MICROCOM INC, S-3/A, 1995-06-02

MICROCOM INC
S-3/A, 1995-06-02
TELEPHONE & TELEGRAPH APPARATUS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1995

REGISTRATION NO. 33-59471

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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

PRE-EFFECTIVE AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MICROCOM, INC.
(Exact name of Registrant as specified in its charter)
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<TABLE>
<S> <C>
MASSACHUSETTS 04-2710644
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>

500 RIVER RIDGE DRIVE,
NORWOOD, MASSACHUSETTS 02062-5028
(617) 551-1000
(Address and Telephone Number of Registrant's Principal Executive Offices)
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ROLAND D. PAMPEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MICROCOM, INC.
500 River Ridge Drive
Norwood, Massachusetts 02062-5028
(617) 551-1000
(Name, Address and Telephone Number of Agent for Service)
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COPIES TO:

<TABLE>
<S> <C>
William C. Rogers, Esq. Richard R. Plumridge, Esq.
CHOATE, HALL & STEWART Alexander D. Lynch, Esq.
Exchange Place BROBECK, PHLEGER & HARRISON, LLP
53 State Street 1301 Avenue of the Americas 30th Floor
Boston, Massachusetts 02110 New York, New York 10019
(617) 248-5000 (212) 581-1600
</TABLE>

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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.

If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. / /

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JUNE 2, 1995

3,200,000 SHARES

[LOGO MICROCOM(R)]

COMMON STOCK

Of the 3,200,000 shares of common stock, $0.01 par value (the "Common
Stock"), offered hereby, 3,000,000 shares are being offered by Microcom, Inc.
("Microcom" or the "Company") and 200,000 shares are being offered by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders.

The Common Stock is traded on the Nasdaq National Market ("Nasdaq") under
the trading symbol "MNPI." On June 1, 1995, the last reported sales price of the
Common Stock on Nasdaq was $11 5/8 per share. See "Price Range of Common Stock
and Dividend Policy."

FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 6-10.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

------------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS* COMPANY+ STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total++.................... $ $ $ $
</TABLE>

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* The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."

+ Before deducting expenses of the offering payable by the Company estimated to
be $425,000.

++ The Company has granted to the Underwriters a 30-day option to purchase up to
480,000 additional shares of Common Stock from the Company on the same terms
per share solely to cover over-allotments, if any. If such option is
exercised in full, the total price to public will be $ , the total
underwriting discounts and commissions will be $ and the total proceeds
to Company will be $ . See "Underwriting."
------------------------

The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New
York on or about , 1995 against payment therefor in New York
funds. The Underwriters include:

DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
NEEDHAM & COMPANY, INC.

The date of this Prospectus is , 1995
<PAGE> 3
[MICROCOM]

[INSIDE FRONT COVER
"FOR CENTRAL SITE..."]

[Photo: "Central Site Network Manager"
Description: Photo of a person depicting a central site network manager.]

[Caption: Microcom's HDMS and LANexpress (including expressWATCH) offer
management, security and reliability at the central site-critical requirements
of network and information managers.]

[Photo: "HDMS - High Density Management System"
Description: A Microcom HDMS black box with LEDs on front panel]

[Photo: "expressWATCH"
Description: Screen shot of expressWATCH LAN Traffic Counts]

[Photo: "LANexpress"
Description: Beige LANexpress server with silver name plate on front panel]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus. Except as otherwise indicated
herein, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option.

THE COMPANY

Microcom, Inc. ("Microcom" or the "Company") is a leading provider of
remote network access solutions. The Company's products enable users to access
and communicate with on-line computer networks, such as the Internet, America
Online, CompuServe and Prodigy, and corporate networks from remote locations.
Microcom provides its customers with remote network access management and
security capabilities, and high quality, reliable products that are easy to
install and use.

The Company was founded in 1980 as a developer of data communications
software, high performance modems and related technologies. In the early 1990s,
the Company responded to changes in the data communications industry by
undertaking a series of strategic initiatives and restructurings designed to
reposition the Company to address the needs of the emerging remote network
access markets. These initiatives included the development of products with
remote network access functionality, divestitures of non-core products, a
restructuring of the worldwide sales organization, the hiring of a new Chief
Executive Officer and the acquisition of Integrated Services Digital Network
(ISDN) product technologies. By implementing these initiatives and by leveraging
its technology and expertise, the Company has developed a broad range of remote
network access products for central site network managers and remote users. The
Company believes that its recent results of operations reflect the ongoing
implementation of these initiatives.

Microcom's products serve both central site network managers and individual
remote users. Products designed for the central site include the High Density
Management System (HDMS) -- a dial-up access management system; and LANexpress
- -- remote local area network (LAN) access systems which include expressWATCH, a
comprehensive remote network access management solution. Products designed for
the individual remote user include high performance V.34 (28.8 Kbps) PCMCIA,
desktop and other modems; Carbon Copy remote control/remote PC access software;
LANexpress Remote client software, a remote node and remote control LAN access
product; and ISDN terminal adapters.

The Company's customers include (i) Internet and on-line service network
access providers, such as Sprint Corporation, (ii) "Corporate 2000" companies
such as American Airlines, Inc., Blockbuster Entertainment Corporation, NYNEX
Corporation and State Farm Insurance Company, (iii) large international
corporations, (iv) governmental agencies and universities and (v) individual
remote users seeking to access the Internet, on-line services and corporate
networks. The Company distributes its products through direct sales and multiple
indirect channels, including value added resellers (VARs), distributors and
original equipment manufacturers (OEMs) in the United States and international
markets.

Microcom's strategy is to continue to be a leading provider of remote
network access solutions and to capitalize on the emerging trends in this
market. The key components of the Company's strategy are as follows:

Continue Focus on Remote Network Access Market by developing new
products and enhancements to existing products to meet or exceed the
evolving requirements of both the central site network manager and the
remote user.

Maintain Technology Leadership by investing in research and
development to enhance existing products, develop new products, and
respond to emerging technologies in a cost effective and timely
manner.

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<PAGE> 5

Leverage Existing Customer Base by aggressively marketing new products
and enhancements to existing customers and utilizing this installed
base as references for new customers, particularly telecommunications
companies.

Develop and Expand Strategic Relationships with telecommunications
companies, equipment providers, OEMs and software vendors to enhance
the Company's product development activities and leverage shared
technologies and joint marketing efforts.

Expand Worldwide Distribution to develop further demand for remote
network access products both domestically and internationally.

MICROCOM, the Microcom logo, MNP and TravelPorte are registered trademarks
of the Company and Advanced Parallel Technology, APT, Carbon Copy, DeskPorte,
DeskPorte FAST, expressWATCH, High Density Management System, HDMS, Intelligent
Network Controller, INC, LANexpress, Microcom Networking Protocol and
TravelPorte FAST are trademarks of the Company. This Prospectus also includes
trade names and trademarks of companies other than Microcom.

The Company's principal executive offices are located at 500 River Ridge
Drive, Norwood, Massachusetts 02062-5028, and its telephone number is (617)
551-1000.

THE OFFERING

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<S> <C>
Common Stock offered by the Company...................... 3,000,000 shares
Common Stock offered by the Selling Stockholders......... 200,000 shares
Common Stock to be outstanding after the Offering(1)..... 14,107,315 shares

Use of proceeds to the Company........................... For repayment of indebtedness,
working capital and other general
corporate purposes. See "Use of
Proceeds."

Nasdaq National Market symbol............................ MNPI
</TABLE>

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(1) Based on the number of shares outstanding on March 31, 1995. Excludes the
2,101,499 shares of Common Stock issuable upon exercise of options
outstanding as of March 31, 1995, at a weighted average exercise price of
$4.65 per share.

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<PAGE> 6

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
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STATEMENT OF OPERATIONS DATA: 1991 1992 1993 1994 1995(1)
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<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 55,401 $73,906 $ 69,435 $ 56,464 $93,106
Gross margin........................................ 27,445 41,804 36,303 27,392 41,784
Restructuring and other costs....................... (20,500)(2) -- (4,268)(3) (7,875)(4) --
Income (loss) from operations....................... (33,434) 4,205 (6,902) (10,416) 7,517
Net income (loss)................................... (28,744) 3,431 (10,694) (10,913) 5,761
Net income (loss) per share......................... $(3.16) $.34 $(1.11) $(1.09) $.49
Weighted average number of shares outstanding....... 9,083 10,002 9,644 10,041 11,805
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
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JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
SELECTED QUARTERLY DATA (5): 1993 1993 1993 1994 1994 1994 1994 1995
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 12,056 $12,471 $14,849 $17,088 $21,315 $22,770 $23,134 $25,887
Gross margin................... 5,515 6,326 7,465 8,086 9,588 10,157 10,364 11,675
Restructuring and other
costs........................ 6,500(4) -- -- 1,375 (4) -- -- -- --
Income (loss) from
operations................... (10,186) 79 448 (757 ) 1,457 1,747 2,055 2,258
Net income (loss).............. (10,300) 66 265 (944 ) 1,176 1,385 1,529 1,671
Net income (loss) per share.... $(1.06) $.01 $.03 $(.09 ) $.11 $.12 $.13 $.14
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1995
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BALANCE SHEET DATA: ACTUAL AS ADJUSTED (6)
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<S> <C> <C>
Cash and equivalents.................................................................... $ 863 $21,006
Working capital......................................................................... 17,732 50,090
Total assets............................................................................ 57,788 77,931
Total debt, including capitalized leases................................................ 12,665 450
Total stockholders' equity.............................................................. 35,282 67,640
</TABLE>

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(1) For certain pro forma information, see Note 3 of Notes to Consolidated
Financial Statements.

(2) Related to (i) the write-down of intangible assets associated with three
software product lines, (ii) the elimination of certain warehouse and
manufacturing facilities and associated personnel, (iii) the write-off of
certain inventory and (iv) the closing of international sales offices.

(3) Related to (i) the disposition of the Relay software product line, (ii) a
workforce reduction and (iii) the elimination of certain assets and excess
facilities. See Note 2 of Notes to Consolidated Financial Statements.

(4) Related to (i) the disposition of the LANlord product line, (ii) a workforce
reduction, (iii) the direct costs associated with the realizability of
certain assets associated with the implementation of a new sales, marketing
and distribution plan, (iv) the closing of a manufacturing facility, (v)
certain executive severance costs and (vi) the consolidation of certain
shipping locations. See Note 2 of Notes to Consolidated Financial
Statements.

(5) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Quarterly Operating Results."

(6) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered by
the Company hereby assuming a public offering price of $11.625 per share and
after deducting underwriting discounts and commissions and estimated
expenses of the offering payable by the Company, and the application of the
estimated net proceeds as described in "Use of Proceeds." Fiscal 1995 net
income per share would be unaffected had the Company applied the proceeds of
this offering to the payment of debt.

5
<PAGE> 7

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE COMMON STOCK.

NEW PRODUCT DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGE

The market for Microcom's products is characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. Microcom's future success will depend in part on its
ability to enhance its existing products and to introduce new products on a
timely basis to meet and adapt to changing customer requirements, evolving
industry standards and emerging technologies. There can be no assurance that
Microcom will be successful in developing, manufacturing and marketing new
products or product enhancements that respond to technological changes or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products or that its new products will adequately meet the
requirements of the marketplace and achieve market acceptance. If the Company is
unable, for technological or other reasons, to develop new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, results of
operations and financial condition would be materially and adversely affected.
In addition, there can be no assurance that services, products or technologies
developed by others will not render Microcom's products or technologies
uncompetitive or obsolete. The introduction of new or enhanced products also
requires the Company to manage the transition from older products in order to
minimize disruption in customer ordering patterns, avoid excessive levels of
older product inventories and ensure that adequate supplies of new products can
be delivered to meet customer demand. There can be no assurance that the Company
will successfully manage the transition to new products. The failure to manage
any such transition successfully could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Research and Development."

HIGHLY COMPETITIVE ENVIRONMENT

The market for remote network access products is highly competitive. In the
central site remote network access market, the Company competes with remote LAN
access server vendors such as Shiva Corporation, Digital Communications
Associates, Inc., Novell, Inc. and 3Com Corporation and vendors of dial-up
access management systems such as U.S. Robotics Corporation, Primary Access
Corporation (recently acquired by 3Com Corporation) and Motorola, Inc. The
Company also faces increasing competition from operating system (OS) and network
operating system (NOS) vendors such as Microsoft Corporation, Novell, Inc. and
International Business Machines Corporation who are including remote access
capabilities in their products. In the remote site personal computer (PC)
communications software market, the Company competes with a number of providers
of remote control, file transfer and remote LAN access software, including
Symantec Corporation, Stac Electronics, Inc. and Shiva Corporation. The
Company's remote site modems compete with those of U.S. Robotics Corporation,
Hayes Microcomputer Products, Inc. and Practical Peripherals, Inc. Increased
competition could result in price reductions and loss of market share which
would materially and adversely affect Microcom's business, results of operations
and financial condition. The Company believes that its ability to compete
successfully depends on a number of factors, including price, product features,
product quality, performance and reliability, name recognition, international
certification, experienced sales, marketing and service organizations,
development of new products and enhancements, evolving industry standards and
announcements by competitors. Many of Microcom's current and potential
competitors have significantly greater financial, marketing, technical and other
resources than Microcom. As a result, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products than the Company. The Company also expects competition to increase as a
result of industry consolidations. In addition, current and potential
competitors have established or may

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establish cooperative relationships among themselves or with third parties to
address the remote network access needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. There can be no
assurance that Microcom will be able to continue to compete successfully with
existing or new competitors or that competitive pressures faced by the Company
would not materially and adversely affect its business, results of operations or
financial condition. See "Business -- Competition."

SALES TO TELECOMMUNICATIONS CARRIERS; CUSTOMER CONCENTRATION

As part of its sales and marketing strategy, Microcom is seeking to
increase the sales of its central site remote network access products to
telecommunications carriers and affiliated entities. These entities usually have
long purchasing cycles and extensive vendor qualification requirements.
Accordingly, sales efforts to such entities typically require significant
investments of time and resources with no assurance that such efforts will be
successful. Sales by Microcom to Sprint Corporation ("Sprint") accounted for 24%
and 13% of net sales in fiscal 1995 and 1994, respectively. Sprint is not
obligated to make any minimum level of future purchases from the Company or to
provide the Company with binding forecasts of product purchases for any future
period. While the Company expects that Sprint will continue to be a significant
customer, the Company anticipates that net sales to Sprint in fiscal 1996 will
be significantly less than in fiscal 1995. Although the Company has recently
established a relationship with another major telecommunications carrier, there
can be no assurance that the Company will make any significant sales to such
carrier or that sales to it and other telecommunications carriers will offset
any decline in sales to Sprint. The failure to achieve and maintain significant
sales to telecommunications carriers or to offset any decline in sales to Sprint
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Customers."

FLUCTUATIONS IN QUARTERLY RESULTS

Microcom's quarterly operating results have fluctuated significantly in the
past and may fluctuate significantly in the future. Such fluctuations may result
in volatility in the price of the Company's Common Stock. Quarterly revenues and
operating results may fluctuate as a result of a variety of factors including
the timing of significant orders, the timing of product enhancements and new
product introductions by Microcom and its competitors, the pricing of the
Company's products, changes in product mix, changes in customers' budgets,
competitive conditions, the proportion of international sales to total net
sales, the proportion of sales made pursuant to the Company's various
distribution channels and general economic conditions. The Company has
historically operated with limited backlog because its products are shipped
shortly after orders are received. The Company has often recognized a
substantial portion of its net sales in the last month of the quarter. As a
result, net sales in any quarter are substantially dependent on orders booked
and shipped in the last month of a quarter. A small variation in the timing of
orders is likely to adversely and disproportionately affect the Company's
results of operations as the Company's expense levels are based, in part, on its
expectations as to future net sales and only a small portion of the Company's
expenses vary with its net sales. Moreover, Microcom's net sales may fluctuate
based on the level of inventories of the Company's products maintained by the
Company's resellers in any particular quarter. Accordingly, the Company believes
that period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicative of future performance.
Although the Company's net sales have increased and the Company has been
profitable in recent quarterly periods, there can be no assurance that the
Company's net sales will increase in future quarters or that the Company will
remain profitable on a quarterly basis, if at all. Due to the foregoing factors,
it is possible that in some future quarters the Company's results of operations
will be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would be materially and adversely
affected.

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<PAGE> 9

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Operating Results."

LIMITED HISTORY OF PROFITABLE OPERATIONS

Although the Company's net income in fiscal 1995 was $5,761,000, the
Company incurred net losses of $10,913,000 and $10,694,000 for fiscal 1994 and
1993, respectively, which net losses included restructuring and other costs of
$7,875,000 and $4,268,000 in those years, respectively. At March 31, 1995, the
Company had an accumulated deficit of $21,589,000. There can be no assurance
that the net sales and net income growth Microcom has experienced in recent
quarters can be sustained or that in the future Microcom will be profitable and
not incur additional restructuring charges. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS

The Company is dependent on a small number of subcontractors for the
manufacture and assembly of all of its remote network access products. In the
event that any of these subcontractors were to become unable or unwilling to
manufacture Microcom's products in required volumes, Microcom would have to
identify and qualify additional subcontractors. The identification and
qualification process could be lengthy and no assurances can be given that any
replacement subcontractors will be available to the Company on a timely basis.
The failure to identify and qualify replacement subcontractors on a timely
basis would have a material and adverse effect on the Company's business,
results of operations and financial condition. In addition, certain components
used in the Company's products are only available from a single supplier or a
limited number of suppliers. Components for the Company's products which are
only available from a single supplier include certain semiconductor components
used in the Company's modems sourced from Rockwell International Corporation
("Rockwell") and the power supply component obtained from TDK for the Company's
PCMCIA modem. It was recently reported that Rockwell would be required to
allocate among its customers, including Microcom, the supply of a certain
component incorporated into V.34 modems. This component is included in the
Company's HDMS, LANexpress and modem products. If Rockwell is unable to supply
sufficient quantities of this component to the Company on a timely basis, it
would cause a delay in Microcom's product shipments and such delay would have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company believes, however, that it will be able to
obtain from Rockwell sufficient quantities of the component to satisfy its
anticipated requirements. The Company generally purchases single or limited
source components pursuant to purchase orders and has no guaranteed supply
arrangements with its suppliers. Further, the availability of many of these
components is dependent in part on the Company's ability to provide its
suppliers with accurate forecasts of its future requirements. A reduction or
interruption in supply of these components could result in delays or reductions
in product shipments which would materially and adversely affect the Company's
business, results of operations and financial condition and could damage
customer relationships. The Company may also be subject to increases in
component costs, which could also have a material adverse effect on the
Company's business, results of operations or financial condition. See "Business
- -- Manufacturing."

DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company's success and ability to compete is dependent in part upon its
ability to protect its proprietary technology. The Company relies on a
combination of patent, copyright and trade secret laws and non-disclosure
agreements to protect its proprietary technology. The Company currently holds
fourteen United States patents, three of them involving ISDN technology, and has
five United States patent applications and two foreign patent applications
pending in a number of jurisdictions. There can be no assurance that patents
will be issued with respect to pending or future patent applications or that the
Company's patents will be upheld as valid or will prevent the development of
competitive products. The Company's United States patents expire between 2004
and 2011. The Company has not sought foreign patents for some of its
technologies, including technologies which have

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<PAGE> 10

been patented in the United States, which may adversely effect the Company's
ability to protect its technologies and products in foreign countries. The
Company generally enters into confidentiality or license agreements with its
employees, distributors, customers and potential customers and limits access to
and distribution of its software, documentation and other proprietary
information. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
its technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. The Company is also subject to the risk of adverse claims and litigation
alleging infringement of the proprietary rights of others. From time to time the
Company has received claims of infringement of other parties' proprietary
rights. In addition, the Company periodically reviews recent patents that have
been issued to third parties. As a result of such reviews, the Company has from
time to time identified and investigated the validity and scope of issued
patents for technologies similar to, or related to, the Company's technologies.
Although the Company believes that it does not infringe the valid patents of
others, there can be no assurance that third parties will not assert
infringement claims in the future with respect to the Company's current or
future products or that any such claims will not require the Company to enter
into license arrangements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms. The failure to obtain such royalty or
licensing agreements on a timely basis would have a material adverse effect upon
the Company's business, results of operations and financial conditions. See
"Business -- Proprietary Rights."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company expects that sales outside North America, which accounted for
approximately 29% of net sales in fiscal 1995, will continue to represent a
significant portion of its total net sales. In addition, the Company uses
subcontractors in China, Malaysia, Singapore and Hong Kong to manufacture a
substantial portion of its products and obtains certain components from foreign
suppliers. Sales to customers outside the United States and reliance on foreign
manufacturers and suppliers involve a number of risks, including unexpected
changes in regulatory requirements and tariffs, difficulties enforcing
agreements and collecting receivables, longer payment cycles, exchange rate
fluctuations, difficulties enforcing intellectual property rights, difficulties
obtaining export licenses, the imposition of withholding or other taxes,
embargoes or exchange controls or the adoption of other restrictions on foreign
trade.

RELIANCE ON REMOTE NETWORK ACCESS MARKET

Microcom currently devotes virtually all of its research and development,
manufacturing, marketing and sales resources to service the remote network
access market. The Company's future financial performance will depend in large
part on continued growth in the remote network access market, which in turn will
depend in part on the growth in the number of organizations utilizing remote
network access products and the number of applications developed for use with
those products. There can be no assurance that this market will continue to grow
or that the Company will be able to respond effectively to the evolving
requirements of this market. If this market fails to grow or grows more slowly
than the Company currently anticipates, the Company's business, results of
operations and financial condition would be materially and adversely affected.

RELIANCE ON INDIRECT DISTRIBUTION CHANNELS

In fiscal 1995, sales through indirect distribution channels accounted for
approximately 66% of the Company's net sales. The Company's agreements with
VARs, distributors and OEMs are typically non-exclusive and in many cases may be
terminated by either party without cause, and many of the Company's VARs,
distributors and OEMs carry competing product lines. Therefore, there can be no

9
<PAGE> 11

assurance that any VAR, distributor or OEM will continue to represent the
Company's products and the loss of important VARs, distributors or OEMs could
adversely affect the Company's business, results of operations and financial
condition. See "Business -- Sales and Marketing."

DEPENDENCE ON PERSONNEL

Microcom believes that its future success will depend in large part upon
its ability to attract and retain highly skilled engineering, managerial, sales,
marketing and product development personnel. Except with respect to the
President and Chief Executive Officer, the Company does not have employment
contracts with its key personnel and does not maintain any key person life
insurance policies. Competition for such personnel is intense, especially in the
areas of engineering and sales and marketing. The loss of key management or
technical personnel could materially and adversely affect the Company's
business, results of operations and financial condition, and there can be no
assurance that Microcom will be able to attract and retain the personnel
required to engineer, manage, market or develop its products and conduct its
operations successfully. See "Business -- Employees" and "Management."

MANAGEMENT OF GROWTH

Microcom has recently experienced rapid growth which has placed, and could
continue to place, a significant strain on the Company's management and
operations. If Microcom's management is unable to manage future growth
effectively, Microcom's business, results of operations and financial condition
could be materially and adversely affected.

POTENTIAL VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock has been, and could be,
subject to wide fluctuations in response to, among other things, quarterly
fluctuations in operating results, adverse circumstances affecting the
introduction or market acceptance of new products or enhancements offered by the
Company, announcements of new products or enhancements by competitors, changes
in earnings estimates by analysts, changes in accounting principles, sales of
Common Stock by existing holders, loss of key personnel and market conditions in
the industry, shortages of key components as well as general economic
conditions. In addition, stock prices for many technology companies, including
the Company, have experienced significant volatility for reasons unrelated to
operating results. These fluctuations may adversely affect the market price of
the Company's Common Stock. See "Price Range of Common Stock and Dividend
Policy."

POTENTIAL ADVERSE EFFECTS OF ANTI-TAKEOVER PROVISIONS

The Company's Restated Articles of Organization and By-laws contain
provisions that may make it more difficult for a third party to acquire, or
discourage acquisition bids for, a majority of the outstanding Common Stock of
the Company. These provisions include the classification of the Company's Board
of Directors and super-majority voting requirements to remove directors and to
amend the provisions relating to the classification of the Board of Directors
and the removal of directors. In addition, the Company's Restated Articles of
Organization prohibit a holder of 10% or more of the Common Stock from engaging
in certain transactions with the Company, including a merger or sale of stock or
assets, without the approval of the holders of at least 80% of the Common Stock.
These provisions could delay or make more difficult a merger, tender offer or
proxy contest involving the Company, and may limit or reduce the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock.

10
<PAGE> 12

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby by the Company are estimated to be approximately
$32,358,000 (approximately $37,603,000 if the Underwriters' over-allotment
option is exercised in full), assuming a public offering price of $11.625 per
share and after deducting the underwriting discounts and commissions and the
estimated offering expenses payable by the Company. The Company will not receive
any proceeds from the sale of Common Stock offered hereby by the Selling
Stockholders.

The Company intends to use a portion of such net proceeds to repay all
indebtedness under its revolving credit agreement. The outstanding balance under
such credit agreement was approximately $11,900,000 at May 15, 1995. Any
borrowed amounts which are repaid may be reborrowed by the Company, subject to
compliance with the terms and conditions of the agreement. Such agreement
expires in March 1996 and indebtedness thereunder bears interest at the banks'
prime rate (9% at March 31, 1995) plus 2%. Substantially all indebtedness
incurred since May 15, 1994 under the Company's revolving credit agreement was
used for working capital, except approximately $1,716,000 which was used for an
acquisition of certain ISDN technology in March 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Recent Acquisitions and Dispositions of Product Lines." The Company expects to
use the balance of such net proceeds for general corporate purposes, including
working capital. A portion of the net proceeds may also be used for the
acquisition of businesses, products and technologies that are complementary to
those of the Company. The Company has no commitments or understandings for any
such acquisitions, and no portion of the net proceeds has been allocated for any
specific acquisition. Pending such uses, the net proceeds to the Company of this
offering will be invested in short-term, investment-grade, interest-bearing
securities.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol MNPI. The following table sets forth for the fiscal periods indicated
the high and low sales prices of the Common Stock, as reported on the Nasdaq
National Market.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED MARCH 31, 1994:
1st Quarter.............................................................. $ 5 3/8 $3 1/8
2nd Quarter.............................................................. 3 5/8 1 1/2
3rd Quarter.............................................................. 5 5/8 2 1/2
4th Quarter.............................................................. 7 3/4 4 3/4

YEAR ENDED MARCH 31, 1995:
1st Quarter.............................................................. $ 6 1/2 $4 1/2
2nd Quarter.............................................................. 8 1/4 5 7/8
3rd Quarter.............................................................. 12 3/8 6 5/8
4th Quarter.............................................................. 12 5/8 9

YEAR ENDED MARCH 31, 1996:
1st Quarter (through June 1, 1995)....................................... $12 1/8 $9 1/8
</TABLE>

On June 1, 1995, the last reported sales price of the Common Stock on the
Nasdaq National Market was $11 5/8. As of May 15, 1995, there were 418 holders
of record of the Common Stock.

DIVIDENDS

The Company has never paid cash dividends and currently intends to retain
its earnings to finance future growth and therefore does not anticipate paying
any cash dividends for the foreseeable future. In addition, the Company is
prohibited by the terms of its bank revolving credit agreement from declaring or
paying any cash dividends. Any future determination relating to dividend policy
will be made in the discretion of the Board of Directors of the Company and will
depend on a number of factors, including the future earnings, capital
requirements, financial condition and future prospects of the Company and such
other factors as the Board of Directors may deem relevant.

11
<PAGE> 13

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
March 31, 1995, and (ii) as adjusted to give effect to the sale of 3,000,000
shares of Common Stock offered hereby by the Company, assuming a public offering
price of $11.625 per share and after deducting the underwriting discounts and
commissions and the estimated offering expenses payable by the Company and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Consolidated Financial Statements and the related notes
and other financial information appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
(IN THOUSANDS)
Current portion of capitalized leases and short-term debt............ $ 12,543 $ 328
======== =========
Long-term portion of capitalized leases.............................. 122 122
-------- ---------
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized;
12,088,315 shares issued on an actual basis; and 15,088,315
shares issued on an as adjusted basis(1)....................... 121 151
Capital in excess of par value.................................. 61,223 93,551
Stock loans -- related parties.................................. (1,942) (1,942)
Unrealized loss on marketable securities........................ (33) (33)
Accumulated deficit............................................. (21,589) (21,589)
Treasury stock, 981,000 shares at cost.......................... (2,613) (2,613)
Cumulative translation adjustment............................... 115 115
-------- ---------
Total stockholders' equity................................. 35,282 67,640
-------- ---------
Total capitalization.................................. $ 35,404 $ 67,762
======== =========
</TABLE>

- ---------------
(1) Excludes 2,101,499 shares of Common Stock issuable upon exercise of options
outstanding as of March 31, 1995, at a weighted average exercise price of
$4.65 per share.

12
<PAGE> 14

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statement of operations data for the
years ended March 31, 1991, 1992, 1993, 1994 and 1995, and selected consolidated
balance sheet data as of March 31, 1991, 1992, 1993, 1994 and 1995 are derived
from the Company's consolidated financial statements, which have been audited by
Arthur Andersen LLP. The consolidated financial statements as of March 31, 1994
and 1995, and for each of the years in the three year period ended March 31,
1995, and the independent auditors' report thereon, are included elsewhere in
this Prospectus. The selected consolidated financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements, including the notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1991 1992 1993 1994 1995(1)
--------- -------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales..................................................... $ 55,401 $ 73,906 $ 69,435 $ 56,464 $ 93,106
Cost of sales................................................. 27,956 32,102 33,132 29,072 51,322
--------- -------- --------- --------- --------
Gross margin.................................................. 27,445 41,804 36,303 27,392 41,784
--------- -------- --------- --------- --------
Operating expenses:
Research and development.................................. 12,415 12,502 12,483 8,959 10,250
Sales and marketing....................................... 18,361 19,496 20,915 15,608 19,270
General and administrative................................ 9,603 5,601 5,539 5,366 4,747
Restructuring and other costs............................. 20,500(2) -- 4,268(3) 7,875(4) --
--------- -------- --------- --------- --------
Total operating expenses.............................. 60,879 37,599 43,205 37,808 34,267
--------- -------- --------- --------- --------
Income (loss) from operations................................. (33,434) 4,205 (6,902) (10,416) 7,517
Settlement costs.............................................. -- -- (3,200)(5) -- --
Interest income............................................... 352 124 88 42 67
Interest and other expenses, net.............................. (161) (195) (185) (378) (807)
--------- -------- --------- --------- --------
Income (loss) before income taxes............................. (33,243) 4,134 (10,199) (10,752) 6,777
Provision for income taxes.................................... (4,499) 703 495 161 1,016
--------- -------- --------- --------- --------
Net income (loss)............................................. $ (28,744) $ 3,431 $ (10,694) $ (10,913) $ 5,761
======== ======= ======== ======== =======
Net income (loss) per share................................... $(3.16) $.34 $(1.11) $(1.09) $.49
======== ======= ======== ======== =======
Weighted average number of shares outstanding................. 9,083 10,002 9,644 10,041 11,805
======== ======= ======== ======== =======
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------------------
BALANCE SHEET DATA: 1991 1992 1993 1994 1995
--------- -------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and equivalents.......................................... $ 6,324 $ 5,609 $ 9,108 $ 5,342 $ 863
Working capital............................................... 25,221 29,221 20,829 13,957 17,732
Total assets.................................................. 52,281 52,957 45,853 38,453 57,788
Total debt, including capitalized leases...................... 1,000 832 1,042 1,303 12,665
Total stockholders' equity.................................... 40,141 46,042 36,520 26,231 35,282
</TABLE>

- ---------------

(1) For certain pro forma information, see Note 3 of Notes to Consolidated
Financial Statements.

(5) Represents amount paid, net of insurance, in connection with the settlement
of securities litigation against the Company and certain of its officers.

13
<PAGE> 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company was founded in 1980 as a developer of data communications
software, high performance modems and related technologies. In the early 1990s,
the Company responded to changes in the data communications industry by
undertaking a series of strategic initiatives and restructurings designed to
reposition the Company to address the needs of the emerging remote network
access market. These initiatives included the development of products with
remote network access functionality, divestitures of non-core products, a
restructuring of the worldwide sales organization, the shifting of product
manufacturing to third parties and the acquisition of ISDN product technologies.
The restructuring and other costs associated with the repositioning totalled
approximately $4,268,000 and $7,875,000 in fiscal 1993 and 1994, respectively.
As a result of these costs and declining net sales, the Company incurred losses
from operations in fiscal 1993 and 1994. However, in fiscal 1994 and 1995, the
Company's net sales increased in each fiscal quarter and the Company's
profitability improved for each of the last four fiscal quarters. Additionally,
operating expenses as a percentage of net sales decreased significantly during
fiscal 1995.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain line items in the Company's consolidated
statements of operations:

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
YEAR ENDED MARCH 31,
-----------------------
1993 1994 1995
--- --- ---
<S> <C> <C> <C>
Net sales.................................................. 100% 100% 100%
Cost of sales.............................................. 48 51 55
--- --- ---
Gross margin............................................... 52 49 45
--- --- ---
Operating expenses:
Research and development.............................. 18 16 11
Sales and marketing................................... 30 28 21
General and administrative............................ 8 9 5
Restructuring and other costs......................... 6 14 --
--- --- ---
Total operating expenses......................... 62 67 37
--- --- ---
Income (loss) from operations.............................. (10) (18) 8
Settlement costs........................................... (5) -- --
Interest and other expenses, net........................... -- (1) (1)
--- --- ---
Income (loss) before income taxes.......................... (15) (19) 7
Provision for income taxes................................. -- -- 1
--- --- ---
Net income (loss).......................................... (15)% (19)% 6%
=== === ===
</TABLE>

FISCAL 1995 COMPARED TO FISCAL 1994

Net Sales. In fiscal 1995, net sales increased by $36,642,000, or 65%,
from fiscal 1994. The increase was primarily attributable to increased sales of
central site remote network access products, particularly HDMS. A significant
portion of HDMS sales were made to Sprint, which accounted for 24% and 13% of
net sales in fiscal 1995 and 1994, respectively. The increase in net sales was
also attributable to increased sales of 28.8 Kbps modems which were not
available until the third quarter of fiscal 1994. The LANexpress product line
also contributed to the increase in net sales. These increases were offset in
part by a decrease in sales of the Company's bridge/router products, with
respect to which the Company discontinued development and marketing efforts in
fiscal 1994, and a decline in Carbon Copy software sales, which resulted from
the success of competitive products. International

14
<PAGE> 16

sales were $26,549,000 in fiscal 1995, representing 29% of net sales, as
compared to $12,358,000 in fiscal 1994, or 22% of net sales. The increase in
fiscal 1995 international sales was primarily due to increased HDMS and modem
sales.

Gross Margin. Gross margin as a percentage of net sales was 45% for fiscal
1995 as compared to 49% for fiscal 1994. The decrease was primarily due to a
decrease in the selling price of the Company's modems due to competitive
pressures and a decrease in sales of its higher margin Carbon Copy software.

Research and Development. Research and development costs in fiscal 1995
were $10,250,000 as compared to $8,959,000 in fiscal 1994. As a percentage of
net sales, research and development expenses decreased to 11% in 1995 from 16%
in the prior fiscal year. Although research and development expenses decreased
as a percentage of net sales, the total dollar amount increased by $1,291,000,
principally as a result of increased consulting and contract professional fees
relating to continued product development.

Sales and Marketing. In fiscal 1995, sales and marketing expenses
increased by $3,662,000, or 23%, over fiscal 1994 due to increased variable
selling expenses resulting from increased net sales. As a percentage of net
sales, sales and marketing expenses decreased to 21% in fiscal 1995 from 28% in
the prior fiscal year as net sales increased at a higher rate than sales and
marketing expenses.

General and Administrative. In fiscal 1995, general and administrative
expenses were $4,747,000 or 5% of net sales, as compared to $5,366,000, or 9% of
net sales, in the prior fiscal year. The decrease in such expenses as a
percentage of net sales was the result of the Company's reduction in general and
administrative personnel together with the increase in net sales for the year.

Interest Income and Expense. Interest income increased in fiscal 1995 by
$25,000 to $67,000 and interest and other expense increased by $429,000 to
$807,000. The increase in interest income was due to interest earned on certain
loans to officers of the Company. The increase in interest and other expense was
primarily a result of interest paid on increased borrowings under the Company's
revolving credit facility.

Income Taxes. The Company's effective tax rate was 15% for fiscal 1995.
The difference between the statutory rate and the effective tax rate reflects
the utilization of a portion of the Company's net operating loss carry forwards.
At March 31, 1995, the Company had available $21,509,000 in net operating loss
carry forwards, which may be used to offset future taxable income, and
$3,959,000 in research and development credit carry forwards, which may be used
to offset future taxes payable. These carry forwards expire through 2009 and are
subject to review and possible adjustment by the Internal Revenue Service.

Net Income (Loss) and Net Income (Loss) Per Share. For the reasons stated
above, net income for fiscal 1995 was $5,761,000 as compared to a net loss of
$10,913,000 for fiscal 1994, and net income per share for fiscal 1995 was $.49
as compared to a net loss per share of $1.09 for fiscal 1994.

FISCAL 1994 COMPARED TO FISCAL 1993

Net Sales. In fiscal 1994, net sales decreased by $12,971,000, or 19%,
from fiscal 1993. The decrease in net sales was a result of the decline in
demand for the Company's modem and bridge/router products in the first and
second quarters of fiscal 1994 combined with reduced software revenues resulting
from the disposition of the Company's Relay and Virex software product lines
during fiscal 1993. The decline in demand for the Company's modems was due to
increased competition in the modem market. International sales were $12,358,000
in fiscal 1994, representing 22% of net sales, as compared to $14,696,000 in
fiscal 1993, or 21% of net sales. The decrease in fiscal 1994 international
sales was primarily due to lower modem sales in Europe and the disposition of
the software product lines in fiscal 1993.

Gross Margin. Gross margin as a percentage of net sales was 49% for fiscal
1994 as compared to 52% for fiscal 1993. The decrease was primarily due to a
decrease in the selling price of the Company's

15
<PAGE> 17

modems and an overall decrease of higher margin software sales as a result of
the software product line dispositions in fiscal 1993.

Research and Development. Research and development costs in fiscal 1994
were $8,959,000 as compared to $12,483,000 in fiscal 1993. As a percentage of
net sales, research and development expenses decreased to 16% in fiscal 1994
from 18% in the prior fiscal year. The decrease resulted from decreased research
and development activity and a corresponding reduction in personnel.

Sales and Marketing. In fiscal 1994, sales and marketing expenses
decreased $5,307,000, or 25%, from fiscal 1993. As a percentage of net sales,
sales and marketing expenses decreased to 28% in fiscal 1994 as compared to 30%
in the prior fiscal year. The decrease was primarily due to the Company's
restructuring of its domestic sales force at the beginning of the second quarter
of fiscal 1994. This restructuring resulted in a reduction of headcount and
related personnel expenses, and a decrease in marketing program spending.

General and Administrative. In fiscal 1994, general and administrative
expenses were $5,366,000, or 10% of net sales, as compared to $5,539,000, or 8%
of net sales, in the prior fiscal year. The increase, as a percentage of net
sales, was the result of a decline in the Company's net sales in fiscal 1994.

Restructuring and Other Costs. During fiscal 1994, the Company incurred
$7,875,000 in restructuring and other costs. Of such amount, $6,500,000 was
incurred in the first quarter of fiscal 1994 and related primarily to (i) a 12%
workforce reduction, mostly in the areas of sales and marketing, and general and
administrative, resulting in a charge of $870,000, (ii) the direct costs
effecting the realizability of certain assets associated with the implementation
of a new sales, marketing and distribution plan in the amount of $3,275,000 and
(iii) the disposition of Company's Client Server Technologies Group, which
developed and marketed the LANlord product line, which resulted in a charge of
$1,850,000. Restructuring and other costs accrued in the first quarter of fiscal
1994 were realized as follows: $3,400,000, $1,900,000 and $1,200,000 in the
second, third and fourth quarters, respectively. The balance of the
restructuring charges, $1,375,000, was incurred in the fourth quarter of fiscal
1994 and related primarily to the closing of the Company's manufacturing
facility in Puerto Rico, certain executive severance costs, and the direct costs
associated with the consolidation of the Company's shipping locations.
Restructuring charges accrued in the fourth quarter of fiscal 1994 were realized
as follows: $448,000, $581,000, $242,000 and $104,000 in the first, second,
third and fourth quarters of fiscal 1995, respectively. During fiscal 1993, the
Company incurred a $4,268,000 restructuring charge, a substantial portion of
which related to the write-off of certain assets and estimated costs in
connection with the disposition of the Company's Relay software product line.
Additionally, the 1993 restructuring charge reflected the costs associated with
the Company's reduction of its worldwide workforce by approximately 15%,
primarily in the areas of research and development and general and
administrative, and the elimination of certain assets and excess facilities.

Interest Income and Expense. Interest income decreased in fiscal 1994 by
$46,000 to $42,000 and interest and other expense increased by $193,000 to
$378,000. The decrease in interest income was due to lower average cash balances
and a decline in prevailing interest rates. The increase in interest and other
expense was primarily a result of foreign exchange hedging costs associated with
the foreign exchange contracts on foreign currency receivables ($108,000), and
the loss recognized on the sale of certain fixed assets no longer utilized by
the Company ($30,000).

Income Taxes. The Company did not record a benefit for income taxes in
fiscal 1994 due to the uncertainty in being able to utilize its net operating
loss carry forwards. The Company did record a provision of $161,000 for income
taxes relating to its subsidiary located in Hong Kong.

Net Loss and Net Loss Per Share. For the reasons stated above, net loss
for fiscal 1994 was $10,913,000 as compared to a net loss of $10,694,000 for
fiscal 1993 and net loss per share for fiscal 1994 was $1.09 compared to a net
loss per share of $1.11 for fiscal 1993.

16
<PAGE> 18

RECENT ACQUISITIONS AND DISPOSITIONS OF PRODUCT LINES

On March 31, 1995, the Company acquired certain assets of mbp
Softwareentwicklungsgesellschaft mbH ("mbp") for an aggregate purchase price of
2,350,000 Deutschemarks (approximately $1,716,000). In addition, the Company
will pay mbp royalties for the five year period ending March 31, 2000 based on
the net sales and earnings attributable to the assets purchased from mbp. The
acquisition has been accounted for as a purchase. The assets purchased by the
Company from mbp were utilized in the business of developing, procuring,
marketing, distributing, selling and supporting ISDN products. The Company has
formed a wholly owned subsidiary, Microcom GmbH, and with the acquired assets
will operate the business in Germany.

On January 5, 1995, the Company acquired Extension Technology Corp. ("ETC")
in a merger pursuant to which ETC became a wholly owned subsidiary of the
Company. In connection with the merger, the shareholders of ETC received an
aggregate of 114,980 shares of the Company's Common Stock. The merger has been
accounted for as a purchase with a total purchase price of approximately
$2,104,000. ETC was engaged in product development and market research in the
area of remote connectivity to LANs utilizing ISDN technology.

On December 31, 1993, the Company sold substantially all of the assets
relating to its Client Server Technologies Group which developed, marketed and
distributed the LANlord product. The consideration received consisted of
approximately $1,380,000 in cash and the assumption by the purchaser of certain
liabilities of the Company.

17
<PAGE> 19

QUARTERLY OPERATING RESULTS

<TABLE>
The following table sets forth unaudited consolidated statements of
operations data for each of the four quarters in fiscal 1994 and 1995 and the
percentage of the Company's net sales represented by each item for the
respective quarter. The Company believes that the information has been prepared
on the same basis as the audited Consolidated Financial Statements appearing
elsewhere in this Prospectus and includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information for
the quarters presented. The operating results for any quarter are not
necessarily indicative of the results of operations for any future period.

<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
JUNE SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH
30, 30, 31, 31, 30, 30, 31, 31,
1993 1993 1993 1994 1994 1994 1994 1995
--------- --------- ------- -------- ------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 12,056 $12,471 $14,849 $17,088 $21,315 $22,770 $ 23,134 $25,887
Cost of sales.................. 6,541 6,145 7,384 9,002 11,727 12,613 12,770 14,212
-------- -------- ------- ------- ------- ------- ------- -------
Gross margin................... 5,515 6,326 7,465 8,086 9,588 10,157 10,364 11,675
-------- -------- ------- ------- ------- ------- ------- -------

Operating expenses:
Research and development..... 2,256 2,266 2,337 2,082 2,214 2,662 2,725 2,675
Sales and marketing.......... 5,216 2,770 3,468 4,173 4,814 4,557 4,369 5,530
General and administrative... 1,729 1,211 1,312 1,213 1,103 1,191 1,215 1,212
Restructuring and other
costs...................... 6,500 -- -- 1,375 -- -- -- --
-------- --------- ------- -------- ------- -------- ------- --------
Total operating expenses... 15,701 6,247 7,117 8,843 8,131 8,410 8,309 9,417
-------- --------- ------- -------- ------- -------- ------- --------
Income (loss) from
operations................... (10,186) 79 348 (757) 1,457 1,747 2,055 2,258
Interest income................ 29 6 1 6 60 3 3 1
Interest and other expense,
net.......................... (112) (19) (54) (93) (134) (121) (259) (293)
--------- --------- ------- -------- ------- -------- ------- --------
Income (loss) before income
taxes........................ (10,269) 66 295 (844) 1,383 1,629 1,799 1,966
Provision for income taxes..... 31 -- 30 100 207 244 270 295
--------- --------- ------ -------- ------- --------- ------- --------
Net income (loss).............. $(10,300) $ 66 $ 265 $ (944) $ 1,176 $ 1,385 $ 1,529 $ 1,671
======== ======= ====== ======== ======= ======= ======= ========
Net income (loss) per share.... $(1.06) $.01 $.03 $(.09) $.11 $.12 $.13 $.14
======== ======= ====== ======== ======= ======= ======= ========
Weighted average number of
shares outstanding........... 9,751 9,826 10,363 10,365 11,166 11,601 11,921 12,327
======== ======= ====== ======== ======= ======= ======= ========
PERCENTAGE OF NET SALES:
Net sales...................... 100 % 100% 100% 100 % 100% 100% 100% 100 %
Cost of sales.................. 54 49 50 53 55 55 55 55
--------- --------- ------- -------- ------- --------- ------- -------
Gross margin................... 46 51 50 47 45 45 45 45
--------- --------- ------- -------- ------- --------- ------- -------
Operating expenses:
Research and development..... 19 18 16 12 10 12 12 10
Sales and marketing.......... 43 22 23 24 23 20 19 21
General and administrative... 14 10 9 7 5 5 5 5
Restructuring and other
costs...................... 54 -- -- 8 -- -- -- --
--------- --------- ------- -------- ------- --------- ------- --------
Total operating expenses... 130 50 48 51 38 37 36 36
--------- --------- ------- -------- ------- --------- ------- --------
Income (loss) from
operations................... (84) 1 2 (4) 7 8 9 9
Interest and other expense,
net.......................... (1) -- -- (1) (1) (1) (1) (1)
--------- --------- ------- -------- ------- --------- ------- --------
Income (loss) before income
taxes........................ (85) 1 2 (5) 6 7 8 8
Provision for income taxes..... -- -- -- 1 1 1 1 1
--------- --------- ------- -------- ------- --------- ------- --------
Net income (loss).............. (85)% 1% 2% (6)% 5% 6% 7% 7%
========= ========= ======== ========= ======= ========= ======== =========
</TABLE>

Net sales increased in each of the last eight quarters, from $12,056,000 in
the first quarter of fiscal 1994, to $25,887,000 in the fourth quarter of fiscal
1995. These increases were primarily attributable to increased sales of central
site remote network access products and, to a lesser extent, increased sales of
high performance modems. Gross margin as a percentage of net sales was
relatively constant except in the second and third quarters of fiscal 1994 when
it increased due to changes in product mix.

18
<PAGE> 20

Net income increased in each of the last four quarters. The net loss in the
first quarter of fiscal 1994 was attributable to a $6,500,000 restructuring
charge recorded in that period and also to operating expenses that were
established based on an anticipated level of net sales that was not attained.
The net loss in the fourth quarter of fiscal 1994 was due to a $1,375,000
restructuring charge recorded in that period.

Microcom's quarterly operating results have fluctuated significantly in the
past and may fluctuate significantly in the future. Such fluctuations may result
in volatility in the price of the Company's Common Stock. Quarterly net sales
and operating results may fluctuate as a result of a variety of factors
including the timing of significant orders, the timing of product enhancements
and new product introductions by Microcom and its competitors, the pricing of
the Company's products, changes in product mix, changes in customers' budgets,
competitive conditions, the proportion of international sales to total net
sales, the proportion of sales made pursuant to the Company's various
distribution channels and general economic conditions. The Company has
historically operated with limited backlog because its products are shipped
shortly after orders are received. The Company has often recognized a
substantial portion of its net sales in the last month of the quarter. As a
result, net sales in any quarter are substantially dependent on orders booked
and shipped in the last month of a quarter. A small variation in the timing of
orders is likely to adversely and disproportionately affect the Company's
results of operations as the Company's expense levels are based, in part, on its
expectations as to future net sales and only a small portion of the Company's
expenses vary with its net sales. Moreover, Microcom's net sales may fluctuate
based on the level of inventories of the Company's products maintained by the
Company's resellers in any particular quarter. Accordingly, the Company believes
that period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicative of future performance.
Although the Company's net sales have increased and the Company has been
profitable in recent quarterly periods, there can be no assurance that the
Company's net sales will increase in future quarters or that the Company will
remain profitable on a quarterly basis, if at all. Due to the foregoing factors,
it is possible that in some future quarters the Company's results of operations
will be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would be materially and adversely
affected.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and equivalents decreased by $4,479,000 during fiscal
1995 to $863,000. Net cash used in operating activities was $8,449,000 in fiscal
1995, as compared to $1,848,000 used in operating activities in fiscal 1994. The
decrease in cash was primarily due to the Company's substantial net sales growth
in fiscal 1995 which required an additional investment in inventory and resulted
in a corresponding increase in accounts receivable. Accounts receivable
increased from $13,282,000 at March 31, 1994 to $22,183,000 at March 31, 1995.
Cash flows from investing activities included continued investments in software
development costs of $4,922,000, costs associated with purchases of property and
equipment in the amount of $2,567,000 and the purchase of assets from mbp in the
amount of $1,716,000.

At March 31, 1995, the Company had a bank revolving credit facility which
allowed the Company to borrow up to an amount (the "Maximum Borrowing Amount")
equal to the lesser of (i) $16,000,000 or (ii) an amount based on the Company's
eligible accounts receivable and inventory. The Maximum Borrowing Amount is
reduced by amounts which may be drawn on outstanding letters of credit and
bankers' acceptances and by a percentage of the Company's exposure under foreign
currency exchange contracts. Interest on borrowings is at the banks' prime rate
(9% at March 31, 1995) plus 2%. At March 31, 1995, the Company had letters of
credit of $2,619,000, bankers' acceptances of $195,000 and borrowings under the
credit facility of $12,020,000. The portion of foreign exchange contracts which
reduce the availability of the borrowings under the credit facility at March 31,
1995 was $78,000. The remaining amount available to borrow under the credit
facility at March 31, 1995 was $1,088,000. Under the terms of the credit
facility, which expires in March 1996 and is secured by substantially all of the
Company's assets, the Company is required to comply with certain

19
<PAGE> 21

covenants, including maintaining minimum levels of profitability, tangible net
worth and liquidity and not exceeding specified debt to net worth ratios. The
terms of the credit facility also prohibit the Company from paying cash
dividends. At March 31, 1995, the Company was in compliance with all covenants.

Since its inception, the Company has met its liquidity requirements through
cash provided by operations, public and private stock offerings, short-term
borrowings from banks, lease arrangements for facilities and equipment and
dispositions of product lines. The Company believes that the proceeds the
Company receives from this offering, together with its cash and equivalents,
credit facility availability and cash provided by operations, will be adequate
to fund the Company's operations through fiscal 1997.

BACKLOG

The Company's backlog, which consists of customer purchase orders for
products to be shipped within 90 days, was $4,986,000 and $3,844,000 at March
31, 1994 and 1995, respectively. Since customers may cancel or reschedule orders
without significant penalty, the Company does not believe that the backlog is
indicative of future trends in the Company's business.

20
<PAGE> 22

BUSINESS

Microcom is a leading provider of remote network access solutions. The
Company's products enable users to access and communicate with on-line computer
networks, such as the Internet, America Online, CompuServe and Prodigy, and
corporate networks from remote locations. The Company was founded in 1980 as a
developer of data communications software, high performance modems and related
technologies. Beginning in the early 1990s, the Company responded to changes in
the data communications industry by undertaking a series of strategic
initiatives designed to reposition the Company to address the needs of the
remote network access market. By leveraging its technology and expertise, the
Company has developed a broad line of remote network access products.

The Company's customers include (i) Internet and on-line service network
access providers, such as Sprint, (ii) Corporate 2000 companies, such as
American Airlines, Inc., Blockbuster Entertainment Corporation, NYNEX
Corporation and State Farm Insurance Company, (iii) large international
corporations, (iv) governmental agencies and universities and (v) individual
remote users seeking to access the Internet, on-line services and corporate
networks. The Company distributes its products through direct sales and multiple
indirect channels, including VARs, distributors and OEMs in the United States
and international markets.

Microcom is committed to being a leader in the development and
implementation of standards for remote network access products. For example, in
1983 the Company introduced the Microcom Networking Protocol (MNP), a
communications standard incorporated into the majority of modems sold today. The
latest version, MNP 10EC, enhances the operation of modem communications over
the cellular network. Most recently, Microsoft incorporated the Company's
Advanced Parallel Technology (APT) into its Windows 95 operating system enabling
high performance remote network access connections.

INDUSTRY BACKGROUND

Significant changes in computer-based information systems have occurred
over the last decade. Historically, information stored in computer databases
could only be accessed by terminals or PCs emulating terminals directly
connected to a central or host computer. Remote users wishing to access
information over the public switched telephone network used a modem to dial from
their terminal or computer into another modem which was usually connected
directly to the central or host computer.

Beginning in the late 1980s, the following factors changed the nature of,
and increased the demand for, remote network access:

Growth of the Internet and On-line Services. The number of users of the
Internet and on-line services such as America Online, CompuServe and Prodigy has
grown rapidly in recent years. It is estimated that the number of users linked
to the Internet has grown from less than 2 million in 1992 to approximately 30
million today. This growth is due to increased use of electronic mail ("e-mail")
and the proliferation of databases and other information services such as the
World Wide Web.

Development of Distributed, Client/Server Computing. With the development
of LANs, it became possible for information to be stored on a number of
computers which were connected to each other and located within a building or
campus. Simultaneously, the advent of new communications products such as hubs,
bridges and routers, allowed multiple LANs to be integrated into distributed,
enterprise-wide

21
<PAGE> 23

computing networks. To take advantage of these distributed computer networks,
products utilizing client/server architecture, including relational databases,
e-mail and file and printer sharing were introduced to collect, retrieve and
distribute information. Distributed computing and client/server based software
are now being used on a corporate enterprise-wide and departmental basis to run
mission critical processes and to provide the primary means for corporate
communication.

Growth in Mobile, Remote and Home Offices. Corporations, governmental
agencies, universities and other organizations are increasingly looking to
control costs while providing their employees with access to essential
information and resources to perform their jobs efficiently and effectively from
any location. The proliferation of notebooks and home computers is allowing a
newly created remote workforce to work from home or on the road. To remain
productive, these users must be able to access their corporate distributed
networks from remote locations.

Technological Advances. Advances in modem technology (such as the V.34
standard) and switched digital service technology (such as ISDN) are helping to
increase the speed of network communication, which is a key user requirement for
remote network access. In addition, the introduction of sophisticated network
management software technology enables the diagnosis, management and
reconfiguration of the numerous network access points and unattended remote
locations from a central site on a cost-effective basis.

MARKETS

These factors have created an enormous growth in the number of remote users
seeking to connect to the Internet and on-line services through network access
providers and to information on corporate networks. As a result, the need for
hardware and software products to support, expand and enhance remote network
access has created a number of rapidly growing markets.

Network access providers are responsible for linking millions of remote
users to the Internet and on-line services each day and require substantial
amounts of equipment including modems, ISDN interfaces, management software,
routers, switches and access servers. Since many of the access points for these
networks are in unattended locations, reliable equipment that is easily
diagnosed, managed and reconfigured via software from a central site is
essential. In addition, since network access providers charge for their services
based on the duration of the connection, they require systems that permit remote
users with many different brands of modems to establish and maintain connections
with the network.

Enterprise computing networks are large scale, diverse, distributed
computing and client/server networks. To support the extensive remote network
access demands, these corporate networks require multiprotocol, multifunction
access servers and a large number of modems and ISDN interfaces to support
numerous users on diverse hardware and software platforms. Due to the size and
complexity of the enterprise network, management software to diagnose, configure
and troubleshoot the remote access aspects of the network is critical.
Enterprise network managers also require reliability, connectability and ease of
use and installation of all products. Finally, with increased occurrences of
unauthorized computer access and theft of services and information, security has
become a key requirement for developing and operating remote network access
capabilities for the enterprise network.

Departmental computing networks are typically characterized by a limited
number of remote users requiring access to a smaller, less complicated corporate
network. As a result, only 2 to 16 dial-up connection points (ports) and support
for only the most popular networking protocols is typically required. Since
departmental networks generally are managed by a smaller management information
systems staff, remote access equipment for this market must be easy to install
and use. Although access security and network management are important, these
features are generally less extensive than in the enterprise network
environment.

22
<PAGE> 24

In addition to the hardware and software necessary to serve the needs of
central site network managers, remote users need reliable, high performance
communications hardware and easy to use software to access the information
residing on the various types of networks.

THE MICROCOM SOLUTION

In an effort to address the diverse needs of these rapidly growing markets,
the Company has developed and offers a broad range of remote network access
products. The following are the key attributes of the Microcom solution:

Broad Product Range. The Company's broad remote network access product
line serves both central site network managers and remote users in each of the
remote network access markets. HDMS serves on-line network and Internet access
providers and enterprise network managers. LANexpress serves both enterprise and
departmental network managers. Remote users can utilize the Company's modems and
ISDN terminal adapters, LANexpress Remote client software and Carbon Copy
software to access on-line services, the Internet and corporate networks, on
both the enterprise and departmental level.

Remote Access Management. The Company's central site dial access products
provide comprehensive management capabilities in order to control effectively
both operations and costs. The key management capabilities include
configuration, diagnostics, cost management and capacity planning.

Remote Access Security. Microcom pioneered the use of security at the dial
connection level rather than relying solely on the security measures of the host
computer. The Company has developed a wide variety of security mechanisms,
including user authentication, call-back schemes (fixed and roving), encrypted
user information and embedded modem security keys designed to keep potential
"hackers" from completing the dial connection into the network or host computer.
Without the connection in place, potential hackers cannot attempt unauthorized
access to the underlying network or host computer.

Comprehensive Connectivity. Through the use of proprietary firmware, the
Company's central site products are designed to connect to a broad range of
popular modem brands and stay connected regardless of prevailing line
conditions.

High Quality, Reliable Products. The Company's products go through
extensive development and quality assurance testing before shipment to
customers. The Company has quality assurance personnel on-site on a full-time
basis at the manufacturing facilities of the Company's off-shore manufacturers.
This has resulted in the Company's products attaining a reputation with
customers for quality and reliability.

Ease of Installation and Use. The Company's LANexpress, Carbon Copy and
modem products are utilized by departmental network managers and individual
remote users. Since these users typically lack significant technological
resources, products targeted at these customers need to be easy to install and
use. The Company has specifically designed its LANexpress, Carbon Copy and modem
products to be readily installed without technical support. In addition,
LANexpress Remote and Carbon Copy software incorporate user-friendly, graphical
user interfaces.

23
<PAGE> 25

RECENT REPOSITIONING AND STRATEGY

In the early 1990s, the Company responded to changes in the data
communications industry by undertaking a series of strategic initiatives and
restructurings designed to reposition the Company to address the needs of the
emerging remote network access market. First, in response to customers' demands
for certain central site remote network access products and emerging market
trends, the Company redirected its strategic focus to the HDMS products by
increasing research and development expenditures and accelerating introduction
of enhancements to these products. Second, beginning in 1991, the Company
reviewed each of its product lines. This process led to the disposition of
certain non-core products including (i) Virex, a virus detection and correction
program, (ii) Relay, a PC mainframe terminal emulation package, and (iii)
LANlord, a desktop management software package. Third, in July 1993, the Company
restructured its sales force, increased the number of application engineers and
implemented new sales and marketing strategies focused specifically on the sale
of remote network access products to Corporate 2000 customers and large
international corporations. Fourth, the Company appointed Roland Pampel as
President, Chief Executive Officer and a Director of the Company. Finally, the
Company recently completed two acquisitions of ISDN technology to broaden the
Company's remote network access product offerings.

The Company's objective is to continue to be a leading provider of remote
network access solutions. The Company's strategy to achieve this objective is
comprised of the following elements:

Continue Focus on Remote Network Access Market. The Company will continue
to focus on the remote network access market and to develop new products and
enhancements to meet or exceed the evolving requirements of both the central
site network manager and the remote user.

Maintain Technology Leadership. The Company intends to continue to invest
in research and development of products to meet its customers' needs. The
Company believes that the expertise it has developed in creating its existing
products will permit it to enhance these products, develop new products and
respond to emerging technologies in a cost-effective and timely manner.

Leverage Existing Customer Base. The Company believes that many of its
existing customers will continue to purchase remote network access products.
Through its multiple sales channels, the Company intends to aggressively market
new products and enhancements to its existing customers. The Company also
believes that its installed base represents an important source of references
for new customers, particularly telecommunications companies.

Develop and Expand Strategic Relationships. The Company plans to continue
to develop strategic relationships with telecommunications network service
providers, equipment providers, OEMs and software vendors in order to enhance
Microcom's product development activities and leverage shared technologies and
joint marketing efforts.

Expand Worldwide Distribution. The Company plans to continue to develop
demand for its remote network access products both domestically and
internationally. The Company intends to expand its channels of distribution and
strengthen its sales and marketing support for existing VARs and distributors.

24
<PAGE> 26

PRODUCTS

As illustrated below, the Company offers a broad range of remote
network access products for central site network managers and individual remote
users.

[Chart with pictures of the following products of the Company:

Under the "Remote Site" Heading, LANexpress Remote, TravelCard FAST,
DeskPorte FAST/ISDN Terminal Adapter and Carbon Copy.

Under the "Central Site" Heading, HDMS is connected by a double line
to a bubble entitled "Internet On-line Services." HDMS and LANexpress are
connected by double lines to a bubble entitled "Corporate Network." All of the
pictures are connected by lines to a bubble in the middle of the chart entitled
"Public Switched Telephone Network."]

HDMS - High Density Management System. This product is a central site
remote access management system for dial-up networks. HDMS provides network
access managers with robust remote access security and management capabilities,
including real-time monitoring and control, alarm threshold processing,
operational statistics, modem control and the ability to reconfigure the system
from a central management location. HDMS is designed to be highly reliable,
operate with a wide range of modems and provide a high rate of connection. The
product is capable of handling modem data rates up to 28.8 thousand bits per
second (Kbps) and throughput rates up to 115.2 Kbps. HDMS includes a chassis for
installing up to 16 dual modem cards (32 modems), an Intelligent Network
Controller (INC) to manage the modems as one integrated unit and an optional T1
interface to bring high speed digital T1 and fractional T1 circuits to the
chassis. The HDMS INC can manage up to 8 chassis containing up to 254 modems.

LANexpress. This product is a fully integrated remote LAN access solution.
LANexpress combines server hardware and software, client software and management
applications software, providing remote users with easy to use, reliable, secure
access, via dial or cellular links, to information residing on enterprise LANs.
The LANexpress server provides the network connection for dial-up access into
Ethernet or token ring networks. The product's multiprotocol networking
capabilities can support virtually all network environments, including IP,
Novell IPX, NetBIOS, Banyan Vines, DECNet and other legacy protocols. Containing
V.34 modems, the LANexpress server supports high performance, sustained transfer
speeds over 100 Kbps simultaneously on 2 to 16 ports. Remote PC users can
connect to the network with LANexpress Remote client software, an easy to use,
graphical user interface. The diverse requirements of remote applications are
addressed by integrating both remote node (best for interactive applications)
and remote control (ideal for data intensive applications) into a single client
software solution.

25
<PAGE> 27

The Company's expressWATCH management software allows comprehensive,
real-time management of the LANexpress system from any PC running Windows on the
network. Network managers with expressWATCH can configure, control and monitor
all components of the system (including the server, server modems and remote
client) using the standard Simple Network Management Protocol (SNMP).
expressWATCH can also be employed at a remote location to manage the system over
a dial-up connection.

Modems. The Company has been developing high speed, error correcting
modems since 1982. In 1983, the Company introduced the Microcom Networking
Protocol (MNP), a communications standard incorporated into the vast majority of
modems sold today. The most recent version, MNP 10EC, optimizes the operation of
modem connections over the cellular network. The Company's latest 28.8 Kbps
modems, such as the DeskPorte FAST and TravelPorte FAST, are based on the
industry standard V.34 technology. These products are available in desktop,
portable, PCMCIA, internal and rackmountable models.

The Company's Advanced Parallel Technology (APT), which is incorporated
into its modems, allows transmission of data through the parallel port of a PC
instead of the serial port, achieving throughput rates of up to 300 Kbps as
compared to up to 115.2 Kbps for other modems using the serial port. The
Company's modem products are designed to meet the needs of remote users of
enterprise and departmental networks by providing sophisticated security
capabilities, advanced features such as remote upgrade capability, and a high
degree of reliability and performance.

Carbon Copy. Carbon Copy is a remote control/remote PC access software
package which enables remote users to communicate with PCs running either
Windows or DOS. Mobile professionals, staff at branch offices and employees
working at home use Carbon Copy to access data and applications located on
remote PCs, bulletin board services or LANs. Carbon Copy enables internal help
desks to support PC users on corporate LANs, and allows technical support groups
and VARs to provide application support and training to external users. Carbon
Copy's features include a terminal emulator, comprehensive file transfer
(including file synchronization and crash recovery capabilities), a software
communications gateway (enabling users to dial in to a common PC and allowing
LAN-based PC users to dial out), NetBIOS and Novell IPX support, and NetWare LAN
support.

ISDN Terminal Adapters. The Company's Solis-L ISDN cards and associated
software provide a Basic Rate Interface (BRI) while the Solis-F ISDN card
provides the same functionality as the Solis-L plus analog dial and fax
connectivity. Both cards use on-board processing to provide higher performance
through embedded protocol support and data compression. In addition to
supporting a range of third party software applications, these cards are sold
with access applications software, allowing users to build systems for LAN to
LAN and remote user to LAN connectivity for Novell networks.

26
<PAGE> 28

CUSTOMERS

The Company markets its products to a broad range of domestic and foreign
organizations and individuals. The target customers for the Company's central
site remote network access products are Internet and on-line service access
providers (including major telecommunications companies), the Corporate 2000,
large international corporations, universities and governmental agencies. The
Company's remote site PC software and modems are sold to both businesses and
individuals. The following selected customers have purchased from the Company or
its resellers at least $50,000 of the Company's products since the beginning of
fiscal 1995. The Company believes that these customers are representative of the
Company's customers generally.

<TABLE>
<S> <C>
HDMS LANEXPRESS
- ------- -------------
Bell-Northern Research Ltd. American Cyanamid Company
NYNEX Corporation Broken Hill Petroleum
Sprint Corporation Cargill Incorporated
Storage Technology Corporation South Africa Power Association
Tele-Communications, Inc. U.S. Air Force Academy
University of Tennessee U.S. Department of Labor

CARBON COPY MODEMS
- -------------- ---------
Automatic Data Processing, Inc. American Airlines, Inc.
Eli Lilly and Company BellSouth Corporation
Simplex Time Recorder Co. Blockbuster Entertainment Corporation
United States Golf Association SafeCo Insurance Company
Whitmire Ltd. State Farm Insurance Company
</TABLE>

Sprint accounted for 24% and 13% of the Company's net sales in fiscal 1995
and 1994, respectively. No single customer accounted for more than 10% of the
Company's net sales in fiscal 1993. Sprint is not obligated to make any minimum
level of future purchases from the Company or to provide the Company with
binding forecasts of product purchases for any future period. While the Company
expects that Sprint will continue to be a significant customer, the Company
anticipates that overall net sales to Sprint in fiscal 1996 will be
significantly less than in fiscal 1995. Although the Company has recently
established a relationship with another major telecommunications carrier, there
can be no assurance that the Company will make any significant sales to such
carrier or that sales to it and other telecommunications carriers will offset
any decline in sales to Sprint. The failure to achieve and maintain significant
sales to telecommunications carriers or to offset any decline in sales to Sprint
would have a material adverse effect on the Company's business, results of
operations and financial condition.

The Company's agreements with VARs, distributors and OEMs are typically
non-exclusive and in many cases may be terminated by either party without cause,
and many of the Company's VARs, distributors and OEMs carry competing product
lines. Therefore, there can be no assurance that any VAR, distributor or OEM
will continue to represent the Company's products and the loss of important
VARs, distributors or OEMs could adversely affect the Company's business,
results of operations and financial condition.

CUSTOMER SERVICE AND SUPPORT

The Company is committed to providing strong customer service and support.
The Company's customer service organization assists both resellers and end users
with product configuration, installations and interoperability issues. Service
and support are provided by telephone and remote dial-up access to customer
installations. The Company also provides on-site, faxback and on-line bulletin
board services. The Company provides service and support to its international
end users through its independent distributors.

27
<PAGE> 29

The Company's products have warranties of up to five years. In addition,
the Company provides a variety of fee based services, including extended
warranties, priority exchange of defective products and premium toll-free
support. The Company also offers various training courses for its resellers and
end user customers.

SALES AND MARKETING

The Company sells its products through direct sales and multiple indirect
distribution channels, including VARs, distributors and OEMs. In fiscal 1995,
sales through indirect distribution channels accounted for approximately 66% of
the Company's net sales.

In North America, the Company has relationships with approximately 40 VARs
through which the Company sells its HDMS, LANexpress and modem products. These
VARs concentrate on large sales opportunities, providing integrated solutions to
network access providers, Corporate 2000, universities and governmental
agencies. In addition, the Company sells Carbon Copy, LANexpress and certain of
modem products through a two-tiered distribution channel in which the Company
sells to distributors who in turn sell to resellers such as computer retail
chains, mail order houses and independent VARs. These resellers generally sell
directly to corporate and individual end users.

Outside of North America, the Company's products are sold by independent
distributors whose principal markets are Australia, The Czech Republic, Denmark,
France, Germany, Hong Kong, Israel, Italy, Japan, the Netherlands, Norway, South
Africa, Spain, Sweden and the United Kingdom.

The Company supports its domestic and international VARs and distributors
by providing product training, evaluation products, regular mailings of product,
promotional and technical materials, and reseller and end-user telephone
technical support, and by participating in cooperatively funded marketing
programs including trade shows and seminars. The Company also works closely with
its VARs in selling and servicing major accounts and believes that such
collaboration is necessary for the successful implementation of the Company's
remote network access solutions. The Company promotes corporate and product
awareness and generates sales leads through a variety of means, including
advertisements in major industry trade publications, participation in industry
trade shows, seminars and direct mail.

The Company has sales and support offices in California, Colorado, Georgia,
Illinois, Massachusetts, New Jersey, New York, Texas, Virginia as well as in
Australia, England, France, Germany and Singapore. As of May 1, 1995, the
Company's sales and marketing organization consisted of 73 employees. No single
VAR, distributor or OEM individually accounted for more than 10% of the
Company's net sales in fiscal 1993, 1994 or 1995.

RESEARCH AND DEVELOPMENT

The Company emphasizes modular software and hardware design, using core
components of its key technologies across its various product lines. The Company
believes that this not only accelerates time to market, but also provides
greater reliability by using proven designs in multiple product applications. A
variety of design and development processes and tools are employed to ensure
timely product introductions and that potential problems are detected early in
the design and development cycle.

To be competitive in the international marketplace, the Company obtains
country specific certification for its modem and ISDN products. To date, the
Company has successfully certified its

28
<PAGE> 30

products for use in numerous countries, with ongoing programs to obtain
certification in additional countries and to certify new products as they are
introduced. The modular design of the Company's software products facilitates
foreign language translations.

There can be no assurance that Microcom will be successful in developing,
manufacturing and marketing new products or product enhancements that respond to
technological changes or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products or that its new products will
adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or other reasons, to
develop new products or enhancements of existing products in a timely manner in
response to changing market conditions or customer requirements, the Company's
business, results of operations and financial condition would be materially and
adversely affected. In addition, there can be no assurance that services,
products or technologies developed by others will not render Microcom's products
or technologies uncompetitive or obsolete. The introduction of new or enhanced
products also requires the Company to manage the transition from older products
in order to minimize disruption in customer ordering patterns, avoid excessive
levels of older product inventories and ensure that adequate supplies of new
products can be delivered to meet customer demand. There can be no assurance
that the Company will successfully manage the transition to new products. The
failure to manage any such transition successfully could have a material adverse
effect on the Company's business, results of operations and financial condition.

COMPETITION

The market for remote network access products is highly competitive. In the
central site remote network access market, the Company competes with remote LAN
access server vendors such as Shiva Corporation, Digital Communications
Associates, Inc., Novell, Inc. and 3Com Corporation and vendors of dial-up
access management systems such as U.S. Robotics Corporation, Primary Access
Corporation (recently acquired by 3Com Corporation) and Motorola, Inc. The
Company also faces increasing competition from OS and NOS vendors such as
Microsoft Corporation, Novell, Inc. and International Business Machines
Corporation who are including remote access capabilities in their products. In
the remote site PC communications software market, the Company competes with a
number of providers of remote control, file transfer and remote LAN access
software, including Symantec Corporation, Stac Electronics, Inc. and Shiva
Corporation. The Company's remote site modems compete with those of U.S.
Robotics Corporation, Hayes Microcomputer Products, Inc. and Practical
Peripherals, Inc. Increased competition could result in price reductions and
loss of market share which would materially and adversely affect Microcom's
business, results of operations and financial condition. The Company believes
that its ability to compete successfully depends on a number of factors,
including price, product features, product quality, performance and reliability,
name recognition, international certification, experienced sales, marketing and
service organizations, development of new products and enhancements, evolving
industry standards, and announcements by competitors. Many of Microcom's current
and potential competitors have significantly greater financial, marketing,
technical and other resources than Microcom. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products than the Company. The Company also expects competition to
increase as a result of industry consolidations. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to address the remote
network access needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. There can be no assurance that
Microcom will be able to continue to compete successfully with existing or new
competitors or that competitive pressures faced by the Company would not
materially and adversely affect its business, results of operations or financial
condition.

29
<PAGE> 31

MANUFACTURING

The Company uses subcontractors to manufacture all of its products. These
manufacturers provide Microcom with fully tested, finished products built to the
Company's specifications. The Company's HDMS, LANexpress and modem products are
manufactured primarily by subcontractors in China, Malaysia, Singapore and Hong
Kong. A subcontractor in Massachusetts produces the Company's software products
and also provides warehousing and distribution services to the Company.
Microcom's internal manufacturing operations consist of materials planning and
procurement, product modifications to meet foreign country requirements, final
assembly, factory testing and quality control. In addition, Microcom quality
assurance personnel are on-site full-time at the manufacturing facilities of the
Company's subcontractors performing various tests and quality assurance
procedures. To date, the Company has not experienced significant manufacturing
defects or customer returns of products. As of March 31, 1995, the Company
employed 30 persons in the areas of manufacturing and quality assurance.
Reliance on foreign manufacturers involves a number of risks, including
unexpected changes in regulatory requirements and tariffs, difficulties
enforcing agreements, exchange rate fluctuations, difficulties enforcing
intellectual property rights, difficulties obtaining export licenses, the
imposition of withholding or other taxes, embargoes or exchange controls or the
adoption of other restrictions on foreign trade.

Certain components used in the Company's products are available from a
single source, and others are available only from limited sources. In certain
circumstances, despite the availability of multiple sources, the Company may
select a single source in order to maintain quality control and develop a
strategic relationship with the supplier. In addition, certain components used
in the Company's products are only available from a single supplier or a limited
number of suppliers. Components for the Company's products which are only
available from a single supplier include certain semiconductor components used
in the Company's modems sourced from Rockwell and the power supply component
obtained from TDK for the Company's PCMCIA modem. It was recently reported that
Rockwell would be required to allocate among its customers, including Microcom,
the supply of a certain component incorporated into V.34 modems. This component
is included in the Company's HDMS, LANexpress and modem products. If Rockwell is
unable to supply sufficient quantities of this component to the Company on a
timely basis, it would cause a delay in Microcom's product shipments and such
delay would have a material adverse effect on the Company's business, results of
operations and financial condition. The Company believes, however, that it will
be able to obtain from Rockwell sufficient quantities of the component to
satisfy its anticipated requirements. The Company generally purchases single or
limited source components pursuant to purchase orders and has no guaranteed
supply arrangements with its suppliers. Further, the availability of many of
these components is dependent in part on the Company's ability to provide its
suppliers with accurate forecasts of its future requirements. A reduction or
interruption in supply of these components could result in delays or reductions
in product shipments which would materially and adversely affect the Company's
business, results of operations and financial condition and could damage
customer relationships. The Company may also be subject to increases in
component costs, which could also have a material adverse effect on the
Company's business, results of operations or financial condition.

PROPRIETARY RIGHTS

30
<PAGE> 32

technologies and products in foreign countries. The Company generally enters
into confidentiality or license agreements with its employees, distributors,
customers and potential customers and limits access to and distribution of its
software, documentation and other proprietary information. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of its technology or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. The Company is
also subject to the risk of adverse claims and litigation alleging infringement
of the proprietary rights of others. From time to time the Company has received
claims of infringement of other parties' proprietary rights. In addition, the
Company periodically reviews recent patents that have been issued to third
parties. As a result of such reviews, the Company has from time to time
identified and investigated the validity and scope of issued patents for
technologies similar to, or related to, the Company's technologies. Although the
Company believes that it does not infringe the valid patents of others, there
can be no assurance that third parties will not assert infringement claims in
the future with respect to the Company's current or future products or that any
such claims will not require the Company to enter into license arrangements or
result in protracted and costly litigation, regardless of the merits of such
claims. No assurance can be given that any necessary licenses will be available
or that, if available, such licenses can be obtained on commercially reasonable
terms. The failure to obtain such royalty or licensing agreements on a timely
basis would have a material adverse effect upon the Company's business, results
of operations and financial conditions.

EMPLOYEES

As of March 31, 1995, the Company employed 309 persons, including 73 in
sales and marketing, 48 in customer service, 108 in research, development and
related engineering activities, 30 in manufacturing and 50 in executive and
administrative activities. None of the Company's employees is represented by a
labor union and the Company has not experienced any work stoppages. Management
believes that the Company's relations with its employees are good. Microcom
believes that its future success will depend in large part upon its ability to
attract and retain highly skilled engineering, managerial, sales, marketing and
product development personnel. Except with respect to the President and Chief
Executive Officer, the Company does not have employment contracts with its key
personnel and does not maintain any key person life insurance policies.
Competition for such personnel is intense, especially in the areas of
engineering and sales and marketing. The loss of key management or technical
personnel could materially and adversely affect the Company's business, results
of operations and financial condition, and there can be no assurance that
Microcom will be successful in attracting and retaining the personnel required
to engineer, manage, market or develop its products and conduct its operations
successfully.

FACILITIES

The Company's executive offices and its principal engineering and marketing
operations are located in a 101,000 square foot leased facility in Norwood,
Massachusetts. The lease for this facility expires in fiscal 2002, subject to
the Company's option to extend the term for up to an additional five years. The
Company also leases sales offices in California, Colorado, Georgia, Illinois,
Massachusetts, New Jersey, New York, Texas, Virginia, as well as Australia,
England, France, Germany and Singapore. The Company believes that these
facilities will be adequate to meet its requirements for the foreseeable future
and that suitable additional or substitute space will be available as needed.

LEGAL PROCEEDINGS

The Company is not party to any material legal proceedings.

31
<PAGE> 33

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- ---- ----------------------------------------
<S> <C> <C>
Roland D. Pampel........................ 60 President, Chief Executive Officer and
Director
Richard A. Barbari...................... 55 Executive Vice President, Marketing and
Latin America and Africa Sales
Lewis A. Bergins........................ 56 Executive Vice President, International
Sales and Corporate Strategy and
Development
Peter J. Minihane....................... 46 Executive Vice President, Chief
Financial Officer and Treasurer
Gregory Pearson......................... 49 Senior Vice President, Technology
Management
William Andrews......................... 40 Vice President, North American Sales
Eugene Y. G. Chang...................... 41 Vice President, ISDN Technology
Jerry L. Falk........................... 46 Vice President, Hardware Development
Mark J. Freitas......................... 38 Vice President, Systems Management and
Customer Support
Joseph P. King, Jr...................... 45 Vice President, Operations
Elizabeth H. Rock....................... 36 Vice President, Corporate Communications
James M. Dow............................ 44 Director (Chairman)
Fred L. Luconi.......................... 53 Director (Vice Chairman)
Donald G. Kennedy....................... 69 Director
John C. Rutherford...................... 45 Director
Michael I. Schneider.................... 58 Director
</TABLE>

Mr. Pampel has served as President, Chief Executive Officer and a Director
since March 1994. He is currently serving as a Class I Director for a term
expiring at the 1995 Annual Meeting of Stockholders. From September 1991 to
February 1994, Mr. Pampel was Chief Executive Officer, President and a Director
of Nicolet Instrument Corporation, a manufacturer of biomedical and analytical
instruments. From July 1989 to August 1991, he was Chief Executive Officer,
President and a Director of Bull HN Information Systems Inc., a computer
manufacturer. Since August 1993, Mr. Pampel has served on the board of directors
of Best Power Technology, Inc., a manufacturer of power technology and backup
recovery products.

Mr. Barbari has served as Executive Vice President, Marketing and Latin
America and Africa Sales since May 1994. From 1992 to April of 1994, Mr. Barbari
was Director of Operations of Nicolet Instrument Corporation, a manufacturer of
biomedical and analytical instruments. From 1989 to 1992, he was Chief Executive
Officer and Chairman of the Board of Ultimap Corporation, a geographic
information systems software company which filed for and emerged from
reorganization proceedings under Chapter 11 of the Bankruptcy Code during this
period.

Mr. Bergins joined the Company in 1982 and has served as Executive Vice
President, International Sales and Corporate Strategy and Development since June
1994.

Mr. Minihane joined the Company in 1985 and has served as Executive Vice
President, Chief Financial Officer and Treasurer since January 1989. He has been
a director since May 1993 of Datawatch Corporation, a software company.

32
<PAGE> 34

Mr. Pearson joined the Company in 1986 and has served as Senior Vice
President, Technology Management since April 1990.

Mr. Andrews has served as Vice President, North American Sales of the
Company since February 1992. From January 1987 to January 1992, Mr. Andrews was
employed by Bitstream Inc., a digital type and software company, as Vice
President, Sales and Marketing.

Mr. Chang rejoined the Company in 1995 as Vice President, ISDN Technology.
From November 1990 to January 1995, Mr. Chang was President and a Director of
Extension Technology Corp., which was acquired by the Company in January 1995.
From 1984 to 1990 Mr. Chang was employed by the Company as a product manager for
ISDN products.

Mr. Falk joined the Company in 1984 and has served as Vice President,
Hardware Development since April 1991.

Mr. Freitas joined the Company in 1986 and has served as Vice President,
Systems Management and Customer Support since May 1994.

Mr. King has served as Vice President, Operations since June 1992. From
1986 to June 1992, he was Vice President of Operations and Engineering at Alloy
Computer Products Inc., a computer manufacturer.

Ms. Rock joined the Company in January 1991 and has served as Vice
President, Corporate Communications since June 1994. From August 1988 to June
1990, Ms. Rock was with Microamerica, Inc., a microcomputer distributor, as
Director, Marketing Communications.

Mr. Dow, a founder of the Company, has served as a Director, and until
March 1994 as its President and Chief Executive Officer, since the Company's
organization in October 1980. He was named Chairman of the Board when the
position was created in January 1994. Mr. Dow is currently serving as a Class
III Director for a term expiring at the 1997 Annual Meeting of Stockholders.

Dr. Luconi has served as a Director of the Company since October 1992. He
was named Vice Chairman of the Board when the position was created in January
1994. Dr. Luconi is currently serving as a Class III Director for a term
expiring at the 1997 Annual Meeting of Stockholders. Since January 1992, Dr.
Luconi has been a visiting faculty member at the Sloan School of Management of
the Massachusetts Institute of Technology and a private investor. From January
1988 to March 1991, Dr. Luconi served as President of Index Technology
Corporation (the predecessor of Intersolv Inc.), a developer and manufacturer of
application software.

Mr. Kennedy has served as a Director of the Company since November 1985. He
is currently serving as a Class I Director for a term expiring at the 1995
Annual Meeting of Stockholders. Since March 1985, Mr. Kennedy has been an
independent management consultant and since 1987 he has been a member of the
Board of Arbitrators of the American Arbitration Association.

Mr. Rutherford has served as a Director of the Company since January 1994.
He is currently serving as a Class II Director for a term expiring at the 1996
Annual Meeting of Stockholders. Mr. Rutherford has been a Managing Director and
a principal stockholder of The Parthenon Group, Inc., a management consulting
investment company, since its founding in July 1991. From 1974 to April 1990,
Mr. Rutherford held various executive positions, including that of Director, at
Bain & Company, Inc., a management consulting company.

Dr. Schneider has served as a Director of the Company since January 1986.
He is currently serving as a Class II Director for a term expiring at the 1996
Annual Meeting of Stockholders. He has been employed by Data General Corporation
since 1971 and has served as a Vice President in various management capacities
since January 1979.

33
<PAGE> 35

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of May 15, 1995,
except as noted below, and as adjusted to reflect the sale of the Common Stock
in this offering, by: (i) each stockholder who is known by the Company to own
beneficially more than 5% of the Common Stock; (ii) each executive officer of
the Company; (iii) each director of the Company; (iv) all executive officers and
directors of the Company as a group; and (v) the Selling Stockholders:

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO SHARES BENEFICIALLY OWNED
OFFERING(1) TO BE AFTER OFFERING(1)
------------------------- SOLD IN ---------------------
5% STOCKHOLDERS NUMBER PERCENT OFFERING NUMBER PERCENT
- --------------- ------------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
FMR Corp. and Edward C. Johnson 3d......... 1,036,700(2) 9.3% -- 1,036,700 7.3%
82 Devonshire Street
Boston, MA 02109

EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------
Roland D. Pampel........................... 335,000(3) 2.9% 15,000 320,000 2.2%
Richard A. Barbari......................... 45,700(4) * 5,000 40,700 *
Lewis A. Bergins........................... 295,882(5) 2.6% 53,000 242,882 1.7%
Peter J. Minihane.......................... 186,500(6) 1.7% 15,000 171,500 1.2%
Gregory Pearson............................ 96,333(7) * -- 96,333 *
William Andrews............................ 79,333(8) * -- 79,333 *
Jerry L. Falk.............................. 70,112(9) * 12,000 58,112 *
Mark J. Freitas............................ 77,556(10) * -- 77,556 *
Joseph P. King, Jr......................... 25,833(11) * -- 25,833 *
Elizabeth H. Rock.......................... 15,615(12) * -- 15,615 *
Eugene Y. G. Chang......................... 16,666(13) * -- 16,666 *
James M. Dow............................... 641,160(14) 5.6% -- 641,160 4.4%
Fred L. Luconi............................. 115,500(15) 1.0% -- 115,500 *
Donald G. Kennedy.......................... 38,000(16) * -- 38,000 *
John C. Rutherford......................... 583,619(17) 5.2% -- 583,619 4.1%
Michael I. Schneider....................... 79,752(18) * -- 79,752 *
All executive officers and directors as a
group (16 persons)....................... 2,702,561(19) 21.7% 100,000 2,602,561 16.9%

OTHER SELLING STOCKHOLDERS
- --------------------------
Other Selling Stockholders
(24 persons, each holding less
than 1% of the Common Stock)............. 100,000 * 100,000 -- --
</TABLE>

- ---------------

* Less than 1%.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares of Common Stock.

(2) Consists of shares held by various investment companies (the "Funds") for
which Fidelity Management & Research Company ("Fidelity"), a subsidiary of
FMR Corp., acts as investment adviser. Mr. Johnson is chairman of the board
of FMR Corp. Fidelity exercises voting power regarding such shares under
guidelines established by the respective Funds' boards of directors. Each
of FMR Corp., Fidelity and the respective Funds' board of directors has
dispositive power with respect to such shares. This figure and the related
information is as of April 30, 1995 and is based solely on information
contained in filings made by FMR Corp. with the Securities and Exchange
Commission pursuant to Section 13(d) or 13(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or in communications by FMR
Corp. to the Company or the Company's representative.

(3) Includes 320,000 shares subject to currently exercisable options.

(4) Includes 5,000 shares subject to currently exercisable options.

(5) Includes 69,115 shares subject to currently exercisable options and 54,882
shares held by Mr. Bergin's wife.

(6) Includes 48,225 shares subject to currently exercisable options. Also
includes 6,000 shares held for the benefit of Mr. Minihane's children, as
to all of which shares Mr. Minihane disclaims beneficial ownership.

(7) Includes 46,383 shares subject to currently exercisable options.

34
<PAGE> 36

(8) Consists of shares subject to currently exercisable options.

(9) Includes 54,000 shares subject to currently exercisable options.

(10) Includes 69,015 shares subject to currently exercisable options and 3,546
shares held by Mr. Freitas' wife.

(11) Consists of shares subject to currently exercisable options.

(12) Consists of shares subject to currently exercisable options.

(13) Consists of shares subject to currently exercisable options.

(14) Includes 381,000 shares subject to currently exercisable options. Also
includes 33,666 shares held for the benefit of certain members of Mr. Dow's
family, as to all of which shares Mr. Dow disclaims beneficial ownership.

(15) Includes 16,000 shares subject to currently exercisable options and 21,000
shares as to which Dr. Luconi has shared voting and shared investment power
with his wife. Also includes 2,500 shares held in trust for the benefit of
certain members of Dr. Luconi's family, as to all of which shares Dr.
Luconi disclaims beneficial ownership.

(16) Includes 16,000 shares subject to currently exercisable options.

(17) Consists of 280,000 shares held by Mr. Rutherford, 16,000 shares subject to
currently exercisable options granted to Mr. Rutherford, 152,619 shares
held by The Parthenon Group, Inc. ("Parthenon"), a management consulting
and investment company of which Mr. Rutherford is a managing director and a
principal stockholder, and 135,000 shares subject to currently exercisable
options granted to Parthenon. These figures and the related information is
based solely on information contained in filings made by Mr. Rutherford and
Parthenon with the Securities and Exchange Commission pursuant to Section
13(d) or 13(g) of the Exchange Act or in communications by them to the
Company or the Company's representatives.

(18) Includes 16,000 shares subject to currently exercisable options and 38,500
shares as to which Dr. Schneider has shared voting and investment power
with his wife.

(19) Includes 1,329,185 shares subject to currently exercisable options granted
to such directors and executive officers.

35
<PAGE> 37

UNDERWRITING

The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company and the Selling Stockholders (subject to the terms and
conditions specified in the Underwriting Agreement) are as follows:

<TABLE>
<CAPTION> UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Dillon, Read & Co. Inc...................................
Prudential Securities Incorporated.......................
Needham & Company, Inc...................................

---------
Total............................................... 3,200,000
=========
</TABLE>

The Managing Underwriters are Dillon, Read & Co. Inc., Prudential
Securities Incorporated and Needham & Company, Inc.

If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares hereby, the remaining
Underwriters, or some of them, must assume such obligations.

The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain dealers. The offering of the
shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.

The Company has granted to the Underwriters an option to purchase up to an
additional 480,000 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover overallotments made of the shares in connection with this offering.

The Company has agreed that it will not, without the prior written consent
of Dillon, Read & Co. Inc., sell, grant any option to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of the Common Stock, or
any securities convertible into, or exercisable or exchangeable for, Common
Stock or warrants or other rights to purchase Common Stock, prior to the
expiration of 120 days from the date of the consummation of the offering, except
(i) shares of Common Stock issued pursuant to the exercise of outstanding
options and (ii) options granted to its employees, officers and directors under
its existing employee stock option plans so long as none of such options become
exercisable during said 120 day period. The Company's officers and directors and
certain stockholders who will hold in the aggregate 1,193,376 shares of Common
Stock after the offering and who hold certain options to purchase Common Stock
have agreed that they will not, without the prior written consent of Dillon,
Read & Co. Inc., sell, grant any option to sell, transfer or otherwise dispose
of, directly or indirectly, any shares of Common Stock, or any securities
convertible into, or exercisable or exchangea-

36
<PAGE> 38

ble for, Common Stock or warrants or other rights to purchase Common Stock,
prior to the expiration of 120 days from the date of the consummation of this
offering.

The Company and the Selling Stockholders have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.

The Managing Underwriters have informed the Company that the Underwriters
will not confirm sales to discretionary accounts.

In connection with this offering, certain Underwriters and selling group
members or their affiliates may engage in passive market making transactions in
the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Exchange Act during the two business day period before the
commencement of sales in this offering. Passive market making consists of, among
other things, displaying bids on the Nasdaq National Market limited by the bid
prices of independent market makers and purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified prior period
and all possible market making activity must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.

Dillon, Read & Co. Inc. has provided financial advisory services to the
Company during the past 12 months for which Dillon, Read & Co. Inc. received
fees in the amount of $100,000 and the reimbursement of certain expenses.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Choate, Hall & Stewart (a
partnership including professional corporations), Boston, Massachusetts.
Brobeck, Phleger & Harrison, LLP (a limited liability partnership), New York,
New York is acting as legal counsel for the Underwriters in connection with
certain legal matters relating to the shares of Common Stock offered hereby.

EXPERTS

The consolidated balance sheets as of March 31, 1994 and 1995 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1995 included in this
Prospectus, and the financial statement schedules incorporated herein by
reference, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto and are included
or incorporated by reference herein in reliance of said firm as experts in
giving said reports.

The financial statements of Extension Technology Corp. as of September 30,
1994 and for the year then ended incorporated by reference in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

37
<PAGE> 39

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048, and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials also may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock of the Company is
traded on the Nasdaq National Market. Reports, proxy statements and other
information concerning the Company also may be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any agreement
or other document are not necessarily complete, and in each instance reference
is made to the copy of such agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or
any part thereof may be obtained from such office upon payment of the prescribed
fees.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated herein by reference: (1) the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1994; (2) the Company's interim reports on
Form 10-Q for the fiscal quarters ended June 30, 1994, September 30, 1994 and
December 31, 1994; (3) the Company's report on Form 8-K filed with the
Commission on January 20, 1995; and (4) the Company's Registration Statement on
Form 8-A filed on April 28, 1987 registering the Company's Common Stock under
Section 12(g) of the Exchange Act. All documents filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date hereof and prior to the termination of the offering of
the Common Stock registered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statements contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus. The
Company will provide without charge to each person to whom this Prospectus is
delivered, upon a written request of such person, a copy of any or all of the
foregoing documents incorporated by reference into this Prospectus (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to the Chief Financial Officer of the Company, 500 River Ridge Drive, Norwood,
Massachusetts 02062-5028, Telephone: (617) 551-1000.

38
<PAGE> 40

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 41

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Microcom, Inc.:

We have audited the accompanying consolidated balance sheets of Microcom,
Inc. (a Massachusetts corporation) and subsidiaries as of March 31, 1994 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Microcom, Inc. and
subsidiaries as of March 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1995 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
April 11, 1995

F-2
<PAGE> 42

MICROCOM, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents (Note 1)........................................ $ 5,342 $ 863
Accounts receivable, less reserves for doubtful accounts of $246
and $250 at March 31, 1994 and 1995, respectively................. 13,282 22,183
Inventories (Notes 1 and 6).......................................... 5,975 16,248
Prepaid expenses and other current assets............................ 1,130 822
-------- --------
Total current assets......................................... 25,729 40,116
Property and equipment, net (Notes 1 and 6)............................ 5,357 5,683
Other assets, net (Notes 1, 6 and 8)................................... 7,367 11,989
-------- --------
$ 38,453 $ 57,788
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases and short-term debt (Notes 9
and 10)........................................................... $ 853 $ 12,543
Accounts payable..................................................... 7,999 6,923
Accrued restructuring costs (Note 2)................................. 1,492 --
Accrued expenses (Note 6)............................................ 1,353 2,428
Income taxes payable (Note 14)....................................... 75 490
-------- --------
Total current liabilities.................................... 11,772 22,384
-------- --------
Long-term portion of capitalized leases (Note 9)....................... 450 122
-------- --------
Commitments and contingencies (Note 5)

Stockholders' equity (Note 11):
Common stock, $.01 par value, authorized -- 30,000 shares, issued --
11,442 and 12,088 shares at March 31, 1994 and 1995,
respectively...................................................... 114 121
Capital in excess of par value....................................... 58,504 61,223
Stock loans -- related parties....................................... (1,612) (1,942)
Unrealized loss on marketable securities............................. (534) (33)
Accumulated deficit.................................................. (27,350) (21,589)
Treasury stock, 981 shares at cost................................... (2,613) (2,613)
Cumulative translation adjustment.................................... (278) 115
-------- --------
Total stockholders' equity................................... 26,231 35,282
-------- --------
$ 38,453 $ 57,788
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE> 43

MICROCOM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
Net sales (Notes 1 and 13)................................ $ 69,435 $ 56,464 $93,106
Cost of sales............................................. 33,132 29,072 51,322
-------- -------- -------
Gross margin.............................................. 36,303 27,392 41,784
-------- -------- -------
Operating expenses:
Research and development (Notes 1 and 8)................ 12,483 8,959 10,250
Sales and marketing..................................... 20,915 15,608 19,270
General and administrative.............................. 5,539 5,366 4,747
Restructuring and other costs (Note 2).................. 4,268 7,875 --
-------- -------- -------
Total operating expenses........................ 43,205 37,808 34,267
-------- -------- -------
Income (loss) from operations............................. (6,902) (10,416) 7,517
Settlement costs.......................................... (3,200) -- --
Interest income........................................... 88 42 67
Interest and other expense, net........................... (185) (378) (807)
-------- -------- -------
Income (loss) before income taxes......................... (10,199) (10,752) 6,777
Provision for income taxes (Note 14)...................... 495 161 1,016
-------- -------- -------
Net income (loss)......................................... $(10,694) $(10,913) $ 5,761
======== ======== =======
Net income (loss) per share (Note 1)...................... $(1.11) $(1.09) $.49
======== ======== =======
Weighted average number of shares outstanding............. 9,644 10,041 11,805
======== ======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE> 44

MICROCOM, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Common stock:
Balance, beginning of year............................... $ 104 $ 107 $ 114
Acquisition.............................................. -- -- 1
Exercise of stock options and employee stock purchase
plan.................................................. 3 7 6
-------- -------- --------
Balance, end of year..................................... 107 114 121
-------- -------- --------
Capital in excess of par value:
Balance, beginning of year............................... 54,571 55,903 58,504
Acquisition.............................................. -- -- 1,350
Exercise of stock options and employee stock purchase
plan.................................................. 1,332 2,601 1,369
-------- -------- --------
Balance, end of year..................................... 55,903 58,504 61,223
-------- -------- --------
Stock loans -- related parties:
Balance, beginning of year............................... (116) (116) (1,612)
Stock loans.............................................. -- (1,496) (330)
-------- -------- --------
Balance, end of year..................................... (116) (1,612) (1,942)
-------- -------- --------
Unrealized loss on marketable securities:
Balance, beginning of year............................... -- -- (534)
Adjustment to value of marketable securities............. -- (534) 501
-------- -------- --------
Balance, end of year..................................... -- (534) (33)
-------- -------- --------
Accumulated deficit:
Balance, beginning of year............................... (5,743) (16,437) (27,350)
Net income (loss)........................................ (10,694) (10,913) 5,761
-------- -------- --------
Balance, end of year..................................... (16,437) (27,350) (21,589)
-------- -------- --------
Treasury stock............................................. (2,613) (2,613) (2,613)
-------- -------- --------
Cumulative translation adjustment:
Balance, beginning of year............................... (161) (324) (278)
Net translation adjustment............................... (163) 46 393
-------- -------- --------
Balance, end of year..................................... (324) (278) 115
-------- -------- --------
Total stockholders' equity................................. $ 36,520 $ 26,231 $ 35,282
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 45

MICROCOM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(10,694) $(10,913) $ 5,761
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 6,908 6,205 6,096
Gain on disposition of product lines................. (282) -- --
Changes in assets and liabilities, net of effects from
sale of product lines and acquisition of businesses:
Accounts receivable, net............................. 1,671 73 (8,496)
Inventories.......................................... 5,256 (315) (9,853)
Prepaid expenses and other current assets............ 595 125 308
Accounts payable and accrued expenses................ 340 1,136 (1,434)
Income taxes payable................................. -- -- 415
Accrued settlement costs............................. 2,400 -- --
Accrued restructuring................................ 233 1,841 (1,246)
-------- -------- -------
Net cash provided by (used in) operating
activities................................... 6,427 (1,848) (8,449)
-------- -------- -------

Cash flows from investing activities:
Proceeds from disposition of product lines................ 3,052 1,000 --
Capitalized software development costs and purchased
technology............................................. (3,776) (3,352) (4,922)
Other assets.............................................. (1,851) 18 379
Acquisition of a business................................. -- -- (1,716)
Purchases of property and equipment....................... (1,315) (1,003) (2,567)
-------- -------- -------
Net cash used in investing activities.................. (3,890) (3,337) (8,826)
-------- -------- -------
Cash flows from financing activities:
Borrowings under the revolving credit line, net........... -- -- 12,020
Exercise of stock options and employee stock purchase
plan................................................... 1,335 1,112 1,434
Payment on capitalized leases............................. (210) (280) (312)
Banker acceptance on inventory purchases.................. -- 541 (346)
-------- -------- -------
Net cash provided by financing activities.............. 1,125 1,373 12,796
-------- -------- -------
Effect of exchange rates on cash............................ (163) 46 --
-------- -------- -------
Net increase (decrease) in cash and equivalents............. 3,499 (3,766) (4,479)
Cash and equivalents at beginning of year................... 5,609 9,108 5,342
-------- -------- -------
Cash and equivalents at end of year......................... $ 9,108 $ 5,342 $ 863
======== ======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 46

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Microcom, Inc. (the Company) designs, manufactures, and markets products
for the remote network access markets. The Company's products are utilized
within one industry segment.

The consolidated financial statements reflect the application of certain
accounting policies described here and elsewhere in the notes to the
consolidated financial statements.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
transactions have been eliminated.

Cash and Equivalents

The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents. Cash and equivalents, which include time deposits and certificates
of deposit, are stated at cost plus accrued interest, which approximates market.

Inventories

Inventories are stated at the lower of cost or market using the first-in,
first-out method.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization for property and equipment are
computed using the straight-line method over the assets' estimated useful life.
Useful lives used in computing depreciation are as follows: computer
equipment -- 2 to 3 years; machinery and equipment -- 3 to 7 years; furniture
and fixtures -- 8 years. Leasehold improvements are amortized over the shorter
of the lease period or their estimated useful life.

Marketable Securities

Marketable securities are stated at market at the balance sheet date and
are included in other assets. In accordance with Statement of Financial
Accounting Standards (SFAS) 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company classifies its marketable securities as
available for sale and, therefore, records unrealized gains and losses on
marketable securities as a separate component of stockholders' equity. The cost
basis of the Company's marketable securities at both March 31, 1994 and 1995 was
$1,351,000.

Translation of Foreign Currencies

Assets and liabilities of the Company's foreign operations are translated
in accordance with SFAS 52 "Foreign Currency Translation" into United States
dollars at exchange rates in effect at the balance sheet date. Income and
expense items are translated at average exchange rates prevailing during the
year. Translation adjustments and transaction gains or losses are recognized as
other income or expense in the period incurred. Transaction gains or losses have
been immaterial for all periods presented.

F-7
<PAGE> 47

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Foreign Currency Hedging

To date, all of the Company's transactions (including customer sales and
purchases from vendors) have been denominated in U.S. dollars, except for an
immaterial amount of customer sales denominated in U.K. pounds sterling. The
Company has hedged the currency risk associated with these foreign sales by
entering into forward contracts at the beginning of each quarter. The gains or
losses on these foreign currency contracts are deferred until the contracts are
settled and then recognized as other income or expense. The Company had $407,000
and $153,000 in foreign currency contracts at March 31, 1994 and 1995,
respectively. The Company had no material unrealized gains or losses on these
contracts.

Research and Development and Software Development Costs

Research and development costs, other than certain software development
costs, are expensed as incurred. The Company capitalizes certain computer
software development costs incurred after establishing technological feasibility
and before general release of a software product. Capitalized software
development costs are amortized using the straight-line method over the
estimated economic lives of the products, generally 18 months. Amortization
commences on the date of the initial product shipment.

Revenue Recognition and Warranty Costs

Revenue is recognized upon shipment, provided that no significant vendor
and postcontract support obligations remain outstanding and collection of the
resulting receivable is deemed probable. Postcontract customer support bundled
in the sale of initial license fees is deferred and amortized over the
maintenance period. The Company recognizes revenue associated with separately
billed maintenance and customer support ratably over the life of the contract.
These contracts generally have terms of one year or less. Postcontract customer
support revenues represent less than 1% of total revenues for all periods
presented. Estimated warranty costs, which are not material to operations, are
accrued for at time of shipment.

Net Income (Loss) per Share

Net income per share in fiscal 1995 was based on the weighted average
number of shares of common stock and common stock equivalents (stock options)
outstanding during the fiscal year. Net loss per share in fiscal 1993 and 1994
did not consider common stock equivalents, as the effect would have been
antidilutive.

NOTE 2 -- RESTRUCTURING AND OTHER COSTS

During fiscal 1994, the Company incurred $7,875,000 in restructuring and
other costs. Of such amount, $6,500,000 was incurred in the first quarter of the
fiscal year and related primarily to (i) a 12% workforce reduction, mostly in
the areas of sales and marketing, and general and administrative, resulting in a
charge of $870,000, (ii) the direct costs effecting the realizability of certain
assets associated with the implementation of a new sales, marketing and
distribution plan in the amount of $3,275,000 and (iii) the disposition of
Company's Client Server Technologies Group, which developed and marketed the
LANlord product line, in the amount of $1,850,000. Restructuring and other costs
accrued in the first quarter of fiscal 1994 were realized as follows:
$3,400,000, $1,900,000 and $1,200,000 in the second, third and fourth quarters,
respectively. The balance of the restructuring charges, $1,375,000 was incurred
in the fourth quarter of fiscal 1994 and related primarily to the closing of the
Company's manufacturing facility in Puerto Rico, certain executive severance
costs, and the direct costs associated with the consolidation of the Company's
shipping locations. Restructuring charges accrued in the fourth quarter of
fiscal 1994 were realized as follows: $448,000, $581,000, $242,000 and $104,000
in the first, second, third and fourth quarters of fiscal 1995, respectively.

F-8
<PAGE> 48

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During fiscal 1993, the Company incurred a $4,268,000 restructuring charge.
A substantial portion of the charge was for the write-off of certain assets and
estimated costs in connection with the disposition of the Company's Relay
product line. Additionally, the restructuring charge reflects the costs
associated with the Company's reduction of its worldwide workforce by
approximately 15%, primarily in the areas of research and development and
general and administrative, and the elimination of certain assets and excess
facilities.

NOTE 3 -- ACQUISITIONS

On January 5, 1995, the Company acquired Extension Technology Corp. (ETC)
in a merger pursuant to which ETC became a wholly owned subsidiary of the
Company and the shareholders of ETC received an aggregate of 114,980 shares of
the Company's common stock. The purchase price was allocated to the fair value
of the assets acquired, including purchased technology of $2,104,000, which is
being amortized using the straight-line method over its estimated useful life of
seven years. This acquisition was accounted for under the purchase method of
accounting, and accordingly, the results of operations of ETC are included in
the accompanying consolidated financial statements from the date of acquisition.
The following unaudited pro forma condensed consolidated results of operations
for fiscal 1994 and 1995 have been prepared as if the operations of the Company
and ETC had been combined since the beginning of fiscal 1994:

PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1994 1995
-------- -------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.................................................... $56,753 $93,169
Net income (loss)............................................ (12,935) 4,231
Net income (loss) per share.................................. (1.27) .36
</TABLE>

The pro forma combined results do not purport to be indicative of the
results that would actually have been obtained had the acquisition occurred at
the beginning of fiscal 1994.

On March 31, 1995, the Company acquired certain assets of mbp
Softwareentwicklungsgesellschaft mbH (mbp) for an aggregate purchase price of
2,350,000 Deutschemarks (approximately $1,716,000). In addition, the Company
will pay mbp royalties for a five-year period ending March 31, 2000 based on the
net sales and income from operations attributable to the assets purchased from
mbp. The acquisition has been accounted for as a purchase. The cost of the
purchased technology acquired is being amortized using the straight-line method
over its estimated useful life of seven years. Pro forma information for this
acquisition has not been presented because its results of operations prior to
the acquisition date were not material.

NOTE 4 -- DISPOSITIONS

During fiscal 1994, the Company sold certain assets of its Client Server
Technologies Group for cash and a note receivable. In fiscal 1993, the Company
sold certain assets of its Utilities and Relay product lines for cash, future
royalties, marketable securities, and the purchasers' assumption of certain
liabilities of the Company. Pro forma information has not been presented as the
product lines disposed of were not material to the Company's financial position
or results of operations.

F-9
<PAGE> 49

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- LEASES

The Company conducts its operations in leased facilities under operating
leases which expire at various dates through fiscal 2002. In addition, the
Company leases certain equipment under operating and capital leases which expire
at various dates through fiscal 1997. The value of equipment recorded under
capital leases was $1,710,000 at both March 31, 1994 and 1995. Accumulated
amortization was $1,160,000 and $1,433,000 at March 31, 1994 and 1995,
respectively. Aggregate rental expense under operating leases was $2,453,000,
$1,910,000 and $1,760,000 for the years ended March 31, 1993, 1994, and 1995,
respectively.

Future minimum lease payments under capital and operating lease commitments
at March 31, 1995 were as follows:

<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
(IN THOUSANDS)
<S> <C> <C>
1996............................................................. $ 359 $ 1,382
1997............................................................. 122 1,247
1998............................................................. -- 1,140
1999............................................................. -- 1,095
2000............................................................. -- 1,017
Thereafter....................................................... -- 2,020
----- -------
481 $ 7,901
=======
Less interest.................................................... 36
-----
Net present value................................................ $ 445
=====
</TABLE>

F-10
<PAGE> 50

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- CONSOLIDATED BALANCE SHEET DETAILS

Details of selected consolidated balance sheet accounts were as follows:

<TABLE>
<CAPTION>
MARCH 31,
--------------------
1994 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials................................................ $ 2,391 $ 4,557
Finished goods............................................... 3,584 11,691
------- --------
5,975 16,248
======= ========
Property and equipment:
Computer equipment........................................... 8,391 9,503
Machinery and equipment...................................... 2,882 2,937
Furniture and fixtures....................................... 1,475 1,458
Leasehold improvements....................................... 1,802 1,830
------- --------
14,550 15,728
Accumulated depreciation and amortization.................... (9,193) (10,045)
------- --------
5,357 5,683
======= ========
Other assets:
Computer software development costs.......................... 8,032 12,954
Cost in excess of value of assets acquired................... 5,551 9,198
Investment in common stock and license agreement............. 667 1,217
Note receivable relating to the Client Server Technologies
disposition............................................... 500 --
Other........................................................ 181 136
------- --------
14,931 23,505
Accumulated amortization..................................... (7,564) (11,516)
------- --------
7,367 11,989
======= ========
Accrued expenses:
Employee compensation and benefits........................... 554 791
Other........................................................ 799 1,637
------- --------
$ 1,353 $ 2,428
======= ========
</TABLE>

F-11
<PAGE> 51

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1993 1994 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes paid...................................... $ 145 $ 174 $ 101
Interest paid.......................................... 138 125 673

Items not affecting cash:
Common stock issued pursuant to a merger agreement... -- -- 1,351
Reserve for unrealized loss on marketable
securities........................................ -- (534) 501
Stock loans issued................................... -- (1,496) (330)
Client Server Technologies note receivable........... -- 500 --
Investment in common stock........................... 1,351 -- --
Capital leases on equipment purchases................ 420 -- --
</TABLE>

NOTE 8 -- COMPUTER SOFTWARE DEVELOPMENT COSTS

The Company capitalized $3,776,000, $3,352,000, and $4,922,000 of certain
software development costs in fiscal 1993, 1994, and 1995, respectively. The
Company is amortizing the capitalized costs using the straight-line method over
the estimated economic lives of the products or a period generally not exceeding
18 months. In fiscal 1993, 1994, and 1995, the Company recorded amortization
expense of $3,069,000, $2,914,000, and $3,332,000, respectively.

NOTE 9 -- FINANCING ARRANGEMENTS

<TABLE>
<CAPTION>
MARCH 31,
-----------------
1994 1995
----- -----
(IN THOUSANDS)
<S> <C> <C>
Capital leases were as follows:
Capital lease with interest at 10.5%........................... $ 762 $ 450
Less -- current portion........................................ (312) (328)
----- -----
$ 450 $ 122
===== =====
The minimum repayment is as follows:
1996........................................................... $ 328
1997........................................................... 122
-----
$ 450
=====
</TABLE>

NOTE 10 -- CREDIT LINE

At March 31, 1995, the Company had a bank revolving credit facility which
allowed the Company to borrow up to an amount (the Maximum Borrowing Amount)
equal to the lesser of (i) $16,000,000 or (ii) an amount based on the Company's
eligible accounts receivable and inventory. The Maximum Borrowing Amount is
reduced by amounts which may be drawn on outstanding letters of credit, bankers'
acceptance outstanding, and by a percentage of the Company's exposure under any
foreign currency exchange contracts. Interest on borrowings was at the banks'
prime rate (9% at March 31, 1995) plus 2%. At March 31, 1995, the Company had
letters of credit of $2,619,000, bankers' acceptance of $195,000, and borrowings
under the line of credit of $12,020,000. The portion of foreign exchange
contracts which reduce the availability of borrowings under the line of credit
at March 31, 1995 was $78,000. The remaining amount available to borrow under
the line of credit at March 31,

F-12
<PAGE> 52

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1995 was $1,088,000. Under the terms of the line of credit, which expires in
March 1996 and is secured by substantially all of the Company's assets, the
Company is required to maintain certain covenants, including maintaining minimum
levels of profitability, tangible net worth and liquidity and not exceeding
specified debt to net worth ratios. The terms of the credit facility also
prohibit the Company from paying cash dividends. As of March 31, 1995 the
Company was in compliance with all covenants.

NOTE 11 -- STOCKHOLDERS' EQUITY

Stock Option and Stock Purchase Plan

The Company maintains a stock option and stock purchase plan (the Option
Plan) which provides for the grant of incentive stock options, non qualified
stock options and purchase authorizations to key employees, directors and
consultants of the Company and its subsidiaries. At March 31, 1995, there were
4,828,000 shares reserved for issuance under the Option Plan. Substantially all
outstanding options and purchase authorizations are immediately exercisable in
full. Shares of common stock made subject to options and purchase authorizations
vest periodically from the date of grant in accordance with schedules
established by the compensation committee of the Board of Directors. Shares
subject to incentive stock options generally vest over a four-year period. Any
shares with respect to which an option or purchase authorization has been
exercised that are not vested upon the participant's termination of service are
subject to the Company's right of repurchase at the participant's option price
for such shares. At March 31, 1995, 413,394 shares of common stock were
available under the Option Plan for additional grants of options and purchase
authorizations.

A summary of the Option Plan activity for fiscal March 31, 1993, 1994, and
1995 follows:

NUMBER OF OPTION PRICE
OPTIONS PER SHARE
------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Outstanding at March 31, 1992................. 1,694 $2.00 -- $14.63
Granted..................................... 1,410 3.00 -- 8.50
Exercised................................... (100) 3.00 -- 12.38
Forfeited................................... (1,227) 3.00 -- 5.25
------ ----- ------
Outstanding at March 31, 1993................. 1,777 3.00 -- 14.63
Granted..................................... 1,232 1.75 -- 4.88
Exercised................................... (547) 1.75 -- 5.63
Forfeited................................... (629) 2.06 -- 8.63
------ ----- ------
Outstanding at March 31, 1994................. 1,833 2.00 -- 14.63
Granted..................................... 352 5.00 -- 10.25
Exercised................................... (318) 2.00 -- 5.63
Forfeited................................... (41) 2.88 -- 14.63
------ ----- ------
Outstanding at March 31, 1995................. 1,826 $2.00 -- $10.25
======

Options vested at March 31, 1995.............. 971 $2.00 -- $ 7.50

</TABLE>

Non-Employee Director Stock Option Plan

The Company maintains a Non-Employee Director Stock Option Plan (the
Director Plan) which provides for the grant of non-qualified stock options to
non-employee directors of the Company. Under the Director Plan, any person who
served as a non-employee director on March 17, 1995, or who first becomes a
non-employee director after March 17, 1995 is entitled to receive an option to
purchase

F-13
<PAGE> 53

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16,000 shares of the Company's common stock (collectively the Initial Options).
In addition, each person serving as a non-employee director on April 15 of each
year, commencing in 1996, is entitled to receive an option to purchase 4,000
shares of common stock (the Annual Options). The exercise price of all options
granted under the Director Plan is equal to the fair market value of the
Company's common stock on the date of grant. All options are immediately
exercisable, but unvested shares are subject to repurchase by the Company upon
the optionee ceasing to be a director of the Company. The Initial Options vest
in three annual installments of 32%, 33%, 35% each on the first, second and
third anniversaries of the date of grant. The Annual Options vest in full on the
first anniversary of the date of grant. No option granted under the Director
Plan may be exercised after the earlier of: (i) the third anniversary of the
date on which an optionee ceases to be a director, or (ii) the tenth anniversary
of the date of grant. There are 100,000 shares of common stock reserved for
issuance under the Director Plan. At March 31, 1995, there were no shares of
common stock available for additional option grants under the Director Plan.

A summary of the Director Plan activity for the year ended March 31, 1994
and 1995 follows:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
------------- ---------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Outstanding at March 31, 1993................ --
Granted.................................... 30 $ 5.75 -- $ 5.75
Exercised.................................. (20) 5.75 -- 5.75
Forfeited.................................. -- -- --
--- ------ ------
Outstanding at March 31, 1994................ 10 5.75 -- 5.75
Granted.................................... 80 11.88 -- 11.88
Exercised.................................. (10) 5.75 -- 5.75
Forfeited.................................. -- -- --
--- ------ ------
Outstanding at March 31, 1995................ 80 $11.88 -- $11.88
===
</TABLE>

There were no options vested as of March 31, 1995.

Long-Term Performance Plan

The Company maintains a Long-Term Performance Plan (the Performance Plan)
which permits the grant of stock options, stock appreciation rights (SARs),
stock and cash rewards to officers and key employees of the Company. The maximum
number of shares of common stock issuable under the Performance Plan is 300,000.
No participant in the Performance Plan may be granted, in any fiscal year,
options or SARs with respect to more than 100,000 shares. No option or SAR may
be granted under the Performance Plan in which the exercise price is less than
the fair market value of the common stock on the date of grant. Stock options
granted under the Performance Plan may be in the form of incentive stock options
or non-qualified stock options. Incentive stock options may not be exercisable
more than ten years after the date of grant. Shares of common stock subject to
options vest periodically from the date of grant in accordance with schedules
established by the compensation committee of the Board of Directors of the
Company. At March 31, 1995, 111,000 shares of common stock remained available
for additional option grants under the Performance Plan.

F-14
<PAGE> 54

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the Performance Plan activity for the year ended March 31,
1995 follows:

NUMBER OF OPTION PRICE
OPTIONS PER SHARE
------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Outstanding at March 31, 1994
Granted..................................... 189 $5.38 -- $10.00
Exercised................................... -- -- --
Forfeited................................... -- -- --
--- ----- ------
Outstanding at March 31, 1995................. 189 $5.38 -- $10.00
===
</TABLE>

There were no options vested as of March 31, 1995.

Stock Loans to Related Parties

The Company has made loans to certain officers and directors to enable them
to exercise options to purchase common stock of the Company. These loans are
evidenced by promissory notes and accrue interest at the Adjusted Federal Rate
and are due at various dates through 2003.

Employee Stock Purchase Plan

The Company maintains an employee stock purchase plan (the Purchase Plan)
which authorizes the issuance of up to 1,045,000 shares of common stock.
Substantially all the employees of the Company are eligible to participate in
the Purchase Plan. Participants in the Purchase Plan are entitled to purchase
common stock during specified offering periods (typically six months) at a price
equal to the lower of 85% of the market value of the common stock at the
beginning or end of the offering period, through the accumulation of payroll
deductions or a lump-sum payment. Approximately 144,000, 195,000, and 204,000
shares of common stock for a total of $945,000, $747,000, and $894,000, were
purchased during fiscal 1993, 1994 and 1995, respectively, under the Purchase
Plan.

Post Retirement and Post Employment Benefits

The Company has no obligation for post retirement and post employment
benefits.

Employee Benefit Plan

The Company maintains an Employee Deferred Compensation Savings Plan that
covers all employees over 18 years of age who have completed at least two months
of service with the Company. Contributions by the Company are discretionary and
are determined by the Company's Board of Directors. There were no Company
contributions in fiscal 1993, 1994 or 1995.

F-15
<PAGE> 55

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12 -- NET SALES BY GEOGRAPHIC AREA

Net sales by geographic area were as follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
North America........................................ $54,739 $44,106 $66,557
International:
Europe............................................. 9,096 8,932 18,969
All other.......................................... 5,600 3,426 7,580
------- ------- -------
$69,435 $56,464 $93,106
======= ======= =======
Percent:
North America........................................ 79% 78% 72%
International:
Europe............................................. 13 16 20
All other.......................................... 8 6 8
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>

NOTE 13 -- SIGNIFICANT CUSTOMER

In fiscal 1994 and 1995, one customer accounted for 13% and 24%,
respectively, of net sales. No customer accounted for greater than 10% of net
sales in fiscal 1993.

NOTE 14 -- INCOME TAXES

The provision for income taxes is as follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ -- -- $ 101
State.............................................. $ 20 $ 10 306
International...................................... 150 151 609
------- ------- -------
170 161 1,016
------- ------- -------
Deferred:
Federal............................................ -- -- --
State.............................................. 325 -- --
------- ------- -------
325 -- --
------- ------- -------
$ 495 $ 161 $ 1,016
======= ======= =======
</TABLE>

F-16
<PAGE> 56

MICROCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes result primarily from timing differences in the
recognition of expenses for tax and financial reporting purposes. The sources of
these timing differences are as follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carry forwards........................ $ 8,863 $ 7,313
Tax credit carry forwards................................ 3,959 3,959
Computer software development costs...................... (127) 68
Puerto Rico adjustment................................... (337) --
Purchased technology..................................... 380 326
Other.................................................... 198 169
Valuation allowance...................................... (12,936) (11,835)
-------- --------
$ -- $ --
======== ========
</TABLE>

A reconciliation of the United States Federal statutory tax rate to the
Company's effective tax rate for fiscal 1995 is as follows:

<TABLE>
<S> <C>
U.S. Federal statutory tax rate.......................... 34.0%
State income taxes, net of Federal benefit............... 3.0
Net operating loss carry forwards........................ (22.0)
-----
Effective tax rate....................................... 15.0%
=====
</TABLE>

The Company does not provide for U.S. income taxes on the undistributed
earnings of its foreign subsidiaries as the Company does not have any current
intention of repatriating such earnings.

At March 31, 1995, the Company had available a $21,509,000 net operating
loss carry forwards, which may be used to offset future taxable income, and
$3,959,000 of research and development credit carry forwards which may be used
to offset future taxes payable. These carry forwards expire through 2009 and are
subject to review and possible adjustment by the Internal Revenue Service.

The Company accounts for income taxes under the liability method in
accordance with SFAS 109 "Accounting for Income Taxes."

The Company has recorded a full valuation allowance against the deferred
tax asset related to its net operating loss and tax credit carry forwards due to
uncertainty relating to the realization of this asset.

F-17
<PAGE> 57

[INSIDE BACK COVER
"FOR THE REMOTE USER..."]

[Photo: "Traveling Professional:
Description: Business person using computer in a location away from the office]

[Photo: "Home or Branch Officer User"
Description: Business person using computer in home office or branch office]

[Photo: "Internet or On-line User"
Description: Person using a computer at home]

[Photo: "LANexpress Remote:
Description: Screen shot of Main Menu of LANexpress Remote client software]

[Photo: "Carbon Copy"
Description: Box shot of Carbon Copy software package]

[Caption: Microcom solutions allow remote users fast, easy and reliable access
to information on the Internet, on-line services, and corporate networks from
any location.]

[Photo: "ISDN Terminal Adapter"
Description: Photo of Board]

[Photo: "DeskPorte FAST modem"
Description: Photo of modem with LED display on front panel]

[Photo: "TravelCard FAST PCMCIA modem"
Description: Shot of "credit card-sized" modem on top of notebook computer
keyboard.]

<PAGE> 58

- ---------------------------------------------------------
- ---------------------------------------------------------

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 11
Price Range of Common Stock and Dividend
Policy................................ 11
Capitalization.......................... 12
Selected Consolidated Financial Data.... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 14
Business................................ 21
Management.............................. 32
Principal and Selling Stockholders...... 34
Underwriting............................ 36
Legal Matters........................... 37
Experts................................. 37
Available Information................... 38
Incorporation of Certain Documents by
Reference............................. 38
Index to Consolidated Financial
Statements............................ F-1
</TABLE>

- ---------------------------------------------------------
- ---------------------------------------------------------

------------------------
3,200,000 SHARES

[LOGO MICROCOM(R)]

COMMON STOCK
PROSPECTUS

, 1995
------------------------
DILLON, READ & CO. INC.

PRUDENTIAL SECURITIES INCORPORATED

NEEDHAM & COMPANY, INC.
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 59

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses to be paid by the Registrant in connection with this
offering are as followings:

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 12,214
NASD and Nasdaq filing fees....................................... 21,500
Blue Sky fees and expenses........................................ 10,000
Printing and engraving expenses................................... 110,000
Legal fees and expenses........................................... 125,000
Accounting fees and expenses...................................... 50,000
Transfer Agent and Registrar fees and expenses.................... 5,000
Miscellaneous..................................................... 91,286
---------
Total................................................... $ 425,000
========
</TABLE>

The Registrant will bear all expenses shown above.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article 6 of the Registrant's Restated Articles of Organization provides as
follows:

No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability;
provided, however, that this Article shall not eliminate or limit any liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 61 and 62 of the Massachusetts Business Corporation Law, or (iv) with
respect to any transaction from which director derived an improper personal
benefit.

The provisions of this Article shall not eliminate or limit the liability
of a director of this corporation for any act or omission occurring prior to the
date on which this Article became effective. No amendment or repeal of this
Article shall adversely affect the rights and protection afforded to a director
of this corporation under this Article for acts or omissions occurring while
this Article is in effect.

Article VII of the Registrant's By-Laws, as amended, provides as follows:

The corporation shall, to the extent legally permissible, indemnify any
person serving or who has served as a Director or officer of the corporation, or
at its request as a Director, Trustee, Officer, Employee or other Agent of any
organization in which the corporation owns shares or of which it is a creditor,
against all liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or settlement or as fines and penalties, and counsel
fees, reasonably incurred by him in connection with the defense or disposition
of any action, suit or other proceeding or investigation (internal or external),
whether civil or criminal, in which he may be involved or with which he may be
threatened, while serving or thereafter, by reason of his being or having been
such a Director, Officer, Trustee, Employee or Agent, except with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interests of the corporation or, to the extent that such matter relates to
service with respect to an employee benefit plan, in the best interest of the
participants or beneficiaries of such employee benefit plan.

II-1
<PAGE> 60

Expenses including counsel fees, reasonably incurred by any such Director,
Officer, Trustee, Employee or Agent in connection with the defense or
disposition of any such action, suit or other proceeding or investigation may be
paid from time to time by the corporation in advance of the final disposition
thereof with respect to such individual upon receipt of an undertaking by such
individual to repay the amounts so paid to the corporation if it is ultimately
determined that indemnification for such expenses is not authorized under this
section.

Any indemnification or advance pursuant to this Article shall be made no
later than forty-five (45) days after receipt of the written request of such
Director, Officer, Trustee, Employee or Agent, unless a determination is made
within said forty-five (45) day period by (i) the Board of Directors by a
majority vote of a quorum consisting of directors who are not parties to such
action, suit, or other proceeding or investigation, or (ii) independent legal
counsel in a written opinion (which counsel shall be appointed if such a quorum
is not obtainable), that such individual has not met the relevant standards for
indemnification set forth in this Article.

The right to indemnification or advances as provided by this Article shall
be enforceable by such Director, Officer, Trustee, Employee or Agent in any
court of competent jurisdiction. The burden of proving that indemnification or
advances are not appropriate shall be on the corporation. Neither the failure of
the corporation (including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such action, suit or
other proceeding or investigation that indemnification or advances are proper in
the circumstances because such individual has bet the applicable standard of
conduct, or an actual determination by the corporation (including its Board of
Directors, or independent legal counsel) that such individual has not met such
applicable standard of conduct, shall be a defense to the action, suit or other
proceeding or investigation or create a presumption that such individual has not
met the applicable standard of conduct. The expenses of such Director, Officer,
Trustee, Employee or Agent incurred in connection with successfully establishing
his right to indemnification or advances, in whole or in part, shall also be
indemnified by the corporation.

The indemnification provided by this Article shall be deemed to be a
contract between each Director, Trustee, Officer, Employee or other Agent of the
corporation and the corporation while such individual serves the corporation,
and shall not be diminished by any subsequent repeal or modification of this
Article.

The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any such Director, Officer, Trustee, Employee
or Agent may be entitled. Nothing contained in this Article shall affect any
rights to indemnification to which corporate personnel other than such
Directors, Officers, Trustees, Employees or Agents may be entitled by contract
or otherwise under law. As used in this Article, the terms "Director",
"Officer", "Trustee", "Employee" and "Agent" include their respective heirs,
executors and administrators, and an "interested" Director, Officer, Trustee,
Employee or Agent is one against whom in such capacity the proceedings in
question or other proceedings on the same or similar grounds is then pending.

This Article may be amended only by the affirmative vote of the
stockholders, provided that any reduction in the indemnification provided by
this Article shall be prospective in effect.

Under Section 11(b) of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify the Company, the directors
and officers of the Company and the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Act"). Reference is made to the form of Underwriting Agreement filed as
Exhibit 1.1 hereto.

II-2
<PAGE> 61

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
PAGE NUMBERING
IN SEQUENTIAL
NUMBERING
EXHIBIT NO. EXHIBIT SYSTEM
- ----------- ------------------------------------------------------------- --------------
<C> <C> <S> <C>
--1.1 -- Form of Underwriting Agreement.
+2.1 -- Merger Agreement and Plan of Reorganization, dated as of
December 21, 1994, by and among the Registrant, Extension
Acquisition Corp. and Extension Technology Corp. (Exhibit to
Report on Form 8-K filed January 20, 1995).
+2.2 -- Asset Purchase Agreement dated as of September 30, 1992 among
the Registrant, Microcom Systems, Inc. and Datawatch
Corporation (Exhibit to Report on Form 10-Q filed for the
quarter ended December 31, 1992).
+2.3 -- Asset Purchase Agreement dated December 22, 1992 among the
Registrant, Microcom Systems, Inc. and VM Systems Group, Inc.
(Exhibit to Report on Form 10-Q filed for the quarter ended
December 31, 1992).
+2.4 -- Asset Purchase Agreement dated as of December 31, 1993 among
the Registrant, Microcom Systems, Inc. and Central Point
Software, Inc. (Exhibit to Report on Form 10-K filed for the
year ended March 31, 1994).
-3.1 -- Restated Articles of Organization of the Registrant.
#3.2 -- By-Laws of the Registrant, as amended.
-4.1 -- Article 6 of Restated Articles of Organization of the
Registrant.
#4.2 -- Articles III and VIII of By-Laws of the Registrant, as
amended.
-5.1 -- Opinion of Choate, Hall & Stewart
-++10.1 -- Purchase Agreement dated June 30, 1993 between the Registrant
and Sprint Communications Corporation L.P.
-10.2 -- Registration Rights Agreement dated December 20, 1994 between
the Registrant and Extension Technology Corp.
-10.3 -- Amendment dated March 30, 1989 to Lease between the
Registrant and First Stone Ridge Limited Partnership.
-10.4 -- Second Amendment dated January 31, 1995 to Lease between the
Registrant and First Stone Ridge Nominee Trust I.
-10.5 -- Amended and Restated Credit Agreement dated March 22, 1995
among the Registrant, Silicon Valley Bank and BayBank.
-10.6 -- Amended and Restated Promissory Note in the principal amount
of $8,000,000 dated March 22, 1995 made by the Registrant to
Silicon Valley Bank.
-10.7 -- Promissory Note in the principal amount of $8,000,000 dated
March 22, 1995 made by the Registrant to the order of
BayBank.
-10.8 -- Amended and Restated Security Agreement dated March 22, 1995
among the Registrant, Silicon Valley Bank and BayBank.
-10.9 -- Guaranty dated March 22, 1995 by Microcom Systems, Inc. in
favor of Silicon Valley Bank and BayBank.
-10.10 -- Guarantor Security Agreement dated March 22, 1995 among
Microcom Systems, Inc., Silicon Valley Bank and BayBank.
</TABLE>

II-3
<PAGE> 62

<TABLE>
<CAPTION>
PAGE NUMBERING
IN SEQUENTIAL
NUMBERING
EXHIBIT NO. EXHIBIT SYSTEM
- ----------- ------------------------------------------------------------- --------------
<C> <C> <S> <C>
-10.11 -- Collateral Assignment of Patents and Trademarks dated March
22, 1995 among Microcom Systems, Inc., Silicon Valley Bank
and BayBank.
-10.12 -- Letter Agreement dated February 15, 1994 among Roland D.
Pampel, James M. Dow as Chairman of the Board of Directors of
the Registrant and Michael I. Schneider as Chairman of the
Compensation Committee of the Board of Directors of the
Registrant.
-10.13 -- Letter Agreement dated March 3, 1994 among the Registrant,
James M. Dow and Michael I. Schneider as Chairman of the
Compensation Committee of the Board of Directors of the
Registrant.
-10.14 -- Secured Promissory Notes made by certain senior officers and
directors to the order of the Registrant in connection with
stock loans
-10.15 -- 1993 Non-Employee Director Stock Option Plan (As Amended and
Restated Effective as of March 17, 1995)
+10.16 -- 1982 Stock Option and Stock Purchase Plan (As Amended and
Restated Effective as of June 8, 1994) (Exhibit to
Registration Statement No. 33-84572 filed on Form S-8 on
September 30, 1994)
+10.17 -- 1987 Employee Stock Purchase Plan (As Amended and Restated
Effective as of April 21, 1993) (Exhibit to Registration
Statement No. 33-63454 filed on Form S-8 on May 28, 1993)
+10.18 -- Long Term Performance Plan of the Registrant (Exhibit to
Registration Statement No. 33-84572 filed on Form S-8 on
September 30, 1994)
*10.19 -- Agreement dated May 13, 1986 between the Registrant and
Rockwell International Corporation.
*10.20 -- Agreement dated January 30, 1987 between the Registrant and
Rockwell International Corporation.
+10.21 -- Lease dated August 11, 1987 between the Registrant and First
Stone Ridge Limited Partnership. (Exhibit to Report on Form
10-K filed for the year ended March 31, 1988.)
+10.22 -- Manufacturing Agreement dated as of December 18, 1987 between
the Registrant and Video Technology Engineering Ltd. (Exhibit
to Report on Form 10-K filed for the year ended March 31,
1988)
+10.23 -- Letter of intent dated as of January 26, 1993 between the
Registrant and Flextronics International (Exhibit to Report
on Form 10-K filed for the year ended March 31, 1994)
#10.24 -- Master Conditional Sale and Security Agreement between the
Registrant and NYNEX Credit Company dated as of September 23,
1988.
#10.25 -- Financing Agreement for Centrex Service between the
Registrant and NYNEX Credit Company dated as of September 23,
1988.
</TABLE>

II-4
<PAGE> 63

<TABLE>
<CAPTION>
PAGE NUMBERING
IN SEQUENTIAL
NUMBERING
EXHIBIT NO. EXHIBIT SYSTEM
- ----------- ------------------------------------------------------------- --------------
<C> <C> <S> <C>
#10.26 -- Agreement dated July 1, 1988 between the Registrant
and Rockwell International Corporation.
+10.27 -- Agreement dated December 12, 1989 between the Registrant and
Rockwell International Corporation (Exhibit to Report on Form
10-K filed for the year ended March 31, 1990).
+10.28 -- Agreement dated December 23, 1991 between the Registrant and
Rockwell International Corporation (Exhibit to Report on Form
10-K filed for the year ended March 31, 1992).
+10.29 -- Agreement dated October 4, 1993 between the Registrant and
Rockwell International Corporation (Exhibit to Report on Form
10-K filed for the year ended March 31, 1994).
+10.30 -- Spectrum-Microcom Global Settlement by and between the
Registrant and Spectrum Information Technologies, Inc. dated
November 16, 1993. (Exhibit to Report on Form 10-Q filed for
the quarter ended December 31, 1993).
-21.1 -- Subsidiaries of the Registrant.
23.1 -- Consents of Arthur Andersen LLP.
-23.2 -- Consent of Choate, Hall & Stewart (including in Exhibit 5.1).
-24.1 -- Power of Attorney (see Page II-4).
-27.1 -- Financial Data Schedule.
</TABLE>

- ---------------
# Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-28399) or an amendment thereto and incorporated
herein by reference.

* Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-13455) or an amendment thereto and incorporated
herein by reference.

+ Filed with the report or registration statement indicated and
incorporated herein by reference.

++ Confidential treatment requested as to certain portions.

- Filed as an exhibit to the Registrant's Registration Statement on Form
S-3 (Registration No. 33-59471).

-- To be filed by amendment.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of the Registration

II-5
<PAGE> 64

Statement in reliance upon Rule 430A and contained in a form of prospectus filed
by the Registrant pursuant to Rule 424(b)(1) or (4) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective; and (2) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-6
<PAGE> 65

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts, on the 2nd day
of June, 1995.

MICROCOM, INC.

By: /s/ Roland D. Pampel

------------------------------------
Roland D. Pampel
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 has been signed below on June 2, 1995 by the
following persons in the capacities indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>

/s/ Roland D. Pampel President, Chief Executive Officer and
- --------------------------------------------- Director
Roland D. Pampel (Principal Executive Officer)

Peter J. Minihane* Executive Vice President, Chief Financial
- --------------------------------------------- Officer and Treasurer (Principal Financial
Peter J. Minihane Officer and Principal Accounting Officer)

James M. Dow* Chairman of the Board
- ---------------------------------------------
James M. Dow

Donald G. Kennedy* Director
- ---------------------------------------------
Donald G. Kennedy

Fred L. Luconi* Director
- ---------------------------------------------
Fred L. Luconi

Director
- ---------------------------------------------
John C. Rutherford

Director
- ---------------------------------------------
Michael I. Schneider
</TABLE>

*By /s/ Roland D. Pampel

-------------------------------
Roland D. Pampel
Attorney-in-Fact

II-7

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.

ARTHUR ANDERSEN LLP

Boston, Massachusetts

June 2, 1995