MICROCOM INC, 10-K, 1996-06-27

MICROCOM INC
10-K, 1996-06-27
TELEPHONE & TELEGRAPH APPARATUS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number:
March 31, 1996 0-14805

MICROCOM, INC.
Exact name of registrant as specified in charter
MASSACHUSETTS 04-2710644
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)

500 River Ridge Drive 02062-5028
Norwood, Massachusetts (Zip code)
(Address of principal executive
office)

(617) 551-1000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]

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

Aggregate market value of common stock held by non-affiliates of the
Registrant as of June 24, 1996: $170,240,725

Number of shares outstanding of the Registrant's
only class of common stock as of June 24, 1996: 15,899,938

DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K into
Document which incorporated

-Portions of Registrant's Annual Report to Parts II and IV
Stockholders for the fiscal year ended March 31, 1996

-Portions of Registrant's Proxy Statement Part III
relating to Registrant's Annual Meeting of
Stockholders scheduled to be held on July 18, 1996

This Form 10-K, future filings of the registrant, press releases of the
registrant, and oral statements made with the approval of an authorized
executive officer of the Registrant may contain forward looking statements.
In connection therewith, please see the cautionary statements and risk factors
contained in Item 1. "Business - Forward Looking Statements; Cautionary
Statement" and "Business - Risk Factors", which identify important factors
which could cause actual results to differ materially from those in any such
forward-looking statements.

PART I

Item 1. Business.

Microcom, Inc. ("Microcom" or the "Company") is a leading provider of
central site and remote access solutions. The Company's products enable users
to access and communicate with the Internet, America Online, CompuServe and
other online services, as well as distributed enterprise-wide computing
networks ("intranets"), from remote locations. The Company was founded in
1980 as a developer of data communications software, high performance modems
and related technologies. Focusing on the Company's core competencies and
responding to changes in the data communications industry, Microcom offers a
broad line of products utilizing the Company's wide area network (WAN)
technology and its network management and remote access software.

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), which is a dial-up access management
system (or WAN concentrator); and LANexpress -- remote local area network
(LAN) access systems which include expressWATCH, a comprehensive remote
network access management software product. Products designed for the
individual remote user include high performance V.34 (28.8 Kbps) PCMCIA,
desktop and other modems; Carbon Copy remote personal computer (PC)/network
access software; LANexpress Remote client software, a remote node and remote
control LAN access product, and Integrated Services Digital Network (ISDN)
terminal adapters.

The Company's customers include (i) Internet and online service
providers, (ii) corporate 2000 companies, (iii) large international
corporations, (iv) governmental agencies and universities, and (v) individual
remote users seeking to access the Internet, online services and corporate
intranets. By leveraging its technology and expertise, the Company has
expanded its customer base to include original equipment manufacturers (OEMs).
The Company also distributes its products through direct sales and other
multiple indirect channels, including retailers, value added resellers (VARs),
and distributors in the United States and international markets.

Microcom is committed to providing leadership technology and products
to a broad range of customers. The development of the OEM channel is a major
component of the Company's overall distribution strategy. During the second
half of fiscal 1996, the Company entered into OEM partnerships with Cisco
Systems, Bay Networks, Gandalf Technologies, Hewlett Packard and Netscape.
Also, in fiscal 1996 the Company enhanced its existing supplier and technology
partnerships with companies such as Rockwell, 3Com, Microsoft, and Banyan.

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, central site and remote access solutions:

Growth of the Internet, Online Services and Corporate Intranets. The
number of users of the Internet and online services, such as America Online
and CompuServe, 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 50 million today. This growth is due to increased use
of e-mail, the proliferation of databases, education, entertainment and
information services such as the World Wide Web. Corporate intranets,
offering secure, reliable access to corporate information, are also growing at
an exceptional pace.

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 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 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), 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 substantial growth in the number of remote
users seeking to connect to the Internet and online 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
access has created a number of rapidly growing markets.

Network access providers are responsible for linking millions of remote
users to the Internet and online services each day and require substantial
amounts of equipment including modems, ISDN terminal adapters, 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 and diverse, supporting
distributed computing and client/server applications. 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 is required to diagnose, configure and troubleshoot the
remote access aspects of the network. 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 networks.

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.

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 line of central site and
remote access products. The following are the key attributes of the Microcom
solution:

Broad Product Range. The Company's product line serves both central
site network managers and remote users in each of the central site and remote
access markets. HDMS serves online network managers, Internet service
providers and enterprise network managers. LANexpress serves both enterprise
and departmental network managers. Remote users can utilize the Company's
full line of modems and ISDN terminal adapters, LANexpress Remote client

software and Carbon Copy software to access online services, the Internet and
corporate intranets, 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 effectively
control 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 unauthorized users ( "hackers") from completing the dial
connection into the network or host computer. Without the connection in
place, hackers cannot attempt unauthorized access to the underlying network or
host computer.

Comprehensive Connectivity. Microcom has invested over 500 engineering
years developing the Company's proprietary firmware, which the Company
believes is among the most robust modem firmware available. It is designed to
connect to a broad range of modem brands and to connect over a wide range of
prevailing phone line conditions. The Microcom modem firmware is deployed
worldwide in major online services and in large corporate mission critical
applications. In addition to being utilized by Microcom in the Company s
standalone modems and central site products, the firmware is also used,
through OEM agreements, in the central site solutions of Companies such as
Cisco Systems, Bay Networks and Gandalf Technologies.

Highest Quality 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 subcontractors. This has
resulted in the Company's HDMS and modem related products attaining a
reputation with customers for quality and reliability.

Ease of Installation and Use. LANexpress, Carbon Copy and the Company's
modem and ISDN 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 LANexpress, Carbon
Copy and its modem and ISDN products to be readily installed without technical
support. In addition, LANexpress Remote and Carbon Copy software incorporate
user-friendly, graphical user interfaces.

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 access market. In response to customers' demands for certain
central site and remote access products, the Company redirected its strategic
focus to the HDMS products by increasing research and development
expenditures, accelerating introduction of enhancements to these products and
disposing of certain non-core products. 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 central site and remote access products to corporate 2000 customers
and large international corporations. In 1994 the Company appointed Roland
Pampel as President, Chief Executive Officer and a Director of the Company and
in 1995 the Company acquired certain ISDN technologies to broaden the
Company's central site and remote access product offerings. In fiscal 1996
the Company expanded its senior management team to include executives with
extensive expertise in business development, sales, marketing, and in
manufacturing and quality improvement. In addition, the Company was recently
reorganized into business units to better align resources according to areas
of product focus.

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

Continue Focus on Central Site and Remote Access Market. The Company
will continue to focus on the central site and remote 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.

Develop and Expand OEM Relationships. The Company is making significant
investments to support and grow its OEM business as this distribution channel
has become increasingly attractive due to the Company's current product
portfolio and the market environment.

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

Leverage Existing Customer Base. The Company believes that many of its
existing customers will continue to purchase central site and remote 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.

Expand Worldwide Distribution. The Company plans to continue to develop
demand for its central site and remote 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.

Products

As discussed below, the Company offers a broad range of central site and
remote access products for central site network managers and individual remote
users.
6

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
28,800 bits per second (Kbps) and throughput rates, per modem, 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, with client and
network management 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. Utilizing either modem or ISDN connections, the
LANexpress server supports sustained transfer speeds over 100 Kbps
simultaneously on 2 to 12 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.

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 all high speed
modems sold today. 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 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.

OEM Products. Microcom also designs and manufactures board level
customized central site remote access solutions for OEM partners such as Cisco
Systems, Bay Networks and Gandalf Technologies. These products are designed
to meet the customers' specifications utilizing the Company's central site,
modem and network technologies.

Carbon Copy. Carbon Copy is a remote PC/network access software package
which enables users to remotely access and control application software and
data residing on distant computers. Carbon Copy provides an extensive array
of easy to use features which include file synchronization, full
Internet/intranet support, windowed remote control, application sharing,
Netscape Navigator plug-in, remote printing, two way remote drive sharing, PPP
remote node, terminal emulation, communication gateway, high resolution
graphics support and infra-red communication.

Carbon Copy is used for numerous applications, including telecommuting,
remote software support and training, remote LAN (including intranet) access,
remote collaboration, remote equipment diagnostics, remote education, remote
software updates and demonstrations, and automated data collection.

ISDN Terminal Adapters. The Company's Solis-L and Solis-S 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 the Solis-L and -F 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, all of 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.

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

Sprint accounted for 9%, 24% and 13% of the Company's net sales in
fiscal 1996, 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
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. Further, 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 quality 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 through the Internet and 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.

The Company's products have warranties of up to five years. In
addition, the Company provides a variety of fee based services, including
contract support services, 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 1996, sales through indirect distribution channels accounted for
approximately 69% of the Company's net sales. Sales to a Japanese
distributor, Hucom K.K., accounted for approximately 21% of net sales in
fiscal 1996. During fiscal 1996, however, this distributor began featuring
modem products which compete with those of Microcom. The Company does not
expect its sales to Hucom will continue to constitute a significant percentage
of sales. Accordingly, during the third quarter of fiscal 1996, the Company
formed a wholly-owned Japanese subsidiary, Microcom K.K., to continue its
penetration of this market. There can be no assurance, however, that sales
through this subsidiary will fully offset the decline in sales to Hucom. No
single VAR, distributor or OEM individually accounted for more than 10% of the
Company's net sales in fiscal 1995 or 1994.

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 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 central site and remote 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 application engineering support offices in
California, Colorado, Georgia, Illinois, Massachusetts, New Jersey, New York,
Pennsylvania, Texas, and Virginia as well as in Australia, England, France,
Germany, Japan, South Africa and Singapore. As of March 31,1996, the
Company's sales and marketing organization consisted of 105 employees

Research and Development

During fiscal years 1996, 1995 and 1994, the Company spent $16.2
million, $10.3 million and $9.0 million, respectively, on research and
development, equal to 11%, 11% and 16%, respectively, of net sales.

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 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 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 central site and remote access products is highly
competitive. In the central site market, the Company competes with remote LAN
access server vendors such as Shiva Corporation, Attachmate Corporation,
Novell, Inc., Cisco Systems and 3Com Corporation and vendors of dial-up access
management systems such as U.S. Robotics Corporation, Cisco Systems, 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 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 its
subsidiary, 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 central site and remote 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.

Manufacturing

The Company uses subcontractors to manufacture virtually all of its
products. These manufacturers provide Microcom with fully tested, finished
products built to the Company's specifications. The Company's HDMS,
LANexpress, modem and OEM 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, 1996,
the Company had 60 employees 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.
During fiscal 1996, due to shortages, Rockwell was 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, modem and OEM products. If this condition should continue
and 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 was able
to obtain sufficient quantities of this component in fiscal 1996 and believes
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

2004 and 2011. The Company has not sought foreign patents for some of its
technologies, including technologies which have 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.

Employees

As of March 31, 1996, the Company had 405 employees, including 105 in
sales and marketing, 40 in customer service, 140 in research, development and
related engineering activities, 60 in manufacturing and 60 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.

Forward Looking Statements; Cautionary Statement

When used anywhere in this Form 10-K, in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases

and in oral statements made with the approval of an authorized executive
officer of the Company, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimated", "project", or
"outlook" or similar expressions (including confirmations by an authorized
executive officer of the Company of any such expressions made by a third party
with respect to the Company) are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made.
Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. These risks and uncertainties are
described above and in the risk factors set forth below. The Company
specifically declines any obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date
of such statements.

Risk Factors

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.

Highly Competitive Environment

The market for central site and remote 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,
Attachmate Corporation, Novell, Inc., Cisco Systems and 3Com Corporation and
vendors of dial-up access management systems such as U.S. Robotics

Corporation, Cisco Systems, 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 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 its subsidiary, 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 central
site and remote 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.

Sales to Telecommunications Carriers

As part of its sales and marketing strategy, Microcom is seeking to
increase the sales of its central site and remote 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. The failure to achieve and maintain significant sales to
telecommunications carriers would have a material adverse effect on the
Company's business, results of operations and financial condition.

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 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, for
the most part, fixed based on its expectations as to future 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.

Limited History of Profitable Operations

Although the Company has been profitable since fiscal 1995, it incurred
net losses of $10,913,000 and $10,694,000 for fiscal 1994 and 1993,
respectively. These net losses included restructuring and other costs of
$7,875,000 and $4,268,000 in those years, respectively. 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.

Dependence on Suppliers and Subcontractors

The Company is dependent on a small number of subcontractors for the
manufacture and assembly of all of its central site and remote 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. During fiscal 1996, due to
shortages, Rockwell was 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, modem and OEM
products. If this condition should continue and 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 was able to obtain sufficient quantities of
this component in fiscal 1996 and believes, 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.

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
fifteen United States patents, four of them involving ISDN technology, and has
three United States patent applications and ten 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 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.

Risks Associated with International Operations

The Company expects that sales outside the United States will continue
to represent a significant portion of its total net sales. In addition, the
Company uses subcontractors in China, Japan, 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 Central Site and Remote Network Access Market

Microcom currently devotes its research and development,
manufacturing, marketing and sales resources to provide products for the
central site and remote access market. The Company's future financial
performance will depend in large part on continued growth in the central site
and remote access market, which in turn will depend in part on the growth in
the number of organizations utilizing central site and remote 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 or in a different
direction 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

Sales through indirect distribution channels account for a substantial
portion of the Company's net sales. The Company's agreements with VARs,
distributors and OEMs are typically non-exclusive and many of the Company's
VARs, distributors and OEMs carry competing product lines. There can be no
assurance that any VAR, distributor or OEM will continue to represent the
Company's products or market them aggressively. The loss of important VARs,
distributors or OEMs, or their lack of success in marketing the Company's
products, could adversely affect the Company's business, results of operations
and financial condition.

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.

Item 2. Properties.

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 and Virginia, as
well as Australia, England, France, Germany, Japan, South Africa 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.

Item 3. Legal Proceedings.

None

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

None

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.

The Company's common stock is traded on The Nasdaq Stock Market under
the symbol "MNPI". The table on page 34 of the Company's 1996 Annual Report
to Stockholders (the "Annual Report") setting forth, for the periods therein
indicated, quarterly price ranges for the common stock is incorporated herein
by reference.

As of June 24, 1996, the Company had approximately 336 stockholders of
record. No cash dividends have been declared or paid by the Company since its
inception. It is the policy of the Company to retain any cash flow for future
business expansion. The Company anticipates no change in this policy in the
foreseeable future.

Item 6. Selected Financial Data.

The information contained under the heading "Five Year Summary of
Operations" on page 17 of the Annual Report is incorporated herein by
reference.

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

The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 18 through
20 of the Annual Report is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.

The information contained in the Consolidated Financial Statements
(pages 21 through 24), Notes to Consolidated Financial Statements (pages 25
through 33), Report of Independent Public Accountants (page 35) and under the
heading "Selected Quarterly Data" (page 34) in the Annual Report is
incorporated herein by reference.

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

None

PART III

Item 10. Directors and Executive Officers of the Registrant.

The information set forth under the caption "Election of Directors" appearing
in the Company's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on July 18, 1996 (the "Proxy Statement") is incorporated
herein by reference.

The executive officers of the Company are as follows:

Name Age Position

Roland D. Pampel . . . . . . 61 President, Chief Executive Officer and
Director
Lewis A. Bergins . . . . . . 57 Executive Vice President, International
Operations and Modulation Business
Mark J. Freitas . . . . . . . 39 Executive Vice President, Central Site
Business Unit
Peter J. Minihane . . . . . . 47 Executive Vice President of Operations,
Chief Financial Officer and Treasurer
Gregory Pearson . . . . . . . 50 Senior Vice President, Technology
Management
Richard A. Barbari . . . . . 56 Corporate Vice President, International
Sales
Bruce R. Anderson . . . . . . 55 Vice President, Operations

Robert B. Lamkin . . . . . . 51 Vice President, U.S. Sales and Strategic
Relationships
Joanne K. Masingill . . . . 49 Vice President, Software Business Unit,
Corporate Strategy and Marketing

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 1998 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. Bergins joined the Company in 1982 and has served as Executive Vice
President, International Operations and Modulation Business since November
1995. He served as Executive Vice President, International Sales and
Corporate Strategy and Development from April 1992 to November 1995 and as
Executive Vice President from January 1989 to April 1992.

Mr. Freitas joined the Company in 1986 and has served as Executive Vice
President, Central Site Business Unit since November 1995 and Vice President,
Systems Management and Customer Support from May 1994 to November 1995. Prior
to May 1994, Mr Freitas held various software development positions with the
Company.

Mr. Minihane joined the Company in 1985 and has served as Executive Vice
President, Chief Financial Officer and Treasurer since January 1989. Mr.
Minihane was named Executive Vice President of Operations in November 1995.

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

Mr. Barbari has served as Corporate Vice President, International Sales
of the Company since November 1995. He served as Executive Vice President,
Marketing and Latin America and Africa Sales from May 1994 to November 1995.
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. Anderson has served as Vice President, Operations of the Company
since February 1996. From June 1994 to February 1996 Mr. Anderson was Vice
President, Northeast Division of SCI Systems, Inc., a contract manufacturer.
From 1981 to 1994, Mr. Anderson was employed by Digital Equipment Corporation
where he held various senior manufacturing management positions.

Mr. Lamkin has served as Vice President U.S. Sales and Strategic
Relationships of the Company since April 1996. He served as Vice President,
Strategic Relationships since June 1995. From June 1994 to June 1995, Mr.
Lamkin was with Strategic Mapping, Inc. ("SMI"), a software, data and service
company, as Vice President, Strategic Partnerships. From 1992 to 1994, Mr.
Lamkin was with TerraLogics, Inc. (which merged with SMI in 1994) as Vice
President, Sales and Marketing.

Ms. Masingill has served as Vice President, Marketing, Corporate
Strategy and Software Business Unit of the Company since November 1995. She
served as Vice President, Corporate Strategy and Marketing from August to
November 1995. From 1994 to 1995, Ms. Masingill was with The Registry, Inc.,
a professional service and consulting firm as Vice President, Sales and
Marketing. From 1988 to 1994, Ms. Masingill was employed by Digital Equipment
Corporation where she held various senior management positions.

Item 11. Executive Compensation.

The information contained under the headings "Directors Compensation",
"Executive Compensation" and "Employment Agreements" on pages 5 through 9 of
the Proxy Statement is incorporated herein by reference.

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

The information contained under the heading "Stock Ownership of
Directors, Executive Officers and Principal Stockholders" on pages 2 and 3 of
the Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

The information contained under the heading "Certain Transactions" on
page 15 of the Proxy Statement is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Financial Statements, Schedules and Exhibits

1. Financial Statements:
Page*

Five Year Summary of Operations for the Five Year Period Ended 17
March 31, 1996
Consolidated Statements of Operations for the Three Years Ended 21
March 31, 1996

Consolidated Balance Sheets as of March 31, 1996 and 1995 22

Consolidated Statements of Stockholders' Equity for the Three 23
Years Ended March 31, 1996

Consolidated Statements of Cash Flows for the Three Years Ended 24
March 31, 1996

Notes to Consolidated Financial Statements 25
Selected Quarterly Data for the Two Years Ended March 31, 1996 34

Report of Independent Public Accountants 35

*Page references are to the Company's 1996 Annual Report to
Stockholders, portions of which appear herewith as Exhibit 13.0. Such
Annual Report is not to be deemed a part of this Report except for those
parts thereof specifically incorporated by reference into this Report.

2. Financial Statement Schedule:

Schedule II - Valuation and Qualifying Accounts 31

The Financial Statement Schedule listed above should be read in conjunction
with the Company's financial statements and the notes thereto (collectively,
the "Financial Statements") in the Company's 1996 Annual Report to
Stockholders. All other schedules have been omitted as they are not
applicable, not required, or the information is included in the Annual Report.
See "Report of Independent Public Accountants on Schedules" on page 30 of this
report.

3. Exhibits: See Index to Exhibits and Financial Statement Schedules
appearing in (c) below.

(b) Reports on Form 8-K:

None

Index to Exhibits and Financial Statement Schedules

Certain of the following exhibits are filed herewith (denoted by *). Certain
other of the following exhibits have heretofore been filed with the Commission
and are incorporated herein by reference.

Exhibit Exhibit
No.

####2.1 - Asset Purchase Agreement dated December 22,
1992 among Registrant, Microcom Systems, Inc.
and VM Systems Group, Inc. (Exhibit to
Report on Form 10-Q filed for the quarter
ended December 31, 1992.)

####2.2 - Asset Purchase Agreement dated as of December
31, 1993 among 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
Registrant.

#3.2 - By-Laws of Registrant, as amended.

###4.1 - Article 6 of Restated Articles of
Organization of Registrant.

#4.2 - Articles III and VIII of By-Laws of
Registrant, as amended.

####10.1 - Amended and Restated Credit Agreement dated
December 13, 1995 among the Registrant,
Silicon Valley Bank and BayBank N.A.
(Exhibit to Report on Form 10-Q filed
February 14, 1996)

####10.2 - Amended and Restated Promissory Note in the
principal amount of $12,500,000 dated
December 13, 1995 made by the Registrant to
the order of Silicon Valley Bank. (Exhibit
to Report on Form 10-Q filed February 14,
1996)

Exhibit Exhibit
No.

####10.3 - Amended and Restated Promissory Note in the
principal amount of $12,500,000 dated
December 13, 1995 made by the Registrant to
the order of BayBank N.A. (Exhibit to Report
on Form 10-Q filed February 14, 1996)

###10.4 - Amended and Restated Security Agreement dated
March 22, 1995 among the Registrant, Silicon
Valley Bank and BayBank.

###10.5 - Guaranty dated March 22, 1995 by Microcom
Systems, Inc. in favor of Silicon Valley Bank
and BayBank.

###10.6 - Guarantor Security Agreement dated March 22,
1995 among Microcom Systems, Inc., Silicon
Valley Bank and BayBank.

###10.7 - Collateral Assignment of Patents and
Trademarks dated March 22, 1995 among
Microcom Systems, Inc., Silicon Valley Bank
and BayBank.

###10.8 - 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.

###10.9 - 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.

###10.10 - Secured Promissory Notes made by certain
senior officers and directors to the order of
the Registrant in connection with stock
loans.

*10.11 - Secured Promissory Note made by Roland D.
Pampel to the order of the Registrant in
connection with stock loans.

###10.12 - 1993 Non-Employee Director Stock Option Plan.
(As Amended and Restated as of March 17,
1995) (Exhibit to Registration Statement #33-
64579 filed on Form S-8 on November 27,
1995).

Exhibit Exhibit
No.

*10.13 - Stock Option and Stock Purchase Plan (as
Amended and Restated Effective as of January
26, 1996).

####10.14 - 1987 Employee Stock Purchase Plan. (As
Amended and Restated Effective as of April
24, 1995) (Exhibit to Registration Statement
#33-59939 filed on Form S-8 on June 5, 1995.)

####10.15 - Long Term Performance Plan of Registrant (As
Amended and Restate as of April 13, 1995)
(Exhibit to Registration Statement #33-64579
filed on Form S-8 on November 27, 1995).

##10.16 - Agreement dated May 13, 1986 between
Registrant and Rockwell International Corp.

##10.17 - Agreement dated January 30, 1987 between
Registrant and Rockwell International Corp.

##10.18 - Lease dated August 11, 1987 between
Registrant and First Stone Ridge Limited
Partnership. (Exhibit to Report on Form 10-K
filed for the year ended March 31, 1988.)

####10.19 - Manufacturing Agreement dated as of December
18, 1987 between Registrant and Video
Technology Engineering, Ltd. (Exhibit to
Report on Form 10-K filed for the year ended
March 31, 1988.)

####10.20 - Letter of intent dated as of January 26, 1993
between Registrant and Flextronics
International. (Exhibit to Report on Form
10-K filed for the year ended March 31,
1994.)

#10.21 - Master Conditional Sale and Security
Agreement between Registrant and NYNEX Credit
Company dated as of September 23, 1988.

#10.22 - Financing Agreement for Centrex Service
between Registrant and NYNEX Credit Company
dated as of September 23, 1988

#10.23 - Agreement dated July 1, 1988 between
Registrant and Rockwell International Corp.

####10.24 - Agreement Dated December 12, 1989 between
Registrant and Rockwell International Corp.
(Exhibit to Report on Form 10-K filed for the
year ended March 31, 1990.)

Exhibit Exhibit
No.

####10.25 - Agreement dated December 23, 1991 between
Registrant and Rockwell International Corp.
(Exhibit to Report on Form 10-K filed for the
year ended March 31, 1992.)

####10.26 - Agreement dated October 4, 1993 between
Registrant and Rockwell International Corp.
(Exhibit to Report on Form 10-K filed for the
year ended March 31, 1994.)

####10.27 - Spectrum-Microcom Global Settlement by and
between the Company and Spectrum Information
Technologies, Inc. dated November 16, 1993.
(Exhibit to Report on Form 10-Q filed for the
quarterly period ended December 31, 1993.)

*11.0 - Statement Regarding Computation of Per Share
Earnings.
*13.0 - Portions of Annual Report to Stockholders for
the fiscal year ended March 31, 1996
incorporated by reference herein.

*21.0 - Subsidiaries of Registrant.
*23.0 - Consent of Independent Public Accountants.
*27.0 - Financial Data Schedule.
_______________________

# Filed with the Company's Registration Statement on Form S-1,
Registration Statement No. 33-28399.

## Filed with the Company's Registration Statement on Form S-1,
Registration Statement No. 33-13455.

### Filed with the Company's Registration Statement on Form S-3,
Registration Statement No. 33-59471.

#### Filed with the report or registration statement indicated.

(d) Financial Statement Schedules:

Schedule II - Valuation and Qualifying Accounts

SIGNATURES

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

MICROCOM, INC.

June 18, 1996 By: /s/ Roland D. Pampel
Roland D. Pampel
President, Chief Executive
Officer and Director

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.

Signature Title Date

/s/ Roland D. Pampel President, Chief Executive Officer June 18. 1996
Roland D. Pampel Director (Principal Executive Officer)

/s/ Peter J. Minihane Executive Vice President of Operations June 18, 1996
Peter J. Minihane Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)

/s/ James M. Dow Chairman of the Board June 18, 1996
James M. Dow

/s/ Donald G. Kennedy Director June 18, 1996
Donald G. Kennedy

/s/ Fred L. Luconi Director June 18, 1996
Fred L. Luconi

/s/ John C. Rutherford Director June 18, 1996
John C. Rutherford

/s/ Michael I. Schneider Director June 18, 1996
Michael I. Schneider

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Microcom, Inc:

We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Microcom, Inc.'s
1996 Annual Report to Stockholders incorporated by reference in this Form 10-
K, and have issued our report thereon dated April 12, 1996. Our audits were
made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. The schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Boston, Massachusetts,
June 19, 1996

Schedule II

MICROCOM, INC.

<TABLE>
<CAPTION>
Valuation and Qualifying Accounts
(In thousands)

Description Balance at Charged to Charged to Deductions Balance at
Beginning of Costs and Other End of Period
Period Expenses Accounts
- --------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Fiscal Year Ended March 31,:

Reserve for doubtful Accounts:

1992 382 360 -- 396 346
1993 346 271 -- 224 393
1994 393 -- -- 147 246
1995 246 134 -- 130 250
1996 250 202 -- 169 283

Accumulated amortization of
purchased technology:

1992 -- -- -- -- --
1993 -- -- -- -- --
1994 -- -- -- -- --
1995 -- 75 -- -- 75
1996 75 742 -- -- 817

Accumulated amortization of
goodwill:

1992 1,491 530 -- -- 2,021
1993 2,021 531 -- -- 2,552
1994 2,552 530 -- -- 3,082
1995 3,082 531 -- -- 3,613
1996 3,613 530 -- -- 4,143

Accumulated amortization of
nondisclosure and noncompete
agreements:

1992 -- -- -- -- --
1993 -- -- -- -- --
1994 -- -- -- -- --
1995 -- -- -- -- --
1996 -- 28 -- -- 28
</TABLE>

Exhibit 10.11

SECURED PROMISSORY NOTE

$192,375 Boston, Massachusetts
February 1, 1996

FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of One Hundred Ninety-two Thousand
Three Seventy-five Dollars ($192,375) on February 1, 2005, with interest,
compounded annually, on the unpaid principal amount hereof at the rate per
annum of five and seventy-three one-hundredths percent (5.73%), payable in
annual installments of interest in the amount of $13,918 each on the
anniversary date of this Secured Promissory Note (the "Note") commencing on
February 1, 1997 and ending on February 1, 2005.

This Note evidences the obligation of the undersigned in the Company for the
purchase price of 15,000 shares (the "Shares") of Common Stock, par value
$.01, of the Company acquired by the undersigned.

This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of
all or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original
principal amount hereof multiplied by a fraction, the numerator of which shall
be the number of the Shares so sold and the denominator of which shall be the
total number of the Shares. This Note shall be secured in part by a pledge of
Shares as set forth in the paragraph marked "Pledge of Shares" at the end of
this Note.

In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder
and, at the option of the holder, the entire amount of principal and interest
shall be accelerated and immediately due and payable. The undersigned agrees
to pay upon default the costs of collection, including reasonable attorneys'
fees.

Upon default, the holder hereof shall have full recourse against the
undersigned for up to $21,938 of unpaid amounts due hereunder, and with
respect to all remaining amounts of unpaid principal and interest due
hereunder, the holder hereof shall have recourse only to the holder's rights
and remedies under the Pledge of Shares; provided, that once $21,938 of
principal due hereunder has been repaid by the undersigned, the holder shall
have recourse only to the holder's rights and remedies under the Pledge
Agreement with respect to all remaining amounts of unpaid principal and
interest due hereunder.

No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of
such holder nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future
occasion. The undersigned and every endorser or guarantor of this Note
regardless of the time, order or place of signing waives presentment, demand,
protest and notices of every kind and assent to any extension or postponement
of the time of payment or any other indulgence, to any substitution, exchange
or release of collateral and to the addition or release of any party or person
primarily and secondarily liable.

None of the terms or provisions of the Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder,
expressly referring hereto and setting forth the provision so excluded,
modified or amended.

All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.

Roland D. Pampel

Pledge of Shares

The undersigned (the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the shares that the Pledgor grant to
the Company the security interest in the Shares granted hereby. The Pledgor
hereby deposits with the pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note.
Upon the occurrence of a default under this Note, the Company shall be
entitled to all of the rights of a secured party under the Uniform Commercial
Code with respect to the Shares.

Roland D. Pampel

Exhibit 10.13

MICROCOM, INC.
STOCK OPTION AND STOCK PURCHASE PLAN
Amended and Restated Effective as of January 26, 1996

1. Purpose. The purpose of this Plan is to

advance the interests of Microcom, Inc. (the "Company") by

providing an opportunity to selected key employees and directors

of and consultants to the Company, its parent, if any, and its

subsidiaries to purchase shares of the Company's common stock,

$.01 par value per share (the "Common Stock"). By encouraging

such stock ownership, the Company seeks to attract, retain and

motivate employees, consultants and directors of training,

experience and ability. It is intended that this purpose will be

effected by granting stock purchase authorizations, "incentive

stock options" which will qualify under the provisions of Section

422 of the Internal Revenue Code of 1986, as it may be amended

(the "Code"), and non-statutory stock options.

2. Effective Date. This Plan originally became

effective on May 25, 1982, the date it was adopted by the Board

of Directors of the Company (the "Board"), and was subsequently

amended and restated effective as of March 31, 1987, March 31,

1989, January 9, 1990, April 17, 1992, and June 8, 1994. The

amendments made by this amendment and restatement are effective

as of January 26, 1996, the date they were adopted by the Board.

3. Stock Subject to the Plan. Only shares of

Common Stock shall be subject to options and purchase

authorizations granted hereunder. The maximum number of shares

of Common Stock that may be subject to options and purchase

authorizations under the Plan shall be 5,528,000 (the "Plan

Limit"). Any shares of Common Stock withheld by the Company on

or after April 26, 1991 in connection with the exercise of

options or purchase authorizations to satisfy tax withholding

requirements or to pay the exercise price of such options or

purchase authorizations shall be counted toward the Plan Limit.

Any shares subject to an option or purchase authorization which

for any reason expires or is terminated unexercised as to such

shares and any shares reacquired by the Company pursuant to a

repurchase right may again be the subject of an option or

purchased under the Plan and will not be counted toward the Plan

Limit; provided, in the case of shares reacquired by the Company

pursuant to a repurchase right, the holder thereof did not

receive any benefits with respect to the ownership thereof other

than voting rights. The shares delivered upon exercise of

options or purchase authorizations under this Plan may, in whole

or in part, be either authorized but unissued shares or issued

shares reacquired by the Company.

4. Administration. This Plan shall be

administered by a committee (the "Committee") consisting of two

(2) or more members of the Board, all of whom are both (i)

"outside directors" within the meaning of Section 162(m) of the

Code, and (ii) "disinterested persons" within the meaning of Rule

16b-3(c)(2)(i) under the Securities Exchange Act of 1934.

Subject to the provisions of this Plan, the Committee shall have

full power to (i) construe and interpret the Plan, (ii)

establish, amend and rescind rules and regulations for its

administration, (iii) establish, amend and waive the terms and

conditions of individual options and purchase authorizations

granted hereunder, including, without limitation, terms and

conditions relating to vesting, exercisability and effect of

termination of employment by the Company.

5. Eligible Participants. Options may be granted

to such key employees, directors or consultants of the Company,

its parent, if any, or of any of its subsidiaries as are selected

by the Committee; provided that incentive stock options shall

only be granted to employees of the Company, its parent, if any,

or of any of its subsidiaries. Stock purchase authorizations

shall only be granted to key employees and consultants of the

Company.

6. Duration of the Plan. This Plan shall

terminate on May 25, 2002, unless terminated earlier pursuant to

Paragraph 13 hereafter, and no options or purchase authorizations

may be granted thereafter.

7. Restrictions on Incentive Stock Options.

Incentive stock options granted under this Plan shall be subject

to the following restrictions:

(a) Limitation on Number of Shares. (i) With

respect to incentive stock options granted before January 1,

1987, the aggregate fair market value, determined as of the date

the incentive stock option is granted, of the shares for which an

employee may be granted options in any calendar year shall not

exceed $100,000 plus any "unused limit carryovers," as that term

was defined under Section 422A(c)(4) of the Code (as in effect

immediately prior to its amendment by the Tax Reform Act of

1986), available in such year; or (ii) for incentive stock

options granted after December 31, 1986, the aggregate fair

market value, determined as of the date the incentive stock

option is granted, of the shares with respect to which incentive

stock options are exercisable for the first time by an employee

during any calendar year shall not exceed $100,000. In the event

that such employee is eligible to participate in any other stock

incentive plans of the Company, its parent, if any, or a

subsidiary which are also intended to comply with the provisions

of Section 422 of the Code, such annual limitation shall apply to

the aggregate number of shares for which options may be granted

under all such plans.

(b) 10% Stockholder. If any employee to whom

an incentive stock option is granted pursuant to the provisions

of the Plan is on the date of the grant the owner of stock (as

determined under Section 424(d) of the Code) possessing more than

10% of the total combined voting power of all classes of stock of

the Company, its parent, if any, or subsidiaries, then the

following special provisions shall be applicable to the incentive

stock option granted to such employee:

(i) The option price per share subject to
such incentive stock option shall not be
less than 110% of the fair market value

of one share on the date of grant; and

(ii) The incentive stock option shall not have
a term in excess of five (5) years from
the date of grant.

Options. No incentive option granted before January 1, 1987

shall be exercisable by any participant while there is

"outstanding," within the meaning of former Section 422A(c)(7) of

the Code (as in effect immediately prior to the Tax Reform Act of

1986), any incentive stock option which was granted to the

participant before the granting of the incentive stock option

under this Plan and which permits the participant to purchase

stock in (i) the Company, (ii) a corporation which (at the time

of the granting of the incentive stock option under this Plan) is

a parent or subsidiary of the Company, or (iii) a predecessor

corporation of any of such corporations.

8. Individual Participant Limitation. Any other

provision of this Plan notwithstanding, the number of shares of

Common Stock for which options or purchase authorizations may be

granted in any single fiscal year of the Company to any

participant shall not exceed 50,000; provided, however, that in

the case of newly hired employees only, the Company may make a

one-time option or purchase authorization grant for up to an

additional 350,000 shares (the "Individual Limit"). For purposes

of the foregoing limitation, if an option or purchase

authorization is cancelled, the cancelled option or purchase

authorization shall continue to be counted against the Individual

Limit; if after grant the exercise price of an option or purchase

authorization is modified, the transaction shall be treated as

the cancellation of the option or purchase authorization. In any

such case, both the option or purchase authorization that is

cancelled and the option or purchase authorization deemed to be

granted shall be counted against the Individual Limit.

9. Terms and Conditions of Options and Purchase

Authorizations. Options and purchase authorizations granted

under this Plan shall be evidenced by agreements in such form and

containing such terms and conditions as the Committee shall

determine; provided, however, that such agreements shall evidence

among their terms and conditions the following:

(a) Price. Subject to the condition of

Paragraph 7(b), if applicable, the purchase price per share of

stock payable upon the exercise of each incentive stock option

granted hereunder shall be not less than 100% of the fair market

value of the stock on the day the option is granted. The

purchase price per share of stock payable on exercise of each

non-statutory stock option or purchase authorization shall be

determined by the Committee. Fair market value shall be

determined in accordance with procedures to be established in

good faith by the Committee and, with regard to incentive stock

options, in conformity with regulations issued by the Internal

Revenue Service with regard to such incentive stock options.

(b) Number of Shares. Subject to Paragraph

8, each option or purchase authorization shall specify the number

of shares to which it pertains.

7(c), each option shall be exercisable for the full amount or for

any part thereof and at such intervals or in such installments as

the Committee may determine at the time it grants such option;

provided, however, that no option shall be exercisable with

respect to any shares later than ten (10) years after the date of

the grant of such option. Each purchase authorization shall be

immediately exercisable in full or in part for such period as the

Committee may determine at the time it grants such purchase

authorization; provided, however, that no purchase authorization

shall be exercisable with respect to any shares later than three

(3) months after the date of grant of such purchase

authorization.

(d) Notice of Exercise and Payment. An

option or purchase authorization shall be exercisable only by

delivery of a written notice to the Company's Treasurer or any

other officer of the Company designated by the Committee to

accept such notices on its behalf, specifying the number of

shares for which it is exercised. If said shares are not at that

time effectively registered under the Securities Act of 1933, as

amended, the participant shall include with such notice a letter,

in form and substance satisfactory to the Company, confirming

that the shares are being purchased for the participant's own

account for investment and not with a view to distribution.

Payment shall be made in full at the time of delivery to the

participant of a certificate or certificates covering the number

of shares for which the option or purchase authorization was

exercised. Payment shall be made either by (i) cash or check,

(ii) if permitted by the Committee, by delivery and assignment to

the Company of shares of Company stock, (iii) if permitted by the

Committee, by delivery to the Company or irrevocable instructions

to a broker to (a) either sell the shares subject to the option

or purchase authorization being exercised or hold such shares as

collateral for a margin loan and (b) properly deliver to the

Company the amount of the sale or loan proceeds required to pay

the exercise price or purchase price, as the case may be, or (iv)

by a combination (i), (ii) and (iii). The value of the Company

stock for such purpose shall be its fair market value as of the

date the option is exercised, as determined in accordance with

procedures to be established by the Committee. Payment option

(iii) shall not be available with respect to incentive stock

options granted prior to June 8, 1994.

(e) Withholding Taxes; Delivery of Shares.

The Company's obligation to deliver shares of Common Stock upon

exercise of an option or purchase authorization, in whole or in

part, shall be subject to the participant's satisfaction of all

applicable federal, state and local income and employment tax

withholding obligations. The participant may satisfy the

obligation, in whole or in part, by electing to (1) have the

Company withhold shares of Common Stock or (2) deliver to the

Company already-owned shares of Common Stock, having a value

equal to the amount required to be withheld; provided, however,

that participants who are subject to the requirements of Section

16 of the Securities Exchange Act of 1934 ("Section 16 Persons")

shall not have the benefit of the foregoing election but rather

the Company shall, in all cases where tax withholding is required

with respect to such participants, withhold shares of Common

Stock having a value equal to such withholding obligations. The

value of shares to be withheld or delivered shall be based on the

fair market value of the shares on the date the amount of tax to

be withheld is to be determined (the "Tax Date"). The election

by a participant who is not a Section 16 Person to have shares

withheld for this purpose will be subject to the following

restrictions: (1) the election must be made prior to the Tax

Date, (2) the election must be irrevocable, and (3) the election

will be subject to the disapproval of the Committee.

(f) Non-Transferability. No option or

purchase authorization shall be transferable by a participant

otherwise than by will or by the laws of descent and

distribution, and each option or purchase authorization shall be

exercisable during a participant's lifetime only by him.

(g) Termination. Each option or purchase

authorization shall terminate and may no longer be exercised

fifteen (15) days after the participant ceases for any reason to

perform services for the Company, its parent, if any, or a

subsidiary, except that, with respect to options (but not

purchase authorizations):

(i) if the participant ceases to perform
services for any reason other than cause,
resignation or other voluntary action
before his eligibility to retire,
disability or death, he may at any time
within a period of three (3) months after
such cessation of services exercise his
option to the extent that the option was
exercisable by him on the date he ceased
to perform services.

(ii) if the participant ceases to perform
services because of disability within the
meaning of Section 22(e)(3) of the Code,
he may at any time within a period of one
(1) year and one (1) day (one (1) year in
the case of incentive stock options)
after such cessation of services exercise
his option to the extent that the option
was exercisable by him on the date he
ceased to perform services; and

(iii) if the participant ceases to perform
services because of death, the option, to
the extent that the participant was
entitled to exercise it on the date of
his death, may be exercised within a
period of one (1) year and one (1) day
(one (1) year in the case of incentive
stock options) after the participant's
death by the person or persons to whom
the participant's rights under the option
shall pass by will or by the laws of
descent and distribution;

and except that, with respect to purchase authorizations (but not

options), such purchase authorizations will remain exercisable

for their stated term in the event a participant ceases to

perform services by reason of disability or death; provided,

however, that no option or purchase authorization may be

exercised to any extent by anyone after the date of its

expiration. Notwithstanding the provisions above in this

Paragraph 9(g), the Committee may, in its sole discretion,

establish different terms and conditions pertaining to the effect

of a participant's termination of employment by the Company.

(h) Rights as Shareholder. The participant

shall have no rights as a shareholder with respect to any shares

covered by his option or purchase authorization until the date of

issuance of a stock certificate to him for such shares.

10. Stock Dividends; Stock Splits; Stock

Combinations; Recapitalizatons. Appropriate adjustment shall be

made in the maximum number of shares of Common Stock subject to

the Plan and in the number, kind, and option price of shares

covered by outstanding options granted hereunder to give effect

to any stock dividends, stock splits, stock combinations,

recapitalizations and other similar changes in the capital

structure of the Company after the effective date of the Plan.

11. Merger; Sale of Assets; Dissolution. In the

event of a change of the Common Stock resulting from a merger of

similar reorganization as to which the Company is the surviving

corporation, the number and kind of shares which thereafter may

be optioned and sold under the Plan and the number and kind of

shares then subject to options or purchase authorizations granted

hereunder and the price per share thereof shall be appropriately

adjusted in such manner as the Board may deem equitable to

prevent substantial dilution or enlargement of the rights

available or granted hereunder. Except as otherwise determined

by the Board, a merger or a similar reorganization which the

Company does not survive or a sale of all or substantially all of

the assets of the Company shall cause every option and purchase

authorization outstanding hereunder to terminate, to the extent

not then exercised, unless any surviving entity agrees to assume

the obligations hereunder.

12. Definitions.

(a) The term "employee" shall have, for

purposes of this Plan, the meaning ascribed to it under Section

3401(c) of the Code and the regulations promulgated thereunder;

the term "key employees" means those executive, administrative or

managerial employees who are determined by the Committee to be

eligible for options under this Plan.

(b) The term "participant" means a key

employee, consultant or Director to whom an option or purchase

authorization is granted under this Plan.

purposes of this Plan, the meaning ascribed to it under Section

424(e) of the Code and the regulations promulgated thereunder.

(d) The term "subsidiary" shall have, for

purposes of this Plan, the meaning ascribed to it under Section

424(f) of the Code and the regulations promulgated thereunder.

13. Termination or Amendment of Plan. The Board

may at any time terminate the Plan or make such changes in or

additions to the Plan as it deems advisable without further

action on the part of the shareholders of the Company, provided

that:

(a) no such termination or amendment shall

adversely affect or impair any then outstanding option or

purchase authorization without the consent of the participant

holding such option or purchase authorization;

(b) any such amendment which (i) increases

the maximum number of share subject to this Plan, (ii) changes

the class of individuals eligible to participate in the Plan or

(iii) materially increases the benefits accruing to participants

in the Plan shall be subject to approval by shareholders of the

Company within one (1) year from the effective date of such

amendment and shall be null and void if such approval is not

obtained; and

would cause the incentive stock options granted hereunder to fail

to qualify as incentive stock options under the Code.

Exhibit 11.0
MICROCOM, INC.
<TABLE>
CALCULATION OF NET INCOME (LOSS) PER SHARE

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<CAPTION>
Year Ended March 31,
---------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $12,490 $ 5,761 $(10,913) $(10,694)
======= ======= ======== ========

Reconciliation of weighted average number of shares
outstanding to amount used in net income (loss) per share
computation:

Weighted average number of shares outstanding 14,444 10,792 10,041 9,644

Assumed exercise of stock options computed using the
treasury stock method 1,246 1,013 -- --
------- ------- -------- --------

Weighted average number of shares outstanding, as
adjusted 15,690 11,805 10,040 9,644
======= ======= ======== ========

Net income (loss) per share $ .80 $ .49 $ (1.09) $ (1.11)
======= ======= ======== ========
</TABLE>

Exhibit 13.0
<PAGE>
FINANCIAL REVIEW

Five Year Summary of Operations 17

Management's Discussion and Analysis
of Financial Condition and Results of Operations 18

Consolidated Statements of Operations 21

Consolidated Balance Sheets 22

Consolidated Statements of Stockholders' Equity 23

Consolidated Statements of Cash Flows 24

Notes to Consolidated Financial Statements 25

Selected Quarterly Data 34

Report of Management 35

Report of Independent Public Accountants 35

Corporate Information 36

<PAGE>
Five Year Summary
of Operations
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Year Ended March 31,

Selected Financial Data 1996 1995 1994 1993 1992
------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Net sales ..................... $146,044 $ 93,106 $ 56,464 $ 69,435 $ 73,906
Gross margin .................. 61,010 41,784 27,392 36,303 41,804
Income (loss) from operations.. 14,768 7,517 (10,416) (6,902) 4,205
Net income (loss) ............. 12,490 5,761 (10,913) (10,694) 3,431
Net income (loss) per share ... .80 .49 (1.09) (1.11) .34
Weighted average number of
shares outstanding .......... 15,690 11,805 10,041 9,644 10,002
</TABLE>

No cash dividends have been declared or paid by the Company in any of the
periods presented. Fiscal 1994 and 1993 results have been affected by the
disposition of certain product lines and restructuring costs. For further
discussion of dispositions and restructuring costs, see "Notes to the
Consolidated Financial Statements" on pages 25-33.

<TABLE>
<CAPTION>
As of March 31,

1996 1995 1994 1993 1992
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital ......................... $ 84,329 $ 17,732 $ 13,957 $ 20,829 $ 29,221
Total assets ............................ 129,199 57,788 38,453 45,853 52,957
Long-term portion of capitalized leases.. 2,186 122 450 762 649
Total stockholders' equity .............. 103,109 35,282 26,231 36,520 46,042
</TABLE>

<PAGE>
Management's Discussion
and Analysis of Financial Condition
and Results of Operations

FISCAL 1996 COMPARED TO FISCAL 1995

NET SALES

In fiscal 1996, net sales increased by $52,938,000, or 57%, from fiscal 1995.
The increase was primarily attributable to increased unit sales of remote
site, V.34 modem products. Unit sales of modems increased by more than three
times the volume of last year, reflecting the market acceptance and demand
for high speed remote access communication products. Net sales of central
site remote network access products, particularly the High Density Management
Systems (HDMS) and LANexpress products remained at approximately the same
level as a year ago. During fiscal 1996, the impact from increased volume was
partially offset by price reductions forced by competitive pricing pressures.
International sales for fiscal 1996 of $77,217,000 grew to 53% of net sales co
mpared to $26,549,000, or 28% of net sales in fiscal 1995. Net sales to a
single Japanese distributor accounted for approximately 21% of fiscal 1996
net sales. International sales excluding sales in Japan, more than doubled in
fiscal 1996 from fiscal 1995.

GROSS MARGIN

Gross margin as a percentage of net sales was 42% for fiscal 1996 as compared
to 45% for fiscal 1995. The decrease was primarily due to unit sales of lower
margin products increasing at a higher rate than the growth of higher margin
products. The impact on gross margin due to the decline in average selling
price of the modem products during fiscal 1996 was offset in part by the cost
reduction programs implemented throughout the year and component price
decreases achieved as of result of higher volume purchases. Due to the change
in product mix the Company expects continued pressure on gross margins as a
result of higher unit sales of lower margin products.

RESEARCH AND DEVELOPMENT

Research and development expenses in fiscal 1996 were $16,231,000 as compared
to $10,250,000 in fiscal 1995. As a percentage of net sales, research and
development expenses were 11% in both fiscal 1996 and 1995. Investment in
research and development is critical to future growth and technology
leadership for the Company. During fiscal 1996, the Company increased
spending in research and development by $5,981,000, or 58%, from fiscal 1995.
The increase was primarily attributable to the hiring of additional
engineering personnel and related costs associated with the development of
the next generation of central site products.

SALES AND MARKETING

In fiscal 1996, sales and marketing expenses increased by $4,858,000, or 25%,
over fiscal 1995 due to increased variable selling expenses attributable to
increased sales. The increase in these expenses was directly related to the
expansion of the Company's international distribution channels, especially in
Japan, Latin America, and South Africa. The increase was also attributable to
additional marketing programs, primarily advertising in support of new
product introductions.

GENERAL AND ADMINISTRATIVE

In fiscal 1996, general and administrative expenses were $5,883,000, or 4% of
net sales, as compared to $4,747,000, or 5% of net sales, in the prior fiscal
year. The Company's goal is to maintain general and administrative spending
at approximately 4% of net sales.

INTEREST INCOME AND EXPENSE

In fiscal 1996, interest income increased by $1,092,000 to $1,159,000;
interest and other expense increased by $426,000 to $1,233,000. The increase
in interest income was primarily due to the investment of the proceeds from
the Company's public offering of common stock completed on June 28, 1995. The
increase in interest and other expense was primarily a result of the
utilization of the Company's revolving credit facility during the first
quarter of fiscal 1996.

INCOME TAXES

The Company's effective tax rate was 15% for fiscal 1996. The primary
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, 1996, the Company had available $16,817,000 in net operating
loss carry forwards, which may be used to offset future taxable income, and
$4,169,000 in research and development and other tax 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.

<PAGE>
NET INCOME AND NET INCOME PER SHARE

For the reasons stated above, net income for fiscal 1996 was $12,490,000 as
compared to net income of $5,761,000 for fiscal 1995. Net income per share
for fiscal 1996 was $.80 compared to $.49 for fiscal 1995.

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
the 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 Kbs 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 sales were
$26,549,000 in fiscal 1995, representing 28% of net sales, as compared to
$12,358,000 in fiscal 1994, or 22% of net sales. The increase in fiscal 1995
was primarily due to increase in 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 fiscal 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 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; 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 primary
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 tax 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 compared to a net loss per share of $1.09 for
fiscal 1994.

<PAGE>
ACQUISITIONS OF A PRODUCT LINE

In the fourth quarter of fiscal 1995, the Company acquired certain assets of
mbp Softwareentwicklungsgesellschaft mbH ("mbp") for an aggregate purchase
price of $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 assets utilized in the business of developing, procuring, marketing,
distributing, selling and supporting Integrated Services Digital Network
(ISDN) products. The Company has formed a wholly owned subsidiary, Micro
Communications GmbH, and with the acquired assets will operate the business
in Germany.

Also in the fourth quarter of fiscal 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and equivalents increased by $26,473,000 during fiscal
1996 to $27,336,000. The increase in cash and equivalents was primarily due
to the Company's financing activities in fiscal 1996. On June 28, 1995, the
Company completed a public offering of 3,480,000 shares of its common stock
at $15.625 per share. The proceeds to the Company after deducting
underwriting commissions and other expenses of the offering were $50,418,000,
and approximately $12,000,000 of the offering proceeds were used to repay
indebtedness under the Company's credit facility. In addition, issuance of
additional shares of common stock under the Company's stock plans resulted in
proceeds of $5,404,000.

Net cash used in operating activities was $9,620,000 in fiscal 1996, as
compared to $8,449,000 in fiscal 1995. The increase in fiscal 1996 is
represented by an increase in accounts receivable of $19,628,000 and
inventories of $21,143,000 offset by an increase in accounts payable and
accrued expenses of $13,040,000. The increase in accounts receivable is a
combination of the increase in net sales of 57% during fiscal 1996, coupled
with the growth in international net sales where payment cycles are longer.
The increase in inventory reflects an anticipated increase in net sales
associated with the Company's expansion of its original equipment
manufacturer (OEM) business division, and new product offerings in the
central site product line. Cash flows from investing activities in fiscal
1996 included continued investments in software development costs of
$5,407,000, and purchases of property and equipment in the amount of
$4,475,000, in both instances to support the development of new products and
growth of the Company.

During the third quarter of fiscal 1996, the Company amended its bank
revolving credit facility, increasing the borrowing amount to $25,000,000
from $16,000,000. The terms of the facility allow the Company to borrow up to
an amount (the "Maximum Borrowing Amount") equal to the lesser of (i)
$25,000,000 or (ii) an amount based on the Company's eligible accounts
receivable. The Maximum Borrowing Amount is reduced by amounts which may be
drawn on outstanding letters of credit and banker's acceptances and by a
percentage of the Company's exposure under foreign currency exchange
contracts. At March 31, 1996, the Company was contingently liable with
respect to $17,238,000 in outstanding letters of credit, and its bank credit
availability was $7,762,000.

Since its inception, the Company has met its liquidity requirements through
cash provided by operations, disposition of product lines, public and private
stock offerings, lease arrangements for facilities and equipment, and
short-term borrowings from banks. Management believes that its cash and
equivalents, line of credit availability, and cash provided by operations
will be adequate to meet the Company's liquidity requirements for the
immediate future.

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, with the
exception of an immaterial amount of transactions in the U.K. and Japan.
During the fourth quarter of fiscal 1996, the Company opened Microcom K.K., a
wholly owned subsidiary operating in Japan. The Company's policy is to hedge
the currency risk by entering into forward contracts. The gains or losses on
such contracts are deferred until the contracts are settled and are then
recognized as other income or expense. The Company had no foreign currency
contracts at March 31, 1996, and $153,000 in foreign currency contracts at
March 31, 1995. The company had no material gains or losses on these
contracts.

<PAGE>
Microcom, Inc.

Consolidated Statements
of Operations
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Year Ended March 31,

1996 1995 1994
-------------------------------

<S> <C> <C> <C>
Net sales (Notes 1, 12 and 13) ................ $146,044 $93,106 $ 56,464
Cost of sales ................................. 85,034 51,322 29,072
-------- ------- --------
Gross margin .................................. 61,010 41,784 27,392
-------- ------- --------

Operating expenses:
Research and development (Notes 1 and 8)... 16,231 10,250 8,959
Sales and marketing ....................... 24,128 19,270 15,608
General and administrative ................ 5,883 4,747 5,366
Restructuring and other costs (Note 2) .... -- -- 7,875
-------- ------- --------
Total operating expenses .................. 46,242 34,267 37,808
-------- ------- --------

Income (loss) from operations ................. 14,768 7,517 (10,416)
Interest income ............................... 1,159 67 42
Interest and other expense, net ............... (1,233) (807) (378)
-------- ------- --------
Income (loss) before income taxes ............. 14,694 6,777 (10,752)
Provision for income taxes (Note 14) .......... 2,204 1,016 161
-------- ------- --------
Net income (loss) ............................. $ 12,490 $ 5,761 $(10,913)
======== ======= ========
Net income (loss) per share (Note 1) .......... $ .80 $ .49 $ (1.09)
======== ======= ========
Weighted average number of shares outstanding.. 15,690 11,805 10,041
======== ======= ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>
Consolidated Balance Sheets
(In thousands)

<TABLE>
<CAPTION>
March 31,

1996 1995
----------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents (Note 1) .............................................. $ 27,336 $ 863
Accounts receivable, less reserves for doubtful accounts of
$283 and $250 at March 31, 1996 and 1995, respectively ..................... 41,811 22,183
Inventories (Notes 1 and 6) ................................................ 37,391 16,248
Prepaid expenses and other current assets .................................. 1,695 822
--------- ---------
Total current assets ....................................................... 108,233 40,116

Property and equipment, net (Notes 1 and 6) .................................. 7,703 5,683

Other assets, net (Notes 1, 6 and 8) ......................................... 13,263 11,989
--------- ---------
$ 129,199 $ 57,788
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases and short term-debt (Notes 9 and 10).. $ 1,073 $ 12,543
Accounts payable ........................................................... 19,483 6,923
Accrued expenses (Note 6) .................................................. 2,908 2,428
Income taxes payable (Note 14) ............................................. 440 490
--------- ---------
Total current liabilities .................................................. 23,904 22,384
--------- ---------

Long-term portion of capitalized leases (Note 9) ............................. 2,186 122
--------- ---------

Commitments and contingencies (Note 5)

Stockholders' equity (Note 11):
Common stock, $.01 par value, authorized - 30,000 shares, issued - 16,772,
and 12,088 shares at March 31, 1996 and 1995, respectively ................. 168 121
Capital in excess of par value ............................................. 116,747 61,223
Stock loans - related parties .............................................. (2,209) (1,942)
Unrealized loss on marketable securities ................................... -- (33)
Accumulated deficit ........................................................ (9,099) (21,589)
Treasury stock, 981 shares at cost ......................................... (2,613) (2,613)
Cumulative translation adjustment .......................................... 115 115
--------- ---------
Total stockholders' equity ................................................. 103,109 35,282
--------- ---------
$ 129,199 $ 57,788
========= =========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>
Consolidated Statements of
Stockholders' Equity
(In thousands)

<TABLE>
<CAPTION>
Year Ended March 31,

1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Common stock:
Balance, beginning of year ................................. $ 121 $ 114 $ 107
Proceeds from public offering .............................. 35 -- --
Acquisition ................................................ -- 1 --
Exercise of stock options and employee stock purchase plan.. 12 6 7
--------- --------- ---------
Balance, end of year ....................................... 168 121 114
--------- --------- ---------

Capital in excess of par value:
Balance, beginning of year ................................. 61,223 58,504 55,903
Proceeds from public offering .............................. 50,383 -- --
Acquisition ................................................ -- 1,350 --
Exercise of stock options and employee stock purchase plan.. 5,141 1,369 2,601
--------- --------- ---------
Balance, end of year ....................................... 116,747 61,223 58,504
--------- --------- ---------

Stock loans - related parties:
Balance, beginning of year ................................. (1,942) (1,612) (116)
Stock loans ................................................ (949) (330) (1,496)
Repayments ................................................. 682 -- --
--------- --------- ---------
Balance, end of year ....................................... (2,209) (1,942) (1,612)
--------- --------- ---------

Unrealized loss on marketable securities:
Balance, beginning of year ................................. (33) (534) --
Adjustment to value of marketable securities ............... 33 501 (534)
--------- --------- ---------
Balance, end of year ....................................... -- (33) (534)
--------- --------- ---------

Accumulated deficit:
Balance, beginning of year ................................. (21,589) (27,350) (16,437)
Net income (loss) .......................................... 12,490 5,761 (10,913)
--------- --------- ---------
Balance, end of year ....................................... (9,099) (21,589) (27,350)
--------- --------- ---------

Treasury Stock ............................................... (2,613) (2,613) (2,613)
--------- --------- ---------

Cumulative translation adjustment:
Balance, beginning of year ................................. 115 (278) (324)
Net translation adjustment ................................. -- 393 46
--------- --------- ---------
Balance, end of year ....................................... 115 115 (278)
--------- --------- ---------

Total stockholders' equity ................................... $ 103,109 $ 35,282 $ 26,231
========= ========= =========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>
Microcom, Inc.

Consolidated Statements of Cash Flows
(In thousands)

<TABLE>
<CAPTION>
Year Ended March 31,

1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ 12,490 $ 5,761 $(10,913)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization ................................. 6,544 6,096 6,205
Changes in assets and liabilities:
Accounts receivable, net .................................... (19,628) (8,496) 73
Inventories ................................................. (21,143) (9,853) (315)
Prepaid expenses and other current assets ................... (873) 308 125
Accounts payable and accrued expenses ....................... 13,040 (1,434) 1,136
Income taxes payable ........................................ (50) 415 --
Accrued restructuring ....................................... -- (1,246) 1,841
-------- -------- --------
Net cash used in operating activities ............. (9,620) (8,449) (1,848)
-------- -------- --------

Cash flows from investing activities:
Proceeds from disposition of product lines ...................... -- -- 1,000
Capitalized software development costs and purchased technology.. (6,407) (4,922) (3,352)
Other assets .................................................... (123) 379 18
Acquisition of a business ....................................... -- (1,716) --
Purchases of property and equipment ............................. (4,475) (2,567) (1,003)
-------- -------- --------
Net cash used in investing activities ............. (11,005) (8,826) (3,337)
-------- -------- --------

Cash flows from financing activities:
Proceeds from public offering, net .............................. 50,418 -- --
(Payments) Borrowings under revolving credit line, net .......... (12,020) 12,020 --
Repayment of stock loans ........................................ 682 -- --
Exercise of stock options and employee stock purchase plan ...... 5,404 1,434 1,112
Borrowings (Payments) on capitalized leases ..................... 2,809 (312) (280)
Banker acceptance on inventory purchases ........................ (195) (346) 541
-------- -------- --------
Net cash provided by financing activities .......... 47,098 12,796 1,373
-------- -------- --------

Effect of exchange rates on cash .................................. -- -- 46
-------- -------- --------

Net increase (decrease) in cash and equivalents ................... 26,473 (4,479) (3,766)
Cash and equivalents at beginning of year ......................... 863 5,342 9,108
-------- -------- --------
Cash and equivalents at end of year ............................... $ 27,336 $ 863 $ 5,342
======== ======== ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>
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 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 March 31, 1995 was $1,351,000.

Translation of Foreign Currencies

Assets and liabilities of the Company's foreign operations are translated in
accordance 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.

Foreign Currency Hedging

To date, all of the Company's transactions have been denominated in U.S.
dollars, with the exception of an immaterial amount of transactions in the U.K.
and Japan. The Company has hedged the currency risk associated with these
foreign transactions by entering into forward contracts at the beginning of each
quarter. The gains or losses on foreign currency contracts are deferred until
the contracts are settled and then recognized as other income or expense.

Research and Development and Software Development Costs

Research and development costs, other than certain software development costs,
are charged to expense as incurred. The Company capitalizes certain computer
software development costs 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, generally 18 months. Amortization commences on the date of the initial
product shipment.

<PAGE>
Revenue Recognition and Warranty Costs

Revenue is recognized upon shipment, provided 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 software 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 yea r or less. Postcontract customer
support revenues represented less than 1% of the 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 1996 and fiscal 1995 were 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 1994
did not consider common stock equivalents, as the effect would be antidilutive.

Use of Estimates in the Preparation of Financial Statements

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

New Accounting Standards

During March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of", which is effective for fiscal years beginning after
December 15, 1996. The Company elected early adoption of SFAS No. 121 in the
fiscal year ended March 31, 1996. The adoption of this standard did not have a
material effect on its financial position or results of operations.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company has determined that it will continue to account for
stock-based compensation under Accounting Principles Board No. 25 and elect the
disclosure-only alternative under SFAS No. 123. The Company will be required to
disclose the pro forma net income or loss and per share amounts in the notes to
the financial statements using the fair value based method beginning in the
fiscal year ending March 31, 1997 with comparable disclosures for the fiscal
year ending March 31, 1996. The Company has not determined the impact of these
pro forma adjustments.

NOTE 2 - RESTRUCTURING AND OTHER COSTS

During fiscal 1994, the Company incurred $7,875,000 in restructuring and other
charges. Of such amount, $6,500,000 was incurred in the first quarter of the
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 affecting 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 the 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.

NOTE 3 - ACQUISITIONS

In the fourth quarter of fiscal 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 five 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 pro forma consolidated results of operations for
fiscal 1995 and 1994 have been prepared as if the operations of the Company and
ETC had been combined since the beginning of fiscal 1994:

<PAGE>
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Year Ended March 31,

1995 1994
-----------------------

<S> <C> <C>
Net sales..................................... $ 93,169 $ 56,753
Net income (loss)............................. 4,231 (12,935)
Net income (loss) per share................... .36 (1.27)
</TABLE>

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

Also, in the fourth quarter of fiscal 1995, the Company acquired the assets of
mbp Softwareentwicklungsgesellschaft mbH (mbp) for approximately $1,716,000.
Under the terms of the purchase agreement, the Company will pay mbp royalties
for a five-year period ending March 31, 2000 based on 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 five years. Pro forma information for this acquisition has not been presented
because its results of operation prior to the acquisition date were not
material.

NOTE 4 - DISPOSITIONS

In the third quarter of fiscal 1994, 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.

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 2000. The value of equipment recorded
under capital leases was $5,273,000 at March 31, 1996 and $1,710,000 at March
31, 1995. Accumulated amortization was $2,122,000 and $1,433,000 at March 31,
1996 and 1995, respectively. Aggregate rental expense under operating leases
was $1,859,000, $1,760,000 and $1,910,000 for the years ended March 31, 1996,
1995, and 1994, respectively.

Future minimum lease payments under capital and operating lease commitments
at March 31, 1996 were as follows:

<TABLE>
<CAPTION>
(In thousands)
Fiscal Year Capital Operating
----------- ------------------------
<S> <C> <C>
1997 .......................................... $1,329 $1,900
1998 .......................................... 1,486 1,621
1999 .......................................... 907 1,379
2000 .......................................... 8 1,371
2001 .......................................... -- 1,131
Thereafter .................................... -- 1,010
------ ------
3,730 $8,412
Less interest ................................. 471 ======
------
Net present value ............................. $3,259
======
</TABLE>

<PAGE>
NOTE 6 - CONSOLIDATED BALANCE SHEET DETAILS
(In thousands)

<TABLE>
<CAPTION>
March 31,

Details of selected consolidated balance sheet accounts were as follows: 1996 1995
------------------------
<S> <C> <C>
Inventories:
Raw materials ............................................................ $ 9,601 $ 4,557
Finished goods ........................................................... 27,790 11,691
-------- --------
37,391 16,248
======== ========
Property and equipment:
Computer equipment ....................................................... 11,029 9,503
Machinery and equipment .................................................. 3,090 2,937
Furniture and fixtures ................................................... 1,659 1,458
Leasehold improvements ................................................... 2,327 1,830
-------- --------
18,105 15,728
Accumulated depreciation and amortization ................................ (10,402) (10,045)
-------- --------
7,703 5,683
======== ========
Other assets:
Computer software development costs ...................................... 17,762 12,954
Cost in excess of value of assets acquired ............................... 11,045 9,334
Investment in common stock and license agreement.......................... -- 1,217
-------- --------
28,807 23,505
Accumulated amortization ................................................. (15,544) (11,516)
-------- --------
13,263 11,989
======== ========
Accrued expenses:
Employee compensation and benefits ....................................... 1,398 791
Other .................................................................... 1,510 1,637
-------- --------
$ 2,908 $ 2,428
======== ========
</TABLE>

NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)

<TABLE>
<CAPTION>
March 31,

1996 1995 1994
---------------------------
<S> <C> <C> <C>
Items not affecting cash:
Stock loans issued.................................... $ (949) $ (330) $(1,496)
Common stock issued pursuant to merger agreement...... -- 1,351 --
Reserve for unrealized loss on marketable securities.. -- 501 (534)
Client Server Technologies note receivable............ -- -- 500

Interest paid........................................... 735 673 125
</TABLE>

NOTE 8 - COMPUTER SOFTWARE DEVELOPMENT COSTS

The Company capitalized $3,807,000, $4,922,000, and $3,352,000 of certain
software development costs in fiscal 1996, 1995, and 1994, 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 1996, 1995, and 1994, the Company recorded amortization
expense of $2,701,000, $3,332,000, and $2,914,000, respectively.

<PAGE>
NOTE 9 - FINANCING ARRANGEMENTS
(In thousands)

<TABLE>
<CAPTION>
March 31,

Capital leases were as follows: 1996 1995
------------------

<S> <C> <C>
Capital leases with interest rates from 6.44% to 11.46% $ 3,259 $ 450
Less - current portion ................................ (1,073) (328)
------- -------
$ 2,186 $ 122
======= =======

The minimum repayment is as follows:
1997 .................................................. $ 1,073
1998 .................................................. 1,306
1999 .................................................. 872
2000 .................................................. 8
-------
$ 3,259
=======
</TABLE>

NOTE 10 - REVOLVING CREDIT FACILITY

At March 31, 1996, 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) $25,000,000 or (ii) an amount based on the Company's
eligible accounts receivable. The Maximum Borrowing Amount is reduced by amounts
which may be drawn on outstanding letters of credit, bankers' acceptances
outstanding, and by a percentage of the Company's exposure under any foreign
currency exchange contracts. At March 31, 1996, the Company was contingently
liable with respect to $17,238,000 in outstanding letters of credit and its bank
credit availability was $7,762,000. Under the terms of the credit facility,
which expires November 1996, the Company is required to comply with certain
covenants. Interest is at the bank's prime rate and at March 31,1996, there were
no borrowings under the credit facility and 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. At March 31, 1996, there were 5,528,000 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, 1996,
663,001 shares of common stock were available under the Option Plan for
additional grants of options and purchase authorizations.

<PAGE>
A summary of the Option Plan activity for fiscal 1994, 1995, and 1996 are as
follows:

<TABLE>
<CAPTION>
(In thousands, except per share amounts) Number of Option Price
Options Per Share
-----------------------------
<S> <C> <C>
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
GRANTED..................................... 499 9.50 - 25.13
EXERCISED................................... (1,013) 2.06 - 23.00
FORFEITED................................... (37) 2.06 - 15.06
------ ----------------
OUTSTANDING AT MARCH 31, 1996..................... 1,275 $2.06 - $25.13
======

OPTIONS VESTED AT MARCH 31, 1996.................. 332 $2.06 - $10.25
======
</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 became
non-employee directors after March 17, 1995, is entitled to receive an option to
purchase 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 150,000 shares reserved for issuance under the
Director Plan. At March 31, 1996, there were 40,000 shares of common stock
available for additional option grants under the Director Plan.

A summary of the Director Plan activity for fiscal, 1994, 1995 and 1996 are as
follows:

<TABLE>
<CAPTION>
(In thousands, except per share amounts) Number of Option Price
Options Per Share
------------------------------
<S> <C> <C>
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
GRANTED..................................... -- -- - --
EXERCISED................................... -- -- - --
FORFEITED................................... -- -- - --
--- -----------------
OUTSTANDING AT MARCH 31, 1996..................... 80 $11.88 - $11.88
===

OPTIONS VESTED AT MARCH 31, 1996.................. 27 $11.88 - $11.88
===
</TABLE>

<PAGE>
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 700,000. 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, 1996, 299,126 shares of common stock were available for
additional option grants under the Performance Plan.

A summary of the Performance Plan activity for the fiscal 1995 and 1996 are
as follows:

<TABLE>
<CAPTION>
(In thousands, except per share amounts) Number of Option Price
Options Per Share
----------------------------
<S> <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
Granted..................................... 231 9.50 - 15.06
Exercised................................... (34) 5.38 - 10.00
Forfeited................................... (19) 5.38 - 10.88
--- ----------------
Outstanding at March 31, 1996..................... 367 $5.38 - $15.06

Options vested at March 31, 1996.................. 40 $5.38 - $ 6.63
===
</TABLE>

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. These loans are evidenced by
promissory notes and accrue interest at the Adjusted Federal Rate and are due at
various dates through 2005.

Employee Stock Purchase Plan

The Company maintains an employee stock purchase plan (the Purchase Plan) which
authorizes the issuance of up to 1,345,000 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 stock during
specified offering periods (typically six months) at a price equal to the lower
of 85% of the market value of the stock at the beginning or end of the offering
period, through the accumulation of payroll deductions or a lump-sum payment.
Approximately 157,000, 204,000, and 195,000 shares of common stock for a total
of $1,445,000, $894,000, and $747,000, were purchased during fiscal 1996, 1995,
and 1994, 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 1996, 1995, or 1994.

<PAGE>
NOTE 12 - NET SALES BY GEOGRAPHIC AREA
($ in thousands)

Net sales by geographic area were as follows:

<TABLE>
<CAPTION>
Year Ended March 31,

1996 1995 1994
------------------------------------------

<S> <C> <C> <C>
North America ............... $ 68,827 $ 66,557 $ 44,106
International:
Europe .................... 25,535 18,969 8,932
Japan ..................... 30,332 2,962 184
All other ................. 21,350 4,618 3,242
-------- -------- --------
$146,044 $ 93,106 $ 56,464
======== ======== ========

Percent:
North America ............... 47% 72% 78%
International:
Europe .................... 17 20 16
Japan ..................... 21 3 --
All other ................. 15 5 6
--- --- ---
100% 100% 100%
=== === ===
</TABLE>

NOTE 13 - SIGNIFICANT CUSTOMERS

In fiscal 1996 one customer accounted for approximately 21% of net sales. In
fiscal 1995 and 1994 a second customer accounted for approximately 24% and 13%,
respectively, of net sales.

NOTE 14 - INCOME TAXES
($ In thousands)

<TABLE>
<CAPTION>
Year Ended March 31,

The provision for income taxes is as follows: 1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Current:
Federal ................................... $ 227 $ 101 $ --
State ..................................... 759 306 10
International ............................. 1,218 609 151
------ ------ -----
$2,204 $1,016 $ 161
====== ====== =====
</TABLE>

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>
($ In thousands) Year Ended March 31,

1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Net operating loss carry forwards ....... $ 5,055 $ 7,313 $ 8,863
Tax credit carry forwards ............... 4,098 3,959 3,959
Computer software development costs ..... (376) 68 (127)
Puerto Rico adjustment .................. -- -- (337)
Purchased technology .................... 40 326 380
Other ................................... (2,084) 169 198
Valuation allowance ..................... (6,733) (11,835) (12,936)
-------- --------- --------
$ -- $ -- $ --
======== ========= ========
</TABLE>

<PAGE>
A reconciliation of the United States Federal statutory tax rate to the
Company's effective tax rate for fiscal 1996 is as follows:

<TABLE>
<S> <C>
U. S. Federal statutory tax rate ....................................... 34.0%
State income taxes, net of Federal benefit ............................. 2.0
Net operating loss carry forward ....................................... (21.0)
-----
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, 1996, the Company had available $16,817,000 in net operating loss
carry forwards, which may be used to offset future taxable income, and
$4,169,000 in research and development and other tax 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 No. 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 utilization of such carry forwards.

<PAGE>
Selected Quarterly Data
(Unaudited)
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
FISCAL
FISCAL 1996: FIRST SECOND THIRD FOURTH YEAR
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES .............. $ 28,555 $ 32,809 $ 39,977 $ 44,703 $146,044
GROSS MARGIN ........... 12,753 14,158 16,156 17,943 61,010
INCOME FROM OPERATIONS.. 3,072 3,367 3,915 4,414 14,768
NET INCOME ............. 2,115 3,088 3,459 3,828 12,490
NET INCOME PER SHARE ... .17 .19 .21 .23 .80

Fiscal 1995:
Net sales .............. $ 21,315 $ 22,770 $ 23,134 $ 25,887 $ 93,106
Gross margin ........... 9,588 10,157 10,364 11,675 41,784
Income from operations.. 1,457 1,747 2,055 2,258 7,517
Net income ............. 1,176 1,385 1,529 1,671 5,761
Net income per share ... .11 .12 .13 .14 .49
</TABLE>

The quarterly price range for the Company's Common Stock traded over-the-counter
and quoted on Nasdaq:

<TABLE>
<CAPTION>
FISCAL 1996 Fiscal 1995

HIGH LOW High Low
--------------------------------------

<S> <C> <C> <C> <C>
First ............................... $16.88 $ 9.63 $ 6.50 $4.50
Second .............................. 22.25 15.00 8.25 5.88
Third ............................... 28.00 14.63 12.38 6.63
Fourth .............................. 34.50 18.88 12.63 9.00
</TABLE>

<PAGE>
REPORT OF MANAGEMENT

The Company's management is responsible for the preparation of financial
statements and the integrity and objectivity of all financial information
presented in this Annual Report. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. Management
makes informed judgments and estimates of expected effects of events and
transactions and believes that the financial data fairly represents Company
operations.

Management's objectives are to maintain the highest level of ethical standards
in the conduct of Company business and to safeguard the assets through a system
of sound internal controls. These objectives are supported by policies and
procedures which are continuously reviewed and updated by management.

The Board of Directors, through its Audit Committee, consisting solely of
non-employee Directors, serves in an overview role. The Committee meets
regularly with management and the Company's independent public accountants to
review financial information, internal controls, and related matters. The
Committee reports its findings directly to the Board of Directors. The
independent public accountants are engaged by the Board of Directors and have
full and free access to the Audit Committee and the Company's outside counsel.

<TABLE>
<S> <C> <C>
/s/ James M Dow /s/ Roland D. Pampel /s/ Peter J. Minihane

James M. Dow Roland D. Pampel Peter J. Minihane
Chairman of the Board President and Executive Vice President of Operations
Chief Executive officer Chief Financial Officer and Treasurer
</TABLE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Microcom, Inc.:

We have audited the accompanying consolidated balance sheets of Microcom, Inc.
(a Massachusetts corporation) and subsidiaries as of March 31, 1996 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, 1996. 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, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 1996 in
conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

Boston, Massachusetts,
April 12, 1996.

Exhibit 21.0

MICROCOM, INC. SUBSIDIARIES

Name of Subsidiary Jurisdiction of
Incorporation

Microcom (UK) Limited England

Microcom Caribe, Inc. Delaware, USA

Connectivity, Ltd. U.S. Virgin Islands
MNP Sales B.V. Netherlands

MNP Hong Kong Limited Hong Kong
Microcom Systems, Inc. Delaware, USA

Microcom E.M.A. France

Micro Communications GMBH Germany

Microcom Australasia Pty Limited Australia

Microcom [South Africa] [Pty] Ltd. South Africa

Microcom K.K. Japan

Each subsidiary listed above is a wholly-owned subsidiary of Microcom, Inc.
except for MNP Hong Kong which is a wholly-owned subsidiary of MNP Sales B.V.,
which in turn is a wholly-owned subsidiary of Microcom, Inc.

Exhibit 23.0

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our report dated April 12, 1996, included in this Form 10-K, into Microcom,
Inc.'s previously filed Registration Statements on Form S-8 (File Nos. 33-
16833, 33-18426, 33-29279, 33-29771, 33-37284, 33-40893, 33-63454, 33-71588,
33-84572, 33-59939 and 33-64579) and on Form S-3 (File No. 33-64587).

ARTHUR ANDERSEN LLP

Boston, Massachusetts
June 19, 1996

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statements of income filed as
part of the report on Form 10-K to which this schedule is an exhibit and is
qualified in its entirety by reference to such report on Form 10-k.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,821
<SECURITIES> 22,515
<RECEIVABLES> 41,811
<ALLOWANCES> 283
<INVENTORY> 37,391
<CURRENT-ASSETS> 108,233
<PP&E> 18,105
<DEPRECIATION> 10,402
<TOTAL-ASSETS> 129,199
<CURRENT-LIABILITIES> 23,904
<BONDS> 0
0
0
<COMMON> 168
<OTHER-SE> 102,941
<TOTAL-LIABILITY-AND-EQUITY> 129,199
<SALES> 146,044
<TOTAL-REVENUES> 146,044
<CGS> 85,034
<TOTAL-COSTS> 85,034
<OTHER-EXPENSES> 46,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> 14,694
<INCOME-TAX> 2,204
<INCOME-CONTINUING> 12,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,490
<EPS-PRIMARY> .80
<EPS-DILUTED> .80

</TABLE>