MTM TECHNOLOGIES, INC.

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended March 31, 2008

 

		Page
	Introductory Comment—Terminology	i
	Introductory Comment—Forward-Looking Statements	i
	PART I
Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 2.	Properties	9
Item 3.	Legal Proceedings	9
Item 4.	Submission of Matters to a Vote of Security Holders	9
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6.	Selected Financial Data	11
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk	20
Item 8.	Financial Statements and Supplementary Data	20
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	21
Item 9A.	Controls and Procedures	21
Item 9A(T).	Controls and Procedures	21
	PART III
Item 10.	Directors, Executive Officers of the Registrant and Corporate Governance Matters	22
Item 11.	Executive Compensation	25
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	31
Item 13.	Certain Relationships and Related Transactions and Director Independence	35
Item 14.	Principal Accountant Fees and Services	36
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	37

 

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Introductory Comment—Terminology

     Throughout this Annual Report on Form 10-K, the terms “we”, “us”, “our” and “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 II Partners, 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.

     Readers are urged to carefully review and consider the various disclosures made by us in this Annual Report on Form 10-K including the factors discussed in Part I, Item 1A. Risk Factors and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this Form 10-K speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

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PART I

Item 1. Business

Overview

     We are a leading national provider of innovative information technology (“IT”) solutions including Access, Unified Communications, 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, financial and health-care institutions. We serve clients in most major US metropolitan markets.

History

     The certificate of incorporation of MTM was filed by the New York Department of State on May 12, 1986 under the original name of Micros To Mainframes Inc. On May 21, 2004 we changed the name of our Company to MTM Technologies, Inc.

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

Business Strategy

     Our strategy is to be the national leader in providing IT solutions to the middle market. The most recent of our acquisitions was completed in April 2006. Since that time we have focused on integrating the operations of the acquired companies in order to improve our earnings and cash flow. Although we currently are not actively seeking acquisition candidates, we believe that growth through acquisition may be an important component of our long-term strategy. The following are key components of our strategy to improve our earnings and cash flow.

     Focus on strategic service offerings and increase our overall percentage of services revenue

     Our goal is to increase our service revenue, which generates superior gross margin contributions, as a percentage of overall revenue. This will include focusing on those product sales that are typically coupled with the highest percentages of service revenue, a concept we refer to as “pull-through”. We believe that our offerings in Access and Unified Communications provide the greatest opportunity in these areas. Additionally, we strive to attach Managed Services to each sales opportunity, further increasing margins. Our national footprint enables us to more effectively execute this strategy.

     Focus in key industry verticals

     We intend to increase our focus on selling our solutions to selected industry segments or industry “verticals” that we believe have the greatest potential for revenue growth and gross margin improvement. This effort will include greater alignment of our sales and services resources in those selected verticals.

     Rationalize product sales

     We believe that we can improve the overall profitability of our product resale business by focusing on selling the products of certain vendors, typically those for whom we sell the largest volume of products, and eliminating or deemphasizing smaller and less profitable vendors. We believe that by properly rationalizing our product sales we will reduce the extra cost burden associated with supporting a large number of smaller vendors.

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     Leverage our current customer base

     We have an existing customer base of over 5,000 clients. Many of our clients are currently utilizing only a small portion of our overall 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 an increased percentage of such client’s total IT spending.

     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.

     Implementing and maintaining aggressive cost control initiatives to right size the business

     We have made a commitment over the past few quarters to continue to monitor and implement cost control initiatives including reducing the number of associates from 636 in fiscal 2007 to 554 at March 31, 2008. We continue to seek opportunities to improve operating results and generate cash flow.

     We believe our strategy is aimed at focusing on profitable revenue growth, expanding our market share, reducing our structural costs and generating positive cash flow. We will continue to work to grow our net revenue and profitability.

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.

     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.

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     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 partner, a Microsoft Gold partner, an EMC Velocity Premier partner, a Sun Advantage partner, an Avaya Platinum partner, and a Captaris Platinum partner. For those manufacturers 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 footprint. With over 200 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 two staging facilities (located in California 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 proactive support services monitor, manage, and protect our clients’ 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 hacking attempts), and deteriorating performance, 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 clients’ 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 clients’ 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 to 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.

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Industry

     The IT solution and service provider industry is a multi-billion dollar industry that is focused on providing services to clients 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.

     We believe the strongest demand for our IT solutions is amongst 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 and 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 that 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 clients’ 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 primary target market for acquiring new clients 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, financial and health-care institutions. We further define our target market as organizations with 100 to 3,000 technology seats in a single or in multiple US locations.

     Sales. We have a direct sales force in the United States consisting of account executives, sales assistants, and subject matter expert sales personnel located in four areas (Northeast, Mid-Atlantic, Central, and West), each of whom report to an area vice president of sales. Account executives have the direct responsibility for selling and account management and the adoption of our technology at customer sites. 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 that drives specific vendor and solution sales.

     Indirect Sales. Through our partnership organization, we seek to build a set of relationships with strategic partners and value added resellers, in order to establish, and then expand an indirect channel of sales for our products.

     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 retail) and horizontal markets, consisting 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.

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 including Cisco Systems, Inc., Citrix Systems, Inc., Hewlett-Packard Company, Microsoft Corporation, EMC Corporation, Sun Microsystems, Inc., Avaya Inc., and Captaris, Inc. 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. If these agreements are terminated, we may have difficulty in obtaining inventory at a sufficiently low cost to allow for resale at a competitive price. The sales of products from the Company’s two largest suppliers accounted for 29% and 19% of all product sales for the year ended March 31, 2008.

     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 generally permit us to pass through to clients 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 clients. All service work after the expiration of the warranty period is at the client’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 client.

     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.

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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 clients. 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. On the national level our product competitors include Verizon, AT&T and Dimension Data. On the regional level our competitors include CDW, Right Systems, Entysis, Gotham, IPM and Dell.

     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-solicitation agreements.

Employees

     As of March 31, 2008 we employed approximately 554 associates (as measured on a full-time equivalent basis) in the United States. Of these associates, 31 were in management, 133 were in sales and marketing, 296 were in technical support, and 94 were in operations, finance and administration. At fiscal year end none of our personnel was represented by a union.

Item 1A. Risk Factors

     The statements in this Section describe the major risks to our business and should be considered carefully. We provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

Risks Relating to our Business

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

     We incurred a net loss of approximately $14.4 million for our fiscal year ended March 31, 2008, $32.0 million for our fiscal year ended March 31, 2007 and $8.5 million for our fiscal year ended March 31, 2006. Our net losses may continue and our ability to achieve and sustain profitability will be impacted by the following:

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     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 credit facilities agreement (described in Part II, Item 7) with GE Commercial Distribution Finance Corporation, as Administrative Agent, and our credit agreement (described in Part II, Item 7) with Columbia Partners, L.L.C. Investment Management, as Investment Manager, and National Electric Benefit Fund, as Lender, contain a number of financial and other covenants, including minimum consolidated earnings before interest, taxes, depreciation and amortization, minimum consolidated liquidity multiples and maximum consolidated leverage 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 would have a material adverse effect on our financial condition and liquidity. Additionally, the amount of working capital available to us under the credit facilities agreement is dependent upon the amount and quality of our accounts receivable. Significant defaults, or payment delays, of our accounts receivable could materially adversely affect our borrowing base and our access to sufficient working capital.

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

     We may need additional funds to support our current and future operations which, if available, could result in an increase in our interest expense and/ 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, 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 current operations or expand our business.

     A prolonged downturn in economic conditions may impact our revenues and negatively affect our business in the future.

     The recent economic slowdown in particular within the lending industry may negatively affect our business. Customers may cancel or delay orders for our products or services, and we could fall short of our revenue projections for 2009 and beyond. Slower growth and budget tightening among our customers and other general economic factors all have had, and could in the future have a materially adverse effect on our revenue, capital resources, financial condition and results of operations.

     The failure to maintain our status as an authorized reseller/service provider of IT products or a significant change in the terms of our supplier agreements 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 29% and 19% of all product sales for the year ended March 31, 2008. 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 resell 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 resale 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 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 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.

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     The loss of key personnel or difficulties recruiting and retaining qualified personnel could jeopardize the Company’s ability to meet its growth targets.

     The success of the Company’s efforts to grow its business depends on the contributions and abilities of key executive and operating officers and other personnel. We must continue to recruit, retain and motivate management and operating personnel sufficient to maintain its current business and support its projected growth. A shortage or loss of these key employees might jeopardize the Company’s ability to meet its growth targets.

     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 that the steps taken 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. 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. Factors that may affect our quarterly results include:

     Our operating expenses and capital expenditures are expected to be based in large part on our expectations of future revenues. 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.

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     MTM may be delisted by NASDAQ which could affect the ability to trade MTM stock, and which may be deemed an event of default pursuant to our credit arrangements.

     Our common stock (“Common Stock”) currently trades on The NASDAQ Capital Market (“NASDAQ”). In order for our Common Stock to continue to be quoted on NASDAQ, it must satisfy certain listing maintenance standards of the NASDAQ. On November 12, 2007, we received a notice from the Listing Qualifications Staff of The NASDAQ Stock Market stating that for the last 30 consecutive business days, the bid price of our Common Stock had closed below the minimum $1.00 per share requirement for continued inclusion under NASDAQ Marketplace Rule 4310(c)(4). Pursuant to NASDAQ Marketplace Rule 4310(c)(8)(D), we were provided 180 calendar days or until May 12, 2008 to regain compliance.

     On May 14, 2008, we received notice from The NASDAQ Stock Market stating that our Common Stock will be delisted from NASDAQ due to our failure to evidence a closing bid price of $1.00 per share, prior to the expiration of the 180 day grace period. The notice from NASDAQ provided that our Common Stock will be delisted from NASDAQ at the opening of business on May 23, 2008, unless we request a hearing before the NASDAQ Listing Qualifications Panel. We have requested such a hearing to seek continued listing of our Common Stock on NASDAQ. Our hearing request stays the delisting of our Common Stock until the Listing Qualifications Panel renders a determination after the hearing. The hearing is scheduled for July 10, 2008.

     In April 2008, the Independent Committee of the Board of Directors and the Board of Directors authorized a reverse stock split of our Common Stock at a reverse stock split ratio of 1-for-15 (the “Reverse Stock Split”), At the hearing, we will request an opportunity to implement the Reverse Stock Split and allow the post-split shares to trade for a sufficient time to meet the $1.00 minimum bid price listing standard. In order to demonstrate compliance with the NASDAQ bid price requirement, we will be required to evidence a closing bid price of at least $1.00 per share for a minimum of ten consecutive business days (NASDAQ in its discretion may monitor the bid price for as long as twenty business days). There can be no assurance that the Listing Qualification Panel will grant our request for continued listing on NASDAQ.

     In the event the NASDAQ panel determines not to grant our request or in the event the reverse stock split fails to bring us back into compliance with the $1.00 per share bid price requirement, our Common Stock would be delisted from NASDAQ and our Common Stock would trade on the OTC Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. Such alternative markets are generally considered to be less efficient than, and not as liquid as NASDAQ. Consequently, broker-dealers may be less willing or able to sell and/or make a market in MTM common stock. Additionally, an investor would find it more difficult to dispose of, or to obtain accurate quotations for the price of, MTM common stock. As a result of a delisting, it may become more difficult for MTM to raise funds through the sale of its securities.

     A delisting of our common stock may be deemed an event of default or breach of a covenant by our lenders pursuant to our facilities and credit agreements which could lead to the termination of these agreements and an acceleration of our outstanding debt. The acceleration of our debt would have a material adverse effect on our financial condition and liquidity. Delisting could also adversely affect MTM’s ability to obtain financing for the continuation of its operations or to use its common stock in acquisitions. Delisting could result in the loss of confidence by suppliers, customers and employees.

Risks Relating to our Reverse Stock Split

     If the Reverse Stock Split is implemented, the resulting per share price may not attract institutional investors; and any decline in share price would be a greater percentage decline than prior to the Reverse Stock Split.

     While our Board of Directors believes that a higher stock price may help generate investor interest in our Common Stock, the Reverse Stock Split may not result in a stock price that will attract institutional investors or investment funds or satisfy the investing guidelines of institutional investors or investment funds. If the Reverse Split is implemented and the market price of our Common Stock declines, the percentage decline may be greater than would occur in the absence of the split. The market price of our Common Stock is also based on the Company’s performance and other factors, which are unrelated to the number of shares of Common Stock issued.

     Our total market capitalization immediately after the proposed Reverse Stock Split may be lower than immediately before the proposed Reverse Stock Split.

     There are numerous factors and contingencies that could affect our stock price following the proposed Reverse Stock Split, including the status of the market for our stock at the time, our reported results of operations in future periods, and general economic, market and industry conditions. Accordingly, the market price of our Common Stock may not be sustainable at the bid price following the Reverse Stock Split. If the market price of our Common Stock declines after the Reverse Stock Split, our total market capitalization (the aggregate value of all of our Common Stock at the then existing market price) after the Reverse Stock Split will be lower than before the Reverse Stock Split.

     The Reverse Stock Split may result in some stockholders owning “odd lots” that may be more difficult to sell.

     The Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of our Common Stock on a post-split basis. Odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than shares in “board lots” of even multiples of 100 shares.

Risks Relating to Ownership of 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 57% of the voting power of our outstanding securities and has the right to acquire up to 60% of our voting securities. Pequot also has the power to nominate two directors to our Board of Directors. Pequot will receive additional voting power when we 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 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.

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

     As of May 31, 2008, we had outstanding an aggregate of 13,462,514 shares of our common stock and an aggregate of 30,843,626 shares of Series A Preferred Stock which are subsequently convertible into a total of 45,012,649 shares of our common stock. As of May 31, 2008, the Investors hold warrants to purchase 6,566,093 shares of our common stock and 392,157 shares of preferred stock. We also have an additional 9,436,374 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 7,720,000 shares of serial preferred that are not designated as Series A Preferred Stock and an additional (a) 5,747,457 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 1,400,000 shares of our common stock issuable upon exercise of other warrants previously granted and outstanding, all as of May 31, 2008. 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 located at 1200 High Ridge Road, Stamford, Connecticut. We lease approximately 20,000 square feet at this location. The Company additionally leases approximately 184,000 square feet of space in another 24 locations throughout the United States for regional and administrative offices. The Company currently occupies 20 of these offices, and subleases the balance of the office space consisting of approximately 25,000 square feet.

Item 3. Legal Proceedings

     On December 4, 2007 a lawsuit styled Amanda Mhanna v. MTM Technologies, Inc, et al., was filed in the Superior Court of the State of California. The plaintiff, a former Company employee, alleges discrimination, harassment, retaliation and other causes of action against the defendants. The plaintiff seeks an unstated amount of compensatory and punitive damages, attorney’s fee’s, and costs. On January 28, 2008, the Company served an answer to the complaint denying the allegations and asserting affirmative defenses. This matter is now in the discovery stage. The trial has been scheduled for May 2009.

     On March 14, 2008 a lawsuit styled Sonal Patel v. MTM Technologies, Inc, et al., was filed in the Superior Court of the State of California. The plaintiff, a former Company employee, alleges hostile work environment, harassment, and intentional infliction of emotional distress against the defendants. The plaintiff seeks an unstated amount of compensatory and punitive damages, attorney’s fees, and costs. On May 2, 2008, the Company served an answer to the complaint denying the allegations and asserting affirmative defenses.

     While management believes that the Company has meritorious defenses in the foregoing pending matters and the Company intends to pursue its positions vigorously, litigation is inherently subject to many uncertainties. Thus, the outcome of these matters is uncertain and could be adverse to the Company. Depending on the amount and timing of an unfavorable resolution of the contingencies, it is possible that the Company’s financial position, future results of operations or cash flows could be materially affected in a particular reporting period(s).

     As permitted under New York law, the Company has agreements under which it indemnifies its officers, directors and certain employees for certain events or occurrences while the officer or director is or was serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has a director and officer insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. Given the insurance coverage in effect, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of March 31, 2008.

     We are involved in other various claims and legal actions arising in the ordinary course of business. We believe that the ultimate outcome of these matters would not have a material adverse impact on the Company's financial condition or the results of operations.

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

     No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2008.

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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 Capital Market under the symbol “MTMC.” Set forth in the following table is the high and low sales prices for our common stock for each of the quarters during our last two fiscal years, based upon data provided by The NASDAQ Stock Market, Inc.:

Fiscal Year Ended March 31, 2008		High			Low
Quarter ended June 30, 2007		$	1.30		$	0.80
Quarter ended September 30, 2007			1.15			0.90
Quarter ended December 31, 2007			0.99			0.53
Quarter ended March 31, 2008			0.75			0.39
Fiscal Year Ended March 31, 2007		High			Low
Quarter ended June 30, 2006		$	3.98		$	2.50
Quarter ended September 30, 2006			4.50			2.03
Quarter ended December 31, 2006			3.90			1.35
Quarter ended March 31, 2007			2.19			1.10
Record Holders
As of May 31, 2008 there were 166 record holders of our common stock and approximately 1,400 beneficial holders of our common stock.
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. 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 Preferred Stock, provisions contained in our credit facilities agreement (described in Part II, Item 7) with GE Commercial Distribution Finance Corporation and in our credit agreement (described in Part II, Item 7) with Columbia Partners, L.L.C. Investment Management and National Electric Benefit Fund, as Lender, 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.

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Equity Compensation Plan Information

The following table sets forth, as of March 31, 2008:

		Column A			Column B		Column C
							Number of shares
							remaining
							available for
		Number of shares					future issuance
		to be issued			Weighted average		under equity
		upon exercise of			exercise price of		compensation
		outstanding			outstanding		plans (excluding
		options, warrants			options warrants		shares reflected
		and rights			and rights		in column A)
Equity compensation plans approved by shareholders		3,399,119			$2.15		2,258,231
Equity compensation plans not approved by
shareholders		—					—
Totals		3,399,119			$2.15		2,258,231

     Equity Compensation Plan Information excludes, for the purposes of Columns A and B, 225,107 Restricted Stock Units with a weighted-average fair value of $1.81.

Item 6. Selected Financial Data

     Not applicable.

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

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

Overview

We are a leading national provider of innovative IT solutions, including Access, Unified Communications, 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, financial and health-care institutions. We serve clients in most major US metropolitan markets.

As of March 31, 2008 the Pequot and Constellation investment has totaled approximately $73 million. The Company has used these funds to execute a growth strategy, as well as for working capital needs. The Company has executed its growth strategy since July 2004 by completing six strategic acquisitions of providers of advanced technology solutions and products. The most recent of these acquisitions was completed in April 2006. Currently we are not actively seeking acquisition candidates, but we believe that growth through acquisition may be an important component of our long-term strategy.

During fiscal 2007 the Company focused on integrating the operations of the acquired companies, centralizing operations and restructuring its organization in an effort to provide our customers with a national strategy and to improve our earnings and cash flow. During fiscal 2008 we have remained steadfast in our commitment to cut costs and to focus on profitable revenue growth and continued improvements in margin, while building on efficiencies within our existing resources. Results for the year ended March 31, 2008 included a return to positive EBITDA for not only year end but for each of the respective quarters. In August 2007, the Company successfully refinanced its working capital lines of credit with a $34 million credit facilities agreement with GE Commercial Distribution Finance Corporation (“CDF”) as Administrative Agent, which provided the Company with additional capital and increased purchasing flexibility. Our business requires significant levels of working capital to fund future revenue growth and current operations. We have historically relied on and continue to rely heavily on, trade credit from vendors and our credit facilities for our working capital needs. We are focused on looking at avenues to secure additional open lines of credit with vendors and have recently negotiated additional flexibility in borrowing restrictions and reserves under our credit facilities. We continue to drive collection of accounts receivable and are actively managing our expenses to achieve greater economies of scale. All of which we believe will serve to improve our working capital position and purchasing ability.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. The methods, estimates, and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. Actual results may differ from these estimates under different assumptions or conditions. 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 results of operations. Based on this definition, our most critical policies include: revenue recognition, allowance for doubtful accounts, stock-based compensation, the assessment of recoverability of long-lived assets, and the assessment of recoverability of goodwill and intangible 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.

Allowance for Doubtful Accounts

We estimate the allowance for doubtful accounts based on historical experience, customer credit risk and application of the specific identification method. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible. If actual customer performance were to deteriorate to an extent not expected by us, additional allowances may be required which could have an adverse effect on our consolidated financial results. Conversely, if actual customer performance were to improve to an extent not expected by us, a reduction in allowances may be required which could have a favorable effect on our consolidated financial results.

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Stock-based Compensation

We account for stock-based compensation in accordance with the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). The Company uses the Black-Scholes option pricing model which requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their stock options before exercising them, the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements. Changes in the subjective assumptions can materially affect the estimate of fair value stock-based compensation and consequently, the related amount recognized on the consolidated statement of operations. RSUs issued by the Company are equivalent to nonvested shares, as defined by SFAS No. 123(R). No stock-based compensation expense was recognized in the consolidated financial statements related to the Associate Stock Purchase Plan, since the related purchase discounts did not exceed the amount allowed under SFAS No. 123(R) for non-compensatory treatment.

Impairment of Long-lived Assets

When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, an evaluation of recoverability is performed by comparing the carrying values of the assets to projected future cash flows, in addition to other quantitative and qualitative analyses. For goodwill and other intangible assets, we test for impairment on a consolidated basis at least annually or more frequently if we believe indicators of impairment exist. Upon indication that the carrying values of such assets may not be recoverable, the Company recognizes an impairment loss as a charge against current operations. Property and equipment assets are grouped at the lowest level for which there are identifiable cash flows when assessing impairment. Factors that may cause a goodwill, intangible asset or other long-lived asset impairment include negative industry or economic trends and significant underperformance relative to historical or projected future operating results. Our valuation methodologies include, but are not limited to, estimating the net present value of the projected cash flows of our Company. If actual results are substantially lower than our projections underlying these assumptions, or if market discount rates substantially increase, our future valuations could be adversely affected, potentially resulting in future impairment charges.

Consolidated 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 revenues, unless otherwise noted:

		Year Ended March 31,
		2008			2007
Net revenues:
Products		70.8	%		75.2