.15
      
      Severance
          Letter, dated December 12, 2005, between MTM Technologies, Inc. and
          Michael El-Hillow [Incorporated by reference to Exhibit 10.2 to the
          registrant’s Current Report on Form 8-K (Date of Report: December
          12, 2005), filed with the Securities and Exchange Commission on December
          15, 2005.]10.16
      
      Waiver
          Letter dated December 9, 2005, by Pequot Private Equity Fund III, L.P.,
          Pequot Offshore Private Equity Partners III, L.P., Constellation Venture
          Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The
          BSC Employee Fund VI, L.P. and CVC Partners II, LLC [Incorporated by
          reference to Exhibit 99.7 to the registrant’s Registration Statement
          on Form S-3, filed with the Securities and Exchange Commission on December
          28, 2005.]10.17
      
      Lease
          Agreement, dated August 15, 2005, between 1200 High Ridge Company, LLC
          and MTM Technologies, Inc. [Incorporated by reference to Exhibit 10.1
          to the registrant’s Current Report on Form 8-K (Date of Report:
          August 15, 2005), filed with the Securities and Exchange Commission
          on August 19, 2005.]10.18
      
      Form
          of Employee Stock Option Agreement [Incorporated by reference to exhibit
          10.4 to the registrant’s Quarterly Report on Form 10-Q for the
          Quarter ended September 30, 2004, filed with the Securities and Exchange
          Commission on November 15, 2004.]10.19
      
      Form
          of Employee Restricted Stock Unit Agreement.10.20
      
      Form
          of Executive Stock Option Agreement.10.21
      
      Form
          of Executive Restricted Stock Unit Agreement.10.22
      
      Consulting
          Agreement, dated July 7, 2006 between MTM Technologies, Inc. and Steven
          Rothman [Incorporated by reference to Exhibit 10.1 to the registrant’s
          Current Report on Form 8-K (Date of Report: July 7, 2006), filed with
          the Securities and Exchange Commission on July 11, 2006.]10.23
      
      Letter
          Agreement, dated July 7, 2006 between MTM Technologies, Inc. and Steven
          Rothman [Incorporated by reference to Exhibit 10.2 to the registrant’s
          Current Report on Form 8-K (Date of Report: July 7, 2006), filed with
          the Securities and Exchange Commission on July 11, 2006.]14.1
      
      Code
          of ethics. [Incorporated by reference to Exhibit 14.1 to the registrant’s
          Annual Report on Form 10-K for the year ended March 31, 2004, filed
          with the Securities and Exchange Commission on June 29, 2004.]21.1
      
      Subsidiaries
          of MTM Technologies, Inc.23.1
      
      Consent
          from Goldstein Golub Kessler LLP.23.2
      
      Consent
          of UHY LLP.31.1
      
      Certification
          pursuant to Exchange Act Rule 13a-14(a) of Francis J. Alfano.31.2
      
      Certification
          pursuant to Exchange Act Rule 13a-14(a) of Michael El-Hillow.32.1
      
      Certification
          pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Francis
          J. Alfano.32.2
      
      Certification
          pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Michael
          El-Hillow.







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