MICRO INTEGRATION CORP /DE/, 10KSB, 1999-07-14

MICRO INTEGRATION CORP /DE/
10KSB, 1999-07-14
COMPUTER COMMUNICATIONS EQUIPMENT

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U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-KSB
(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended March 31, 1999

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]

For the transition period from ______________ to ______________

Commission file number 0000-23710

Micro-Integration Corp.
(Exact name of small business issuer as specified in its charter)

Delaware 06-1204847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One Science Park
Frostburg, MD 21532
(Address of principal executive offices)

301-689-0800
(Issuer's telephone number)

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

Securities registered under Section 12(g) of the Exchange Act:Common
Stock, $.01 Par Value

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

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year: $12,213,841

The aggregate market value of the voting stock held by non-affiliates of
the registrant on June 15, 1999 was approximately $1,946,763 (based on the last
sale price as reported by the Nasdaq Small Cap Market).

The number of shares outstanding of each of the issuer's classes of common
equity as of June 15, 1999: Common Stock, $.01 Par Value - 2,917,081 shares

DOCUMENTS INCORPORATED BY REFERENCE

(1) Definitive Proxy Statement for 1999 Annual Meeting of Stockholders --
Items 9, 10, 11, and 12.

Transitional Small Business Disclosure Format (check one): Yes ___ No _X_

<PAGE>

Index to Form 10-KSB
Micro-Integration Corp.

Part I

Item 1. Description of Business.............................................2
Item 2. Description of Property............................................11
Item 3. Legal Proceedings..................................................11
Item 4. Submission of Matters to a Vote of Security Holders................11

Part II

Item 5. Market for Common Equity and Related Stockholder Matters...........13
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................13
Item 7. Financial Statements...............................................17
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure...........................................17

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act..................18
Item 10. Executive Compensation.............................................18
Item 11. Security Ownership of Certain Beneficial Owners and
Management.........................................................18
Item 12. Certain Relationships and Related Transactions.....................18

Part IV

Item 13. Exhibits and Reports on Form 8-K...................................19

<PAGE>

Part I

Item 1. Description of Business

THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE
BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT'S CURRENT
EXPECTATIONS, ESTIMATES AND PROJECTIONS, BELIEFS AND ASSUMPTIONS. WORDS SUCH AS
"ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES,"
VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT
ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. THESE
RISKS AND UNCERTAINTIES INCLUDE THOSE DISCUSSED BELOW UNDER "BUSINESS - RISK
FACTORS" ON PAGES 7 THROUGH 10 AND ELSEWHERE IN THIS FORM 10-KSB. UNLESS
REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY REVIEW THE FACTORS
DISCUSSED IN OTHER REPORTS OR DOCUMENTS THAT THE COMPANY FILES FROM TIME TO TIME
WITH THE SECURITIES AND EXCHANGE COMMISSION, PARTICULARLY THE QUARTERLY REPORTS
ON FORM 10-QSB AND ANY CURRENT REPORTS ON FORM 8-K.

Introduction

John A. Parsons, the Company's current Chairman and CEO, founded the Company's
predecessor, Micro-Integration Inc. in 1978. The Company was formed in 1986 to
hold the stock of Micro-Integration Inc. and i.e. Systems, Inc. The two
subsidiaries were merged into the Company in 1988. Since inception, the Company
and its predecessors have designed, developed, marketed, and supported
client-server and PC-to-IBM host communications and connectivity products. In
1995, the Company began its transition to a full-service IT Services provider,
and now concentrates on networking, the Internet, accounting and distribution
systems, and process control data gathering systems through its headquarters
located in Frostburg, Maryland, and through subsidiaries in Ohio and
Pennsylvania.

The Company had a European subsidiary, Micro-Integration Corp. PLC,
headquartered in Birmingham, U.K., with a sales and service office near
Brussels, Belgium, until March 31, 1997, when the majority of the Company's
interest in the subsidiary was sold.

Significant Developments During Fiscal Year 1998-1999

On April 1, 1998, the Company completed the purchase of CompSource, Inc.
("CompSource"), a West Reading, PA-based IT Services company. CompSource has a
division specializing in accounting solutions and a division specializing in
process control data acquisition. CompSource accounted for 23% of the Company's
consolidated total revenue for the year ended March 31, 1999.

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Business Operations

Business Units

The Company has three principal business units: the IT Services unit, the PC
Connectivity unit, and the Mint Internet unit. The Company also provides various
support and management services to its subsidiaries and business units from a
headquarters support group.

IT Services Unit

Through its IT Services Unit, the Company offers consulting, network integration
and design services, accounting and distribution information systems, process
control data acquisition systems, help-desk, training, desktop maintenance and
management services, and Internet web site design, programming, and hosting
services. Consulting services are provided on a regional basis through IT
Services offices in the Company's headquarters at Frostburg, MD, and at the
Company's subsidiaries, Computer One in Lima, OH, Computer Site in Valley View,
OH, SuiteOne in Pittsburgh, PA, and CompSource in West Reading, PA.

In conjunction with its service offerings, the Company supplies a selection of
products from major software vendors such as Microsoft, State of the Art,
Software Solutions, Lotus, and Novell, and from communications equipment,
personal computer, and peripheral manufacturers such as Cisco, Compaq, IBM, and
Hewlett-Packard. The Company has sales and/or service authorizations from
Microsoft, Software Solutions, Lotus, Novell, Cisco, IBM, Compaq, US Robotics,
Hewlett-Packard, NEC, Apple, Dell, and others. No manufacturer's products
represented more than 10% of total sales for the year ended March 31, 1999.

Sales and Marketing: The Company sells its IT Services through sales staffs
located in Frostburg, MD, Lima, OH, Valley View, OH, Pittsburgh, PA and West
Reading, PA. The sales people have support and technical staff in each office,
and are also supported by a headquarters support group. The headquarters support
group, located in Frostburg, MD, provides pre- and post-sale support, training,
consulting, installation, and help desk services and Internet web design and
hosting for all offices. IT Services sales accounted for 88% of the Company's
revenue for the year ended March 31, 1999.

In general, the Company and each of its subsidiaries has one or more areas of
specialization, with the in-house technical expertise to support the
specialization. Unix-based accounting and distribution systems is an area of
specialization at the Company's SuiteOne subsidiary in Pittsburgh, PA. The
Company's headquarters in the Frostburg, MD, location specializes in web design,
programming, and hosting. The Company's Computer One subsidiary in Lima, OH,
specializes in networking and desktop life cycle management, as does the
Company's Computer Site subsidiary in Valley View, OH. The Company's CompSource
subsidiary specializes in accounting systems and remote data gathering and
monitoring for process control systems.

Competition: The entire IT Services industry is characterized by intense
competition, based primarily on quality and breadth of products and services,
availability of pre- and post-sale support, product and service availability,
price, speed of delivery, ability to tailor specific solutions to customer
needs, and quality of customer training.

In the markets where the Company's efforts are focused, there are many
competitors who provide services similar to the Company's. Companies such as
Electronic Data Systems ("EDS") and Andersen Consulting offer such services, but
tend to focus on larger customers than the small- to mid-size organizations on
which the Company's efforts are focused.

Where possible, the Company sells products only as an adjunct to its networking
and consulting services. Competition with vendors that sell directly to large
purchasers and with companies that implement other sales methods, such as direct
mail, computer "superstores," and mass merchandisers, is limited to those
instances where services are not a significant part of the sale. Mail-order
communications companies such as Black Box and Data Communications Warehouse
sell communications products in competition with the Company. Mail-order
computer and peripheral companies such as Micro Warehouse and Dell Computers
sell computers and peripherals in competition with the Company. Local computer
superstores such as Best Buy and Comp USA sell computers and

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peripherals at low prices. Small local computer stores, consultants, and
resellers are able to provide both products and services.

Backlog: As of March 31, 1999, the Company had a short, but not material,
backlog of services assignments. In the past the Company has been able to shift
technical resources from one location to another to keep backlog to a minimum.

The Company stocks a minimal amount of products manufactured by others, relying
on distributors' drop shipping and just-in-time shipping. As a result, the
Company sometimes experiences a short, but not significant, order backlog on
products purchased from distributors. Occasionally, demand may outstrip a
particular manufacturer's ability to produce, which could result in a
significant product backlog for the Company. If this backlog were to affect the
ability of the Company to supply services, it could have a material adverse
effect on the Company's business, financial condition, and results of
operations.

The Company believes that a backlog at any given point in time is not a reliable
indicator of future sales or earnings, although the absence of significant
backlog and variations in the purchasing patterns of the Company's customers
could contribute to variations in the Company's quarterly results of operations.

PC Connectivity Unit

Prior to 1996, the Company's PC-to-IBM midrange (System/36, System/38, and
AS/400) client-server communications products were the Company's primary
business. In the interim these products have become less important as the
Company shifted its focus to IT Services. In the fiscal year ended March 31,
1996, these products accounted for approximately 92% of the Company's total
revenue; in the year ended March 31, 1999, they accounted for 12% of total
revenue. These products continue to supply generous gross margins, however, and
contributed 22% of the Company's total gross margin during the year ended March
31, 1999.

Products: The PC Connectivity products provide PC users with easy access to
computer applications and data on IBM midrange computers. They provide PC-to-IBM
host and Local Area Network ("LAN")-to-IBM host connections using a wide variety
of network and communications system configurations, including several types of
direct and modem connections, multiple LAN operating systems, communications
hardware, and a range of communications servers and gateways.

Sales and Marketing: The Company sells its PC Connectivity products worldwide
through a combination of direct sales and sales through resellers and
distributors. U.S. sales are handled primarily by in-house telesales
representatives. These sales people handle typical reseller and end-user
accounts. The Company does not employ outside sales people in the PC
Connectivity business unit. The Company consults with and supports its resellers
with sales and technical support staff.

Manufacturing: The Company manufactures PC Connectivity computer software kits
and hardware boards in the U.S. Other products are purchased from a variety of
suppliers worldwide.

Raw materials for PC Connectivity software kits are obtained on an as-needed
basis, with four to six weeks as the longest lead time from purchase order to
receipt of most materials. All materials used in preparation of these software
kits can be produced by a large number of vendors. The Company currently
contracts with one outside firm in the United States for the production of the
Company's custom hardware boards. This firm purchases and stocks raw materials
and assembles finished boards on the Company's orders. The Company is currently
producing nine distinct hardware board designs.

The Company maintains an inventory of all items it manufactures which it
believes to be sufficient to meet demand. The Company manufactures or purchases
and maintains inventory of certain high-volume items in larger quantities.

Competitors: The Company currently has three major competitors in the IBM
midrange client-server connectivity and server segment: IBM, Better Online
Solutions, Inc., and Pearle, Inc.

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The principal competitive factors affecting the market for the Company's PC
Connectivity products include product functionality, ease of use, quality,
performance, reliability, quality of customer service and support, product
availability, vendor credibility, ability to keep pace with technological
change, and price. The PC Connectivity market is subject to rapidly changing
technology and evolving standards incorporated into the Internet, PCs, networks,
and IBM mainframe and midrange computers. This market is characterized by
significant price competition.

Backlog: The Company typically ships PC Connectivity products on the same day
orders are received. Because of this, the Company believes that a PC
Connectivity product backlog at any given point in time is not a reliable
indicator of future sales or earnings. The absence of significant backlog and
variations in the purchasing patterns of the Company's customers could
contribute to variations in the Company's quarterly results of operations.

Mint Internet Unit

In December 1998, the Company announced it was forming the Mint Internet
division to concentrate on Internet technology and e-commerce. This division is
in the process of developing Internet web portal e-commerce businesses. The
Company is seeking funding to launch the first e-commerce business during the
quarter ended September 30, 1999.

The Mint Internet division is headed by John Parsons, the Company's founder, CEO
and Chairman, and currently operates out of the Frostburg, MD headquarters
location. The Company expects that this division, with Mr. Parsons, will move
from Frostburg to the area north of Boston, MA, in the near future, in order to
take advantage of the skilled Internet labor pool available there.

The Mint Internet division has not generated any material revenues and the
Company cannot predict if, or when, the Mint Internet division will generate
material revenues. The Mint Internet division accounts for a significant portion
of the Company's operating loss for the fiscal year ended March 31, 1999. All
technology and development costs have been expensed as incurred.

Patents, Trademarks, and Copyrights

The Company regards its software and hardware as proprietary and relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures, and contractual provisions, including employee and
third-party nondisclosure agreements, to protect its proprietary rights. The
Company seeks to protect its software, documentation, and other written
materials under trade secret and copyright laws, which afford only limited
protection. 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 requires its employees to enter into confidentiality agreements.

The Company owns several U.S. patents, patent applications, and U.S. and foreign
trademarks, including the mark "Micro-Integration" in the United States. None of
the patents or trademarks, other than the marks "Micro-Integration" and "MI,"
are currently significant to the Company's business.

No material claims have been made against the Company for infringement of
proprietary rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims against the Company in the
future. As the number of products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software programs will increasingly become subject to infringement claims. The
Company's strategy to develop Internet-based services may also expose the
Company to infringement claims on software programs, web sites, or web content
in the future. The cost of responding to any such assertion may be material,
whether or not the assertion is valid.

Software License and Warranty Terms

The Company's PC Connectivity products are licensed on a per-user, per-host, or
per-LAN basis. For certain major customers, the Company has made available
enterprise-wide or site licenses. Under the terms of these licenses, the
customer acquires a master copy of the software and documentation and the right
to make and distribute multiple copies of these materials within the enterprise
or site.

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The Company provides a one-year limited warranty against defects in hardware and
software products manufactured by the Company. For certain of these hardware
products, the Company provides a limited lifetime warranty when the customer
returns the registration card. It is the Company's experience that the cost of
the extended warranty is immaterial, but there can be no assurance that this
will continue to be the case in the future.

The Company's original equipment manufacturer ("OEM") PC Connectivity customers
generally have non-exclusive licenses to distribute and market certain products
of the Company. The licenses are generally cancelable by the OEM on 90 days
notice and by the Company for cause. The Company receives a license fee or
royalty based on the number of copies of the Company's technology distributed by
the OEM's.

Employees

MI currently has approximately 71 full-time and 9 part-time employees.
Approximately 31% of all employees are employed at MI in Frostburg, Maryland,
24% at Computer Site in Valley View, Ohio, 9% at Computer One in Lima, Ohio, 8%
at SuiteOne in Pittsburgh, Pennsylvania and 26% at CompSource in West Reading,
Pennsylvania. Approximately three-fourths of the Company's employees work in
customer sales and service and approximately 21% work in administration. The
remaining employees provide marketing services.

Environmental

The Company owns or leases several parcels of real estate on which its
operations are located. Adjacent to the Company's headquarters building in
Frostburg, Maryland, is a property which was formerly operated as a sanitary
landfill. The Company leases this property from The Cumberland Allegany County
Industrial Foundation ("CACIF"), with an option to purchase. The Company uses
part of this property as a parking lot, the rest of the site being open space.
Although the Company has not performed an environmental assessment on the
property, the Company is not aware of any environmental problems which would
necessitate a cleanup. CACIF has contractually agreed to indemnify the Company
should any environmental cleanup costs arise from the property's pre-existing
condition (excluding consequential damages). In addition, should any
pre-existing environmental condition interrupt or materially impair the
Company's use of the property, the Company has the right through at least the
year 2023 to require CACIF or Allegany County, Maryland, to promptly alleviate
the condition and compensate the Company for any lost use of the property
(again, excluding consequential damages). If either or both fail to satisfy this
requirement, the Company has the right to obligate CACIF and Allegany County to
repurchase the property and reimburse the Company for all improvements made by
the Company. There can be no assurance that CACIF and Allegany County will
fulfill their contractual obligations to the Company. Were environmental
problems to arise with respect to the property, failure by either CACIF or
Allegany County to fulfill its obligations, or the occurrence of consequential
damages, could have a material adverse effect on the Company's business,
financial condition, or results of operation.

Governmental Approval of Hardware Products

All computer hardware products must meet certain radiowave emissions standards
prescribed by the Federal Communications Commission ("FCC") in the United States
and EC Directives in the European Economic Community ("EEC"). The Company's
current PC Connectivity products meet the FCC standards and are certified to
comply with Conformite Europeene ("CE") in the EEC. Although the Company's
products meet current FCC and CE radiowave emissions standards, such products
sold internationally may not meet the standards of, and may not be approved by,
the certification authorities of other countries. If any of the Company's
products were found not to meet the standards of any country, the Company would
be required to incur the expenses of bringing such products in conformance with
those standards or to cease selling the product in that country.

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Risk Factors

IN ADDITION TO OTHER INFORMATION IN THIS FORM 10-KSB, THE FOLLOWING RISK FACTORS
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS
BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT OR MAY HAVE A
SIGNIFICANT IMPACT ON THE COMPANY'S BUSINESS, OPERATING RESULTS OR FINANCIAL
CONDITION. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-KSB AS A RESULT OF THE RISK
FACTORS DISCUSSED BELOW AND ELSEWHERE IN THIS FORM 10-KSB.

Uncertainty of Future Profitability; Need for Additional Funds

The sale or issuance of additional equity or convertible debt securities could
result in additional dilution to the Company's stockholders. There can be no
assurance that additional financing, if required, will be available when needed
or, if available, will be on terms acceptable to the Company. Any inability to
satisfy the Company's operating cash needs or the inability to finance the
purchase of goods sold to others could have a material adverse effect on the
Company's business, financial condition and results of operation.

Continuing Losses and Doubtful Ability to Continue as a Going Concern

As a result of the Company's net losses, and the Company's dependence on
additional financing, the Company's independent accountants' report on the March
31, 1999 financial statements of the Company and its subsidiaries includes an
explanatory paragraph indicating that these matters raise a substantial doubt
about the Company's ability to continue as a going concern. The Company is
seeking to raise additional equity. However, there can be no assurance that the
Company's efforts will be successful.

Potential Fluctuations in Operating Results

The Company has been facing substantial competition and lowered margins in
several segments of the Technology Services business. In addition, the Company's
PC connectivity business, which enjoys gross margins over 60%, continues to
decline rapidly because of technological change. These factors continue to put
pressure on the Company's ability to return to profitability, and failure to
improve the performance of the Technology Services unit may have a material
adverse effect on the Company's business, financial condition and results of
operations.

The Company expects to incur significant expenses in order to develop,
commercialize and implement the technology and services being developed by the
Company's Mint Internet division. Until such time, if any, as these technologies
and services begin to generate significant revenue, the operations and expenses
of this division may have a material adverse effect on the Company's business,
financial condition and results of operations. The failure of these technologies
and services to be commercially viable in the marketplace for any reason could
have a material adverse effect on the Company's business, financial condition
and results of operations, as could any significant delay in the availability of
the technologies or services.

Since the Company recognizes IT services revenue only when personnel are engaged
on client projects, the relative utilization of such personnel directly affects
the Company's operating results. In addition, a majority of the Company's IT
operating expenses, particularly personnel and related costs, are substantially
fixed in advance of any particular period. As a result, variations in
utilization of personnel may materially affect the Company's operating results.
Termination or completion of engagements in the Company's IT services business
or failure to obtain additional engagements in its IT services business could
have a material adverse effect on the Company's business, financial condition
and results of operations.

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The Company believes that future operating results will also be subject to
fluctuations due to a variety of factors, many of which are beyond the Company's
control. Such factors may include, but are not limited to, demand for the
Company's technology or services, availability of skilled sales and technical
personnel, introduction or enhancement of technologies or services by the
Company or its competitors, market acceptance of new technology or service
offerings, technological changes, increased competition, litigation costs,
results of litigation, and general economic conditions.

Management of Acquired Businesses

The Company's acquisitions have placed, and are expected to continue to place, a
significant strain on its managerial and operational resources. To manage these
acquired businesses and others that may be acquired in the future, the Company
must continue to implement and improve its operational, management and financial
systems and to train and manage its employee base. The Company expects that its
operational, management and financial systems will face additional strains as a
result of possible acquisitions in the future.

Integration of Acquisitions

As part of its business strategy, the Company may seek out business combinations
with other Internet or IT Services companies. Such business combinations involve
a number of risks, including, without limitation, difficulty assimilating the
operations and personnel, expenditure of management time, expenses associated
with the transactions, additional expenses associated with amortization of
acquired intangible assets, the implementation and maintenance of standards,
controls, procedures, and policies, the impairment of relationships with
employees and customers as a result of the integration of new management
personnel, and potential unknown liabilities associated with acquired
businesses. To the extent that any of the companies that the Company acquires
fail, the Company could be required to write-off the amount of the investment.
There can be no assurance that the Company will be successful in addressing
these risks or any other problems encountered in connection with such business
combinations.

Dependence on Key Personnel

The Company's performance is substantially dependent on the performance of its
senior management and key sales and technical personnel. In particular, the
Company's success depends substantially on the continued efforts of its senior
management team. The Company does not carry key person life insurance on any of
its senior management personnel. The loss of the services of any of its
executive officers or other key employees could have a material adverse effect
on the business, financial condition and results of operations of the Company.
The Company's future success also depends on its continuing ability to attract
and retain highly-qualified sales, technical and managerial personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able to retain its key managerial, sales and technical employees
or that it will be able to attract and retain additional highly-qualified sales,
technical and managerial personnel in the future. The inability to attract and
retain the necessary sales, technical and managerial personnel could have a
material adverse effect upon the Company's business, financial condition, and
results of operation.

Concentration of Stock Ownership

As of March 31, 1999, the present directors, executive officers, greater than 5%
stockholders, and their respective affiliates beneficially owned approximately
52% of the outstanding common stock of the Company ("Common Stock"). As of March
31, 1999, John A. Parsons, the Company's Chairman and CEO, beneficially owned
approximately 38% of the outstanding Common Stock of the Company. As a result of
their ownership, the directors, executive officers, greater than 5%
stockholders, and their respective affiliates collectively are able to control
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in control
of the Company.

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Volatility of Stock Price

The trading price of the Company's Common Stock has been and may continue to be
subject to wide fluctuations in response to a number of events and factors, such
as quarterly variations in operating results, changes in financial estimates and
recommendations by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable to the
Company, and news reports relating to trends in the Company's markets. In
addition, the stock market, in general, and the market prices for IT companies,
in particular, have experienced volatility that often has been unrelated to the
operating performance of such companies. These broad market and industry
fluctuations may adversely affect the trading price of the Company's Common
Stock, regardless of the Company's operating performance.

Year 2000

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Absent corrective
actions, programs with date sensitive logic may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.

The Company has commenced a process to assure Year 2000 compliance of all
hardware, software, and ancillary equipment that are date dependent. The process
involves four phases:

Phase I - Inventory and Data Collection. This phase involves an identification
of all items that are date dependent. The Company commenced this phase prior to
June 1998 and it is now substantially complete.

Phase II - Compliance Requests. This phase involves requests to system vendors
for verification that the systems identified in Phase I are Year 2000 compliant.
The Company has identified and has begun to replace critical systems that cannot
be updated or certified compliant. The Company commenced this phase in the first
quarter of fiscal year 1998 and it is now substantially complete. The Company's
principal compliance issue focused on existing business and accounting systems.
New business and accounting systems are currently being implemented which are
vendor-certified Year 2000 compliant. In addition, the Company has determined
that substantially all of its personal computers and PC applications are
compliant.

Phase III - Test, Fix and Verify. This phase involves testing all items that are
date dependent and upgrading the critical, non-compliant system as well as
completing the implementation of the new business and accounting systems. The
Company expects to complete this phase during July 1999.

Phase IV - Final Testing and New Item Compliance. This phase involves review of
all systems for compliance and re-testing as necessary. During this phase, all
new systems and equipment will be tested for compliance. The Company expects to
complete this phase by the end of September 1999.

The Company presently believes that, with the implementation of the new business
and accounting systems, including hardware and software, the Year 2000 issue
will not pose any significant operational problems. This substantial compliance
has been achieved without the need to acquire new hardware, software or systems
other than in the ordinary course of business, with the exception of the new
business and accounting systems which is being capitalized and will be amortized
over a three year period. The Company is not aware of any other non-compliance
that would require repair or replacement that would have a material effect on
its financial position. As part of the Year 2000 process, formal communication
with the Company's suppliers, customers and other support services has been
initiated and efforts will continue until positive statements of readiness have
been achieved from all third parties. To date, the Company is not aware of any
non-compliance by its customers or suppliers that would have a material impact
on the Company's business. Nevertheless, there can be no assurance that
unanticipated non-compliance will not occur, and such non-compliance could
require material costs to repair or could cause material disruptions if not
repaired. The Company is in the process of developing a strategy to address
these potential consequences that may result from unresolved Year 2000 issues,
which includes the development of various contingency plans in 1999.

9
<PAGE>

Risks Relating to Small Company Stocks

The Company's continued listing on the Nasdaq Small Cap Market ("SCM") is
contingent upon the Company meeting the maintenance requirements of the SCM.
Substantial changes in Nasdaq initial listing and maintenance requirements
became effective on February 23, 1998. These changes materially enhance the
quantitative threshold criteria necessary to qualify for initial entry and
continued listing on Nasdaq. These changes require that companies listed on the
SCM maintain (i) $2,000,000 in net tangible assets (total assets less total
liabilities and goodwill) or a market capitalization of $35,000,000 or $500,000
in net income for two of the last three years, (ii) a $1,000,000 market value
for the public float, (iii) two market-makers, and (iv) a minimum bid price of
$1.00 per share.

As of March 31, 1999, the Company was in compliance with all of the continued
listing requirements except the net tangible asset requirement. No assurances
can be made that the Company will regain and maintain compliance with this or
any other of the Nasdaq listing requirements. If the Company's securities were
to be delisted from Nasdaq, trading, if any, of the Company's securities would
thereafter have to be conducted in the non-Nasdaq over-the-counter market. In
such event, an investor could find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities. In
addition, if the Common Stock were to become delisted from trading on Nasdaq and
the trading price of the Common Stock were to remain below $5.00 per share,
trading in the Company's Common Stock could also be subject to the requirements
of certain rules promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock. Generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share is considered a penny stock, subject to certain
exceptions. The additional burdens imposed upon broker-dealers by such
requirements could discourage broker-dealers from effecting transactions in the
Common Stock, which could severely limit the market liquidity of the Common
Stock and the ability of investors to trade the Company's Common Stock. See
"Possible Effect of "Penny Stock" Rules on Liquidity for the Company's
Securities" below.

Possible Effect of "Penny Stock" Rules on Liquidity for the Company's Securities

If the Company's securities were not listed on a national securities exchange
nor listed on a qualified automated quotation system, they may become subject to
Rule 15g-9 under the Exchange Act. This Rule imposes additional sales practice
requirements on broker-dealers that sell such securities to persons other than
established customers and "accredited investors" (generally, individuals with a
net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or
$300,000 together with their spouse). For transactions covered by Rule 15g-9, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, such Rule may affect the ability of broker-dealers to sell
the Company's securities and may affect the ability of purchasers to sell any of
the Company's securities in the secondary market.

The Securities and Exchange Commission (the "Commission") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the Commission relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks. The foregoing required penny stock
restrictions will not apply to the Company's securities if the Company meets
certain minimum net tangible asset or average revenue criteria. If applicable,
there can be no assurance that the Company's securities will qualify for
exemption from the penny stock restrictions. If the Company's securities were
subject to the rules on penny stocks, the market liquidity for the Company's
securities could be materially adversely affected.

10
<PAGE>

Item 2. Description of Property

As of March 31, 1999, the Company owned or leased the following facilities:

<TABLE>
<CAPTION>
Approximate Leased or
Location Type of Facility Condition Square Feet Owned
- ---------------------- ----------------------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Frostburg, MD Corporate Offices, Excellent 20,000 Owned (1)
Sales/Service/Internet

Hagerstown, MD Internet Good 1,020 Leased (2)

Lima, OH Sales/Service Good 2,200 Leased (3)

Pittsburgh, PA Sales/Service Good 900 Leased (4)

Valley View, OH Sales/Service Excellent 7,500 Leased (5)

West Reading, PA Sales/Service Good 5,100 Leased (6)

West Reading, PA Sales/Service Good 2,325 Leased (7)
</TABLE>

(1) This property was financed with two separate notes. One is a 20-year,
$215,000 note from Allegany County, Maryland, bearing interest at 7.5%,
payable through August 2013. The other is a 20-year, $1,005,000 note from
the State of Maryland, bearing interest at 5.93%, payable through September
2013. At March 31, 1999, these notes had balances of $186,000 and $875,000,
respectively. Management believes the property is adequately covered by
insurance.

(2) On September 3, 1996, MI entered into a lease agreement with Fedder
Management Corporation for the Hagerstown facility. The rent commencement
date was December 1, 1996. The initial term of the lease expires on
November 30, 1999.

(3) Computer One is currently renting office space in Lima, OH, from Duff
Warehouses. The rent commencement date was December 1994. The initial term
of the lease expires in November 2000.

(4) SuiteOne is currently renting office space in Pittsburgh, PA. The rent
commencement date was January 1, 1996. The initial term of the lease
expires in April 1999.

(5) Computer Site is currently renting office space in Valley View, OH. The
rent commencement date was November 1, 1997. The initial term of the lease
expires in October 2004.

(6) CompSource is currently renting office space in West Reading, PA. The rent
commencement date was November 1, 1997. The initial term of the lease
expires October 2000.

(7) CompSource is currently renting office space in West Reading, PA. The rent
commencement date was March 29, 1996. The initial term of the lease expired
March 31, 1999.

Item 3. Legal Proceedings

The Company was not at party to any legal proceeding at March 31, 1999.

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

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1998-1999.

11
<PAGE>

Executive Officers and Key Personnel of the Registrant

(a) Executive Officers

The following sets forth information concerning the individuals
who are currently serving as executive officers of the Company:

Item 4. Executive Officers and Key Personnel of the Registrant

<TABLE>
<CAPTION>
Name Age Position
-------------------------- -------- ----------------------------
<S> <C> <C>
John A. Parsons 55 President and CEO

Russell A. Hinnershitz 55 Vice President and COO

Terry D. Frost 41 Vice President and CFO

</TABLE>

John A. Parsons, CDP, the Company's founder, has been President,
Chairman of the Board of Directors, and a director of the Company
since it was founded in 1986. He held the same positions at MII,
the Company's predecessor, from its founding in 1978. Prior to
inception of the Company, Mr. Parsons was an independent
consultant and held positions with Avon Products, Inc. and AT&T.
He holds a CDP (Certificate in Data Processing), awarded in 1977.

Russell A. Hinnershitz, Jr. is currently the Company's Vice
President and Chief Operational Officer. In February 1999, Mr.
Hinnershitz was appointed as a director of the Company. Prior to
joining the Company, Mr. Hinnershitz was President of CompSource,
Inc. and a co-founder since its inception in 1983. Prior to 1983,
Mr. Hinnershitz was the founder and President of Interactive
Information Systems, Inc., a professional services company. He
holds a CDP, awarded in 1986 and has a degree in Mathematics from
Kutztown University.

Terry D. Frost is currently the Company's Vice President, Finance
and Chief Financial Officer. Mrs. Frost joined the Company in
February 1997 and became CFO in August 1997. Prior to joining the
Company, she was Controller at First Federal Savings Bank of
Western Maryland. She is a CPA and has a Bachelor of Science
Degree from West Virginia University.

(b) Key Personnel

Michael L. Eversole is currently President of the Company's
Computer One of Ohio, Inc. subsidiary, a position he has held
since July 1998. Prior to joining the Company, Mr. Eversole held
various positions with Computer One of Ohio, Inc., including Vice
President of Operations and Vice President of Sales.

P. Edward Fisher is currently the Company's Vice President,
Technology Services, a position he has held since 1997. Mr.
Fisher joined the Company in 1978. Prior to becoming Vice
President, Technology Services, he was Vice President, Product
Development, Vice President, Special Products, and OEM sales
manager.

J. Michael Lafferty is currently the President of the Company's
SuiteOne Computer Services, Inc. subsidiary, a position he has
held since the Company's acquisition of SuiteOne Computer
Services in December 1997. He held the same position at SuiteOne
Computer Services which he founded in January 1996, before it was
acquired by the Company.

Ronald J. Scaletta is currently President of the Company's
Computer Site, Inc. subsidiary, a position he has held since July
1998. Prior to joining MI, he held senior sales and marketing
positions with MRK Technologies, Ltd. and BasicComputer
Corporation, both major network and systems integrators.

William L. Shomo has been with the Company and its predecessor
MII since 1978. He is currently Vice President, Products and
Branch Manager of the IT Services at the Frostburg location.
Prior to assuming his current position in 1995, Mr. Shomo held a
variety of positions with the Company, including Vice President,
Customer Support, and Vice President, Product Development.

12
<PAGE>

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Since the Company's initial public offering in May 1994, the Common Stock has
been traded on The NASDAQ Stock Market and the NASDAQ Small Cap Market under the
symbol MINT.

Set forth below are the high and low closing sales price for the Common Stock as
reported by NASDAQ for the periods indicated.

Fiscal Year Ended March 1999 High Low
------------------------------------------ ----------- -----------

<S> <C> <C>
First quarter (June 30, 1998) $ 2.875 $ 1.500
Second quarter (September 30, 1998) 1.563 0.500
Third quarter (December 31, 1998) 4.375 0.375
Fourth quarter (March 31, 1999) 3.000 0.813

Fiscal Year Ended March 1998 High Low
------------------------------------------ ----------- -----------

First quarter (June 30, 1997) $ 1.375 $ 1.000
Second quarter (September 30, 1997) 2.500 1.000
Third quarter (December 31, 1997) 4.000 2.250
Fourth quarter (March 31, 1998) 3.063 1.375
</TABLE>

The approximate number of record holders of the Common Stock as of March 31,
1999, was 203. The Company estimates that there are approximately 900 beneficial
holders of its Common Stock.

The Company has no present intention of paying dividends in the foreseeable
future as it intends to retain any future earnings to fund operations and the
continued development of its business. The declaration and payment of dividends
and the amount paid, if any, are subject to the discretion of the Company's
Board of Directors and will necessarily be dependent on the earnings, financial
condition, and capital requirements of the Company and any other factors the
Company's Board of Directors may consider relevant.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following is Management's discussion and analysis of the consolidated
financial condition and results of operations of the Company. It should be read
in conjunction with the audited consolidated financial statements and related
notes included elsewhere in this Form 10-KSB. When used in this discussion, the
words "estimate," "project," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected, including, but not limited to, those discussed in "Item 1 -
Description of Business - Risk Factors" and elsewhere in this Form 10-KSB and
from time to time in the Company's periodic reports. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to those forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

Overview

Micro-Integration Corp. (the "Company") has been primarily an Information
Technology ("IT") Services company concentrating on providing IT consulting,
network integration and design services, accounting and distribution information
systems, process control information systems, and Internet web site design,
programming, and hosting. Recently the Company has begun to develop an Internet
e-commerce portal and associated technologies through its Mint Internet
division. The Company also designs, manufactures, and sells a line of products
that provide communications and connectivity between personal computers ("PCs")
and IBM mainframe and midrange AS/400 computers.
In the past three years, the Company has implemented a strategy changing the
focus of its Frostburg, MD, location to IT Services and acquiring a total of
four other IT Services companies. These changes resulted in an increase in IT
Services revenue for the year ended March 31, 1999, to $10.7 million, up 17%
from $9.2 million in the prior year.

The Company has reduced expenses in its PC connectivity business to match
declining revenues in that business segment. The Company expects the shift in
business to IT Services from PC connectivity to continue for the foreseeable
future.

13
<PAGE>

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

The Company's recent operations have consumed substantial amounts of cash and
have generated net losses and an accumulated deficit. The Company believes that
it will require a cash infusion from a private placement or other equity
financing to meet its projected working capital and other cash requirements.
Absent such additional cash infusion from a private placement or other equity
financing, the Company's continued existence is in substantial doubt. The sale
of additional equity or other securities could result in additional dilution to
the Company's stockholders. There can be no assurance that such additional
financing can be obtained on acceptable terms, if at all.

As a result of these circumstances, the Company's independent accountants'
opinion on the March 31, 1999 financial statements of the Company and its
subsidiaries includes an explanatory paragraph indicating that these matters
raise a substantial doubt about the Company's ability to continue as a going
concern.

Results of Operations

Comparison of Fiscal Year 1998-1999 to Fiscal Year 1997-1998

The Company's total revenue decreased $138,000, or 1%, from $12.4 million in
fiscal year 1997-1998 to $12.2 million in fiscal year 1998-1999. IT Services
accounted for an increase of $1.5 million from $9.2 million last fiscal year to
$10.7 million in the current fiscal year, or 87% of total revenue for fiscal
year 1998-1999. The increase in IT Services revenue offset the continued decline
of PC connectivity product and royalty revenues, which decreased $1.3 million
(47%) and $160,000 (71%), respectively, from the 1997-1998 fiscal year.

Gross profit increased to 37% in fiscal year 1998-1999 from 32% in fiscal year
1997-1998. Gross profit from IT Services increased from 23% last fiscal year to
32% for the fiscal year 1998-1999. This increase is a result of an increase in
the percentage of IT revenue derived from high-margin IT services versus revenue
from lower margin IT product sales. This increase was offset by the decline in
gross profit contributed by product and royalty revenue from the PC connectivity
business which decreased by $1.0 million or 49% from $2.0 million in fiscal year
1997-1998 to $1.0 million in fiscal year 1998-1999.

Selling, general, and administrative ("SG&A") expenses increased by $900,000 or
21% to $5.4 million in fiscal year 1998-1999 from $4.5 million in fiscal year
1997-1998. As a percentage of sales, SG&A expenses were 44% of total sales in
the fiscal year 1998-1999 compared with 36% of total sales in fiscal 1997-1998.
The increase in SG&A expenses is primarily due to increases in salaries,
benefits and occupancy expenses caused by the acquisition of CompSource, Inc. on
April 1, 1998, along with an increase in consulting and travel expenses. This is
partially offset by a reduction in telephone expenses due to the sale of the
residential Internet business, which occurred in September 30, 1997, and in
accounting expenses.

Bad debt expense decreased $55,000 from $113,000 in fiscal 1997-1998 to $58,000
in fiscal 1998-1999. The Company's continuation of an aggressive collections
program has lowered the ratio of bad debt to sales.

Depreciation and amortization expenses increased by $70,000 (23%) to $370,000 in
fiscal year 1998-1999 from $300,000 in fiscal year 1997-1998. The increase in
depreciation and amortization expenses is primarily due to increases in fixed
asset depreciation and goodwill amortization caused by the acquisition of
CompSource, Inc. The Company's net other expense was $72,000 for the fiscal year
1998-1999 compared to net other income of $144,000 for the fiscal year
1997-1998. Without the gain on sale of residential Internet business of
$210,000, last fiscal year had net other expense of $66,000. The remaining
increase in fiscal year 1998-1999 net other expense is an increase in interest
expense of $11,000 offset by an increase in other income of $5,000.

In fiscal 1998-1999, the Company recorded no income tax expenses. At March 31,
1999, the Company has foreign tax credit carryforwards of approximately $84,000,
a federal net operating loss carryforward of $2,800,000 and a federal capital
loss carryforward of $11,000.

Comparison of Fiscal Year 1997-1998 to Fiscal Year 1996-1997

The Company's total revenue increased $2.7 million, or 28%, from $9.7 million in
fiscal year 1996-1997 to $12.4 million in fiscal year 1997-1998. IT Services
accounted for an increase of $5.2 million from $4.0 million last fiscal

14
<PAGE>

year to $9.2 million in the current fiscal year, or 74% of total revenue for
fiscal year 1997-1998. The increase in IT Services revenue offset the continued
decline of PC connectivity product and royalty revenues, which decreased $2.5
million (49%) and $63,000 (38%), respectively, from the 1996-1997 fiscal year.

Gross profit declined to 32% in fiscal year 1997-1998 from 48% in fiscal year
1996-1997. The PC connectivity product margin increased from 63% last year to
70% in fiscal 1997-1998. This increase was offset by the lower margins realized
in the Company's IT Services business.

The Company's cost-cutting measures reduced selling, general, and administrative
("SG&A") costs by $1.3 million or 24% during the period. Operating expenses were
reduced primarily because of the sale of the MI PLC European subsidiary.

Bad debt expense decreased $450,000 from $563,000 in fiscal 1996-1997 to
$113,000 in fiscal 1997-1998. The $450,000 decrease was offset by an increase in
the allowance for accounts receivable of $77,000 relating to the bad debt due to
MI PLC.

Depreciation and amortization expenses decreased by $135,000 (31%) to $300,000
in fiscal year 1997-1998 from $435,000 in fiscal year 1996-1997. Included is
deferred compensation amortization of $0 and $113,000 in fiscal year 1997-1998
and fiscal year 1996-1997, respectively. Amortization of deferred compensation
is the annual amortization of the value of stock options that were granted as
inducement for certain key employees to join the Company.

The Company's net other income was $144,000 for the fiscal year 1997-1998
compared to net other expense of $340,000 for the fiscal year 1996-1997.
Included in the current year's net other income is a gain on the sale of the
Company's dial-up Internet customer base of $210,000, an increase in other
income of $46,000, and the elimination of last year's non-recurring expenses of
an impairment loss of $65,000 and loss on sale of subsidiary of $173,000. This
gain is offset by an increase in interest expense of $10,000.

In fiscal 1997-1998, the Company recorded no income tax expenses. At March 31,
1998, the Company has foreign tax credit carryforwards of approximately
$131,000, a federal net operating loss carryforward of $1,500,000 and a federal
capital loss carryforward of $11,000.

Future Assessment of Recoverability and Impairment of Goodwill

In connection with its various acquisitions, the Company recorded goodwill,
which is being amortized on a straight-line basis over a period of 15 years, its
estimated period that the Company will be benefited by such goodwill. At March
31, 1999, the unamortized goodwill was $910,000 (which represented 17% of total
assets and 40% of stockholders' equity). Goodwill arises when an acquirer pays
more for a business than the fair value of the tangible and separately
measurable intangible net assets. For financial reporting purposes, goodwill and
all other intangible assets are amortized over the estimated period benefited.
The Company has determined the life for amortizing goodwill based upon several
factors, the most significant of which are the relative size, historical
financial viability and growth trends of the acquired companies and the relative
lengths of time such companies have been in existence.

Management of the Company periodically reviews the Company's carrying value and
recoverability of unamortized goodwill. If the facts and circumstances suggest
that the goodwill may be impaired, the carrying value of such goodwill will be
adjusted which will result in an immediate charge against income during the
period of the adjustment and/or the length of the remaining amortization period
may be shortened, which will result in an increase in the amount of goodwill
amortization during the period of adjustment and each period thereafter until
fully amortized. Once adjusted, there can be no assurance that there will not be
further adjustments for impairment and recoverability in future periods. Of the
various factors to be considered by management of the Company in determining
whether goodwill is impaired, the most significant will be (i) losses from
operations, (ii) loss of customers and (iii) industry developments, including
the Company's ability to maintain its market share, development of competitive
products or services and imposition of additional regulatory requirements.

Liquidity and Capital Resources

15
<PAGE>

In the fiscal year ended March 31, 1999, the Company satisfied its cash
requirements primarily through cash flow from operations, bank borrowings, and
lease financing. At March 31, 1999, the Company had $75,000 in cash.

During the fiscal year ended March 31, 1999, cash provided by investing and
financing activities of $59,000 was exceeded by cash used in operating
activities of $161,000, resulting in a $102,000 decrease in cash.

The Company's working capital decreased $800,000, from $1.2 million at March 31,
1998, to $400,000 at March 31, 1999.

The Company has three working capital credit lines with U.S. banks. One credit
line, which is payable on demand, has a $100,000 limit and had an outstanding
balance of $80,000 as of March 31, 1999. Another line, which is also payable on
demand, has a $450,000 limit and had an outstanding balance of $269,000. The
last line is for $300,000, is renewable annually, and is limited to the lesser
of $300,000 or 70% of acceptable domestic accounts receivable. This line is
secured by substantially all of the Company's assets and as of March 31, 1999,
had an outstanding balance of $300,000. The bank has informed the Company that
they do not intend to renew this line of credit.

Factors Affecting Operating Results

The Company's recent operations during the years ended March 31, 1999, 1998 and
1997 have consumed substantial amounts of cash and have generated net losses of
$957,408, $420,988 and $2,179,482, respectively, and accumulated a deficit of
$3,671,040 at March 31, 1999. The Company believes that it will require
additional cash infusions from a private placement or other equity financing to
meet the Company's projected working capital and other cash requirements in
2000. As a result of the Company's net losses, and the Company's dependence on
additional financing, the Company's independent accountants' report on the March
31, 1999 financial statements of the Company and its subsidiaries includes an
explanatory paragraph indicating that these matters raise a substantial doubt
about the Company's ability to continue as a going concern.

The Company expects to incur significant expenses in order to develop,
commercialize and implement the technology and services being developed by the
Company's Mint Internet division. The failure of these technologies and services
to be commercially viable in the marketplace for any reason could have a
material adverse effect on the Company's business, financial condition and
results of operations, as could any significant delay in the availability of the
technologies or services.

Since the Company recognizes IT services revenue only when personnel are engaged
on client projects, the relative utilization of such personnel directly affects
the Company's operating results. Variations in utilization of personnel may
materially affect the Company's IT services business or failure to obtain
additional engagements in its IT services business could have a material adverse
effect on the Company's business, financial condition and results of operations.

The Company's acquisitions have placed, and are expected to continue to place, a
significant strain on its managerial and operational resources. To manage these
acquired businesses and others that may be acquired in the future, the Company
must continue to implement and improve its operational, management and financial
systems and to train and manage its employee base. As part of its business
strategy, the Company may seek out additional business combinations with other
Internet or IT Services companies. To the extent that any of the companies that
the Company acquires fail, the Company could be required to write off the amount
of the investment.

Year 2000 Compliance

The Company has commenced a process to assure Year 2000 compliance of all
hardware, software, and ancillary equipment that are date dependent. The process
involves four phases:

16
<PAGE>

Item 7. Financial Statements

The information required by this Item 7 is set forth on pages F-1 through F-20.

Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

None.

17
<PAGE>

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act

Directors

The information required by Item 9 relating to directors of the Company is
presented under the caption "Nomination and Election of Directors" of the
Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders
("Proxy Statement") to be filed with the Securities and Exchange Commission (the
"Commission") not later than 120 days after the end of the fiscal year covered
by this Form 10-KSB, and is hereby incorporated by reference herein.

Executive Officers and Key Personnel

See Part I, Executive Officers and Key Personnel of the Registrant.

Section 16(a) Beneficial Ownership Reporting Compliance

The information required by this Item is presented under the caption "Other
Matters - Compliance with Section 16(a) of the Exchange Act" of the Company's
definitive Proxy Statement to be filed with the Commission not later than 120
days after the end of the fiscal year covered by this Form 10-KSB, and is hereby
incorporated by reference herein.

Item 10. Executive Compensation

The information required by Item 10 is presented under the caption "Section
16(A) Beneficial Ownership Reporting Compliance" of the Company's definitive
Proxy Statement to be filed with the Commission not later than 120 days after
the end of the fiscal year covered by this Form 10-KSB, and is hereby
incorporated by reference herein.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The information required by Item 11 is presented under the caption "Security
Ownership of Certain Beneficial Owners and Management" of the Company's
definitive Proxy Statement to be filed with the Commission not later than 120
days after the end of the fiscal year covered by this Form 10-KSB, and is hereby
incorporated by reference herein.

Item 12. Certain Relationships and Related Transactions

The information required by Item 12 is presented under the caption "Certain
Transactions" of the Company's definitive Proxy Statement to be filed with the
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-KSB, and is hereby incorporated by reference herein.

18
<PAGE>

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits.

The Exhibits listed below are filed or incorporated by reference
herein.

EXHIBIT INDEX
-------------

Exhibit Description of Document
Number -----------------------
- ------

3(ii).1 Amended and Restated Bylaws of Micro-Integration Corp., filed as
Exhibit 3(ii).1 to the Company's Registration Statement on Form
SB-2, Registration No. 33-72752, is hereby incorporated by
reference.

4.1 Article IV of the Restated Certificate of Incorporation of
Micro-Integration Corp., filed as Exhibit 4.1 to the Company's
Registration Statement on Form SB-2, Registration No. 33-72752,
is hereby incorporated by reference.

4.2 Form of Common Stock Certificate, filed as Exhibit 4.2 to
Amendment No. 1 to the Company's Registration Statement on Form
SB-2, Registration No. 33-72752, is hereby incorporated by
reference.

4.3 Form of Underwriter's Warrant, filed as Exhibit 4.3 to Amendment
No. 1 to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.

10.1 Micro-Integration Corp. Employee Savings and Stock Ownership
Plan, filed as Exhibit 10.1 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.

10.2 1994 Stock Plan of Micro-Integration Corp., filed as Exhibit 10.2
to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.

10.3 Agreement between Micro-Integration Corp., Micro-Integration
Europe n.v., and Gabor Weiner entered into September 28, 1990,
filed as Exhibit 10.3 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby incorporated by
reference.

10.4 Agreement between Micro-Integration Corp. and Gabor Weiner
entered into on September 28, 1990, filed as Exhibit 10.4 to the
Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.

10.5 Amendment to Agreements between Micro-Integration Corp.,
Micro-Integration Europe n.v., and Gabor Weiner entered into on
March 21, 1994, filed as Exhibit 10.5 to the Company's
Registration Statement on Form SB-2, Registration No. 33-72752,
is hereby incorporated by reference.

10.6 Contract of Sale made on August 23, 1995, between CCSAC Federal
Credit Union and Micro-Integration Corp., filed as Exhibit 10.6
to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.

19
<PAGE>

10.7 Agreement made as of May 20, 1993, between Micro-Integration
Corp. and Lashley Construction, Inc., filed as Exhibit 10.7 to
the Company's Registration Statement on Form SB-2, Registration
No. 33-72752, is hereby incorporated by reference.

10.8 Contract of Sale made on September 16, 1992, between
Micro-Integration Corp., Cumberland Allegany County Industrial
Foundation, and the Board of County Commissioners of Allegany
County, Maryland, filed as Exhibit 10.8 to the Company's
Registration Statement on Form SB-2, Registration No. 33-72752,
is hereby incorporated by reference.

10.9 Promissory Note dated September 24, 1993, payable by
Micro-Integration Corp. to the Board of County Commissioners of
Allegany County, Maryland or order, filed as Exhibit 10.9 to the
Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.

10.10 Promissory Note dated September 24, 1993, payable by
Micro-Integration Corp. to the order of the Board of County
Commissioners of Allegany County, Maryland, filed as Exhibit
10.10 to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.

10.11 Revolving Note Agreement dated May 17, 1993, by and between
Micro-Integration Corp. and The First National Bank of Maryland,
filed as Exhibit 10.11 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby incorporated by
reference.

10.12 Business Promissory Note dated September 22, 1993, payable by
Micro-Integration Corp. to the order of The First National Bank
of Maryland, filed as Exhibit 10.12 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.

10.13 Agreement and Plan of Reorganization made in April 1986 by and
among Micro-Integration Corp., Micro-Integration Inc., John A.
Parsons, i.e. Systems, Inc., and the Stockholders named therein,
filed as Exhibit 10.13 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby incorporated by
reference.

10.14 Indemnification Agreements between Micro-Integration Corp. and
its directors and officers, filed as Exhibit 10.14 to the
Company's Form 10-KSB for the year ended March 31, 1996, is
hereby incorporated by reference.

21.1 Subsidiaries of Micro-Integration Corp.

23.1 Consent of Independent Accountants.

(b) Reports on Form 8-K.

The Company did not file any reports on Form 8-K during the three
months ended March 31, 1999.

21
<PAGE>

SIGNATURES

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

Dated July 14, 1999 REGISTRANT:

Micro-Integration Corp.

By: /s/ John A. Parsons
-----------------------
John A. Parsons
President, Chairman of the Board,
and Chief Executive Officer

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

By: /s/ John A. Parsons July 14, 1999
---------------------------------------------------

John A. Parsons
President, Chairman of the Board,
and Chief Executive Officer
(principal executive officer)

By: /s/ Terry D. Frost July 14, 1999
---------------------------------------------------

Terry D. Frost
Chief Financial Officer

By: /s/ Maxwell F. Eveleth, Jr. July 14, 1999
---------------------------------------------------

Maxwell F. Eveleth, Jr.
Director

By: /s/ Russell A. Hinnershitz, Jr. July 14, 1999
---------------------------------------------------

Russell A. Hinnershitz, Jr.
Director

By: /s/ Wayne M. Lee July 14, 1999
---------------------------------------------------

Wayne M. Lee
Director

A copy of the Company's Annual Report on Form 10-KBS for the year ended March
31, 1999, with exhibits, may be obtained by any stockholder of the Company,
without charge, by writing to: Micro-Integration Corp., Attention: Sharon L.
VanNosdeln, One Science Park, Frostburg, MD 21532.

<PAGE>

Annual Report on Form 10-KSB

Financial Statements

Year Ended March 31, 1999

Micro-Integration Corp.

Frostburg, MD

<PAGE>

Micro-Integration Corp. and Subsidiaries
Index to Consolidated Financial Statements

Years Ended March 31, 1999, 1998, and 1997

Report of Independent Auditors..............................................F-2

Audited Consolidated Financial Statements:
Consolidated Balance Sheets.............................................F-4
Consolidated Statements of Operations...................................F-6
Consolidated Statements of Stockholders' Equity.........................F-7
Consolidated Statements of Cash Flows...................................F-8

Notes to Consolidated Financial Statements..................................F-9

<PAGE>

Report of Independent Auditors

The Board of Directors and Stockholders
Micro-Integration Corp.

We have audited the accompanying consolidated balance sheets of
Micro-Integration Corp. and subsidiaries as of March 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended March 31, 1999. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Micro-Integration Corp. and subsidiaries at March 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As further discussed in Note 2 to
the consolidated financial statements, the Company has incurred recurring losses
from operations and is currently not in compliance with certain covenants of its
Loan agreements with banks. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans in regards to these
matters are also described in Note 2. The 1999 consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

/s/ Ernst & Young LLP

Baltimore, Maryland
April 30, 1999

F-2
<PAGE>

This page intentionally left blank.

F-3
<PAGE>

Micro-Integration Corp. and Subsidiaries
Consolidated Balance Sheets

<TABLE>
<CAPTION>
March 31
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash $ 74,543 $ 176,964
Available-for-sale securities -- 100,000
Accounts receivables, less allowance of $209,317
and $153,377 in 1999 and 1998, respectively 1,538,959 1,650,884
Note receivable 18,323 74,880
Inventory 619,735 551,565
Prepaid expenses 82,535 101,571
----------- -----------

Total current assets 2,334,095 2,655,864
----------- -----------

Property, plant, and equipment:
Land 92,962 92,962
Buildings 1,474,333 1,461,357
Equipment 1,885,283 1,418,918
Automobiles 115,778 54,955
Property held for sale -- 76,848
----------- -----------
3,568,356 3,105,040
Less accumulated depreciation (1,748,564) (1,209,082)
----------- -----------
1,819,792 1,895,958

Cash surrender value of life insurance 229,471 254,704

Goodwill, net of accumulated amortization of $88,760
and $28,137 in 1999 and 1998, respectively 820,466 334,959

Other noncurrent assets 122,812 133,973
----------- -----------

$ 5,326,636 $ 5,275,458
=========== ===========
</TABLE>

F-4
<PAGE>

Micro-Integration Corp. and Subsidiaries
Consolidated Balance Sheets

<TABLE>
<CAPTION>
March 31
1999 1998
----------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable $ 727,002 $ 818,121
Accrued expenses 341,683 176,199
Demand notes payable 648,903 372,542
Current portion of long-term debt 183,549 130,423
----------- -----------

Total current liabilities 1,901,137 1,497,285
----------- -----------

Long-term debt, less current portion 1,131,221 1,162,987

Commitment and contingencies -- --

Stockholders' equity
Preferred stock - $.01 par value; authorized
4,000,000 shares; none issued and outstanding -- --
Common stock - $.01 par value; authorized
12,000,000 shares; issued 3,031,063 and
2,667,349 in 1999 and 1998, respectively;
outstanding 2,881,525 and 2,517,811 in
1999 and 1998, respectively 30,311 26,673
Additional capital 6,315,901 5,683,039
Accumulated deficit (3,671,040) (2,713,632)
----------- -----------

2,675,172 2,996,080
Less 149,538 shares held in treasury 380,894 380,894
----------- -----------

2,294,278 2,615,186
----------- -----------

$ 5,326,636 $ 5,275,458
=========== ===========
</TABLE>

See accompanying notes.

F-5
<PAGE>

Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Operations

<TABLE>
<CAPTION>
Year ended March 31
1999 1998 1997
------------- --------------------- ------------
<S> <C> <C> <C>
Revenues $ 12,213,841 $ 12,352,132 $ 9,659,861

Cost of goods sold 7,673,876 8,420,397 5,056,754
------------ ------------ ------------

Gross profit 4,539,965 3,931,735 4,603,107

Operating expenses
Selling, general and administrative 4,956,347 4,083,702 5,393,222
Bad debt 98,652 112,656 562,786
Depreciation and amortization 370,339 299,967 434,863
------------ ------------ ------------

5,425,338 4,496,325 6,390,871

Operating loss (885,373) (564,590) (1,787,764)

Other income (expense)
Interest expense (152,541) (141,435) (131,857)
Other income 80,506 75,230 29,269
Gain on sale of Internet customer base -- 209,807 --
Impairment loss -- -- (65,203)
Loss on sale of subsidiary -- -- (172,768)
------------ ------------ ------------
(72,035) 143,602 (340,559)
------------ ------------ ------------

Loss before income taxes (957,408) (420,988) (2,128,323)

Income tax expense -- -- 51,159
------------ ------------ ------------

Net loss $ (957,408) $ (420,988) $ (2,179,482)
============ ============ ============

Basic and diluted loss per common share $ (0.33) $ (0.17) $ (0.89)
============ ============ ============
</TABLE>

See accompanying notes.

F-6
<PAGE>

Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
Equity
adjustment
Common from
Common stock foreign
stock $0.01 par Additional Accumulated currency Deferred Treasury Total
shares value capital deficit translation compensation stock equity
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 2,515,427 $ 25,155 $ 5,404,795 $ (113,162) $ (176,376) $ (99,048) $ (355,894) $ 4,685,470
----------------------------------------------------------------------------------------------------------
Aggregate translation
adjustment 176,376 176,376

Stock options exercised 32,212 322 322

Stock issuance 93,838 938 198,468 199,406

Amortization of deferred
compensation 99,048 99,048

Repurchase of common
stock (25,000) (25,000)

Net loss for 1997 (2,179,482) (2,179,482)

----------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 2,641,477 26,415 5,603,263 (2,292,644) -- -- (380,894) 2,956,140
----------------------------------------------------------------------------------------------------------

Stock issuance 25,872 258 79,776 80,034

Net loss for 1998 (420,988) (420,988)

----------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 2,667,349 26,673 5,683,039 (2,713,632) -- -- (380,894) 2,615,186
----------------------------------------------------------------------------------------------------------

Stock issuance 363,714 3,638 632,862 636,500

Net loss for 1999 (957,408) (957,408)

==========================================================================================================
Balance, March 31, 1999 3,031,063 $ 30,311 $ 6,315,901 $ (3,671,040) $ -- $ -- $ (380,894) $ 2,294,278
==========================================================================================================
</TABLE>

See accompanying notes.

F-7
<PAGE>

Micro-Integration Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended March 31
1999 1998 1997
------------ ------------------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (957,408) $ (420,988) $(2,179,482)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 370,339 299,967 578,706
Loss on sale of subsidiary -- -- 172,768
(Gain) loss on disposal of assets (4,524) (24,847) 7,558
Write-off of capitalized costs -- 411,839 --
Gain from sale of Internet customer base -- (209,807) --
Increase in cash surrender value of life insurance (20,513) (30,522) (1,035)
Impairment loss -- -- 65,203
Deferred income taxes -- -- (19,502)
Other -- 7,962 (58,133)
Change in operating assets and liabilities:
Accounts receivable 522,293 223,601 (396,075)
Note receivable 56,557 (4,880) --
Inventory 87,986 44,991 440,339
Prepaid expense 54,826 (4,356) (22,233)
Income taxes receivable -- 46,141 2,349
Accounts payable (253,367) (117,270) 513,815
Accrued expenses (17,487) (298,276) 314,387
----------- ----------- -----------
Net cash used in operating activities (161,298) (76,445) (581,335)

Cash flows from investing activities
Acquisition of property, plant, and equipment (256,056) (89,802) (299,927)
Decrease (increase) in other noncurrent assets 48,865 (16,748) (199,585)
Purchase of available-for-sale securities -- -- (6,800,000)
Proceeds from sales of available-for-sale securities 100,000 -- 7,700,000
Cash received in acquisition of subsidiaries 4,574 242 37,432
Proceeds from sale of Internet customber base -- 205,400 --
Proceeds from sale of fixed assets 91,826 35,380 14,961
----------- ----------- -----------
Net cash (used in) provided by investing activities (10,791) 134,472 452,881

Cash flows from financing activities
Issuance of notes payable and long-term debt 235,794 -- 387,183
Repayments of notes payable, long-term debt, and
capital lease obligations (166,126) (251,661) (341,390)
----------- ----------- -----------
Net cash provided by (used in) financing activities 69,668 (251,661) 45,793

Effect of exchange rate changes on cash -- -- (7,615)
----------- ----------- -----------
Decrease in cash (102,421) (193,634) (90,276)
Cash at beginning of year 176,964 370,598 460,874
----------- ----------- -----------
Cash at end of year $ 74,543 $ 176,964 $ 370,598
=========== =========== ===========

Schedule of noncash investing activities:

Due to the acquisitions of CompSource during the year ending March 31, 1999, SuiteOne during the year ending
March 31, 1998, and Computer Site and Computer One during the year ending March 31, 1997, the Company
had the following noncash investing activities:

Assets acquired, excluding cash $ (659,068) $ (36,983) $ (666,278)
Liabilities assumed 573,272 39,280 785,023
Goodwill recorded (546,130) (82,055) (281,041)
Common stock issued 636,500 80,000 199,728
--------- --------- ---------
Cash acquired in acquisition $ 4,574 $ 242 $ 37,432
========= ========= =========
</TABLE>

See accompanying notes.

F-8
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

1. Nature of Operations and Significant Accounting Policies

Nature of Operations

The principal business activity of Micro-Integration Corp. and subsidiaries (the
"Company") is the development, design, marketing, selling, and support of
computer and networking products. Services provided include consulting, network
integration and design services. The Company sells computers and communications
products purchased from others and designs, manufactures, and sells its own
products that provide communications and connectivity between personal computers
and IBM mainframe and midrange AS/400 computers.

Principles of Consolidation

The consolidated financial statements include the accounts of Micro-Integration
Corp. ("MI") and its subsidiaries, Computer Site, Inc. ("Computer Site"),
Computer One of Ohio, Inc. ("Computer One"), SuiteOne Computer Services, Inc.
("SuiteOne"), and CompSource, Inc. ("CompSource"). The Company consolidates all
subsidiaries in which it has a controlling interest (greater than 50% owned).
All significant intercompany accounts have been eliminated in consolidation.

Reclassification

Certain amounts in the accompanying 1998 financial statements have been
reclassified to conform to the presentation used in 1999.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized on a straight-line method over the shorter
of the lease term or estimated useful life of the asset.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. During fiscal year 1997, the Company evaluated the ongoing value of
certain computer equipment. The amount of the impairment loss was determined by
evaluating the likely sales proceeds from the disposition of the assets as
compared to their book value. Based on this evaluation, the Company determined
that the equipment was impaired and adjusted it to its fair value.

Intangible Assets

Goodwill consists of the cost in excess of fair value of the net assets of
entities acquired in purchase transactions, and is amortized on a straight-line
basis over the expected periods of benefit, which approximates 15 years. On a
periodic basis, the Company evaluates goodwill for impairment. In completing
this evaluation, the Company compares its best estimates of undiscounted future
cash flows with the carrying value of goodwill.

F-9
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

1. Nature of Operations and Significant Accounting Policies (Continued)

Intangible Assets (Continued)

The Company capitalizes costs associated with new software development and
enhancements in accordance with the guidelines of Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed. Capitalization of software
costs begins upon the establishment of technological feasibility and ceases when
the software is available for general release to customers. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software costs require considerable judgment by management with
respect to certain external factors, including but not limited to, changes in
software and hardware technologies, anticipated future gross revenues, and
estimated economic life. The Company capitalized $0, $219,000, and $193,000 for
1999, 1998, and 1997, respectively. Amortization of capitalized software
development costs is provided on a product-by-product basis and is based on unit
sales not to exceed a period of three years. The amortization charged to cost of
sales was $43,000, $78,000, and $129,000 for 1999, 1998, and 1997, respectively.

Revenue Recognition

Revenue is recognized from the sale of goods, including software products, upon
delivery net of product returns and exchanges. Revenue is recognized from
licensing arrangements upon the establishment of the licensing agreement and
royalty arrangements upon delivery of products to third parties.

In December 1997, the Accounting Standards Executive Committee (AcSEC") issued
Statement of Position (SOP) 97-2, Software Revenue Recognition. SOP 97-2
provides revised and expanded guidance on when revenue should be recognized and
in what amounts for licensing, selling, leasing, or otherwise marketing computer
software. The adoption of SOP 97-2 had no material impact on the Company's
results of operations in 1999.

Research and Development

Research and development ("R & D") costs approximating $120,000, $78,000, and
$201,000 were charged to expense for 1999, 1998, and 1997, respectively. R & D
costs are included in selling, general, and administrative expenses.

Stock Based Compensation

The Company records compensation expense for all stock-based compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25, Accounting
for Stock Issued to Employees ("APB No. 25"). Under APB No. 25, if the exercise
price of the Company's employee stock options equal the estimated fair value of
the underlying stock on the grant date, no compensation expense is generally
recognized. Financial Accounting Standards Board Statement No. 123, Accounting
for Stock-based Compensation ("Statement 123") encourages companies to recognize
expense for stock-based awards based on their estimated fair value on the grant
date. Statement 123 requires disclosure of pro forma income and earnings per
share data in the Notes to Consolidated Financial Statements if the new fair
value method is not adopted. The Company has supplementally disclosed in Note 12
the required pro forma information as if the fair-value method had been adopted.

Fair Value of Financial Instruments

The carrying amounts of cash, marketable securities, accounts receivable, notes
receivable, accounts payable, and accrued expenses approximate their fair
values.

F-10
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

1. Nature of Operations and Significant Accounting Policies (Continued)

Income Taxes

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

2. Going Concern

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements for the years ended March 31, 1999, 1998, and 1997, the
Company incurred losses of $957,408, $420,988, and $2,179,482, respectively, and
is currently not in compliance with certain covenants of its loan agreements
with banks. These conditions raise substantial doubt about its ability to
continue as a going concern.

Management believes that the Company will generate sufficient revenues from the
sale of IT Services and decrease operating expenses, including salaries and
benefits, in order to finance its operations. In addition, management is
investigating sources of additional capital from both third parties and key
company officers which, in management's opinion, would provide additional cash
flows for operations. However, there can be no assurance that the Company will
be successful in achieving its plans or obtaining additional financing.

Due to the uncertainty regarding management's ability to achieve its plans, no
assurance can be given as to the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amount and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.

3. Loss per Share

The following table sets forth the computation of basic and diluted earnings
(loss) per share:

<TABLE>
<CAPTION>
Year ended March 31
1999 1998 1997
------------- -------------- -----------
<S> <C> <C> <C>
Numerator used in basic and
diluted loss per share:
Net loss $ (957,408) $ (420,988) $(2,179,482)
============= ============== ===========

Denominator:
Weighted average number of
shares of common stock
outstanding during the period 2,876,077 2,501,395 2,437,556
============= ============== ===========

Basic and diluted loss per common share $ (0.33) $ (0.17) $ (0.89)
============= ============== ===========
</TABLE>

Basic loss per common share is based upon the average number of shares of common
stock outstanding during each period. Dilutive loss per common share is equal to
basic loss per common share because if potentially dilutive securities were
included in the computation, the result would be anti-dilutive. These
potentially dilutive securities consist of stock options, as described in Note
12.

F-11
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

4. Supplemental Disclosure of Cash Flow Information

The Company paid interest of $153,000, $141,000, and $132,000 for 1999, 1998 and
1997, respectively. Income taxes of $24,000 were paid during fiscal year 1997.
No income taxes were paid in fiscal years 1999 and 1998.

5. Business Acquisitions

Effective April 1, 1998, the Company acquired all of the outstanding stock of
CompSource, Inc. in exchange for 363,714 shares of common stock valued at
$636,500. CompSource is an eastern-and central-Pennsylvania area business
networking and software solutions provider. The acquisition was accounted for
using the purchase method of accounting. At the acquisition date, goodwill of
$546,000 was recorded which is being amortized over its estimated useful life of
15 years. The results of operations of CompSource are included in the
accompanying consolidated statements of operations for the period from April 1,
1998 through March 31, 1999.

Pro Forma Information for 1999 Acquisition

The following summarizes the unaudited pro forma consolidated results of
operations for 1999 and 1998 assuming the CompSource, Inc. acquisition had
occurred on April 1, 1997, after giving affect to certain adjustments, including
amortization of intangible assets, decrease in owners compensation and related
income tax effects. In connection with the acquisition, the Company entered into
an employment agreement with the executive officer of the company. The future
amount of compensation paid to this officer, who has substantially the same
duties and responsibilities, is less than amounts paid in periods prior to the
acquisition.

Year ended March 31
1999 1998
------------------ ----------------

Revenues $ 12,213,841 $ 15,773,244
Net loss (957,408) (441,610)
Net income per common share (0.33) (0.15)

The pro forma consolidated results of operations are not necessarily indicative
of the results that would have occurred had the transaction been consummated as
of the beginning of the year presented or of future operations of the Company.

6. Disposal of Foreign Operations

On March 31, 1997, the Company disposed of 80% of the net assets of its foreign
subsidiary MI PLC and incurred a disposition loss of $173,000, which was
recognized in fiscal 1997. MI's remaining investment in MI PLC is $44,000. MI
uses the cost method to account for its investment in MI PLC.

7. Investments

Available-for-sale securities are stated at fair value, with the unrealized
gains and losses, net of tax, reported as other comprehensive income. Realized
gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest on
securities classified as available-for-sale is included in investment income.
Available-for-sale securities include obligations of state municipalities and
are stated at fair market value of $100,000 at March 31, 1998. There were no
unrealized gains/losses with respect to these securities during fiscal year 1999
nor 1998.

F-12
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

8. Inventory

Inventory consisted of the following:

March 31
1999 1998
------------- -------------

Parts $ 66,210 $ 156,412

Finished goods 553,525 395,153
------------- -------------

$ 619,735 $ 551,565
============= =============

9. Notes Payable and Debt

Short Term Debt

The Company has a $300,000 line of credit with a U.S. bank, secured by accounts
receivable and inventory. Outstanding borrowings are payable on demand and bear
interest at the bank's prime lending rate plus 3/4% (8.5% at March 31, 1999).
There was $300,000 and $260,000 outstanding on this line of credit as of March
31, 1999, and 1998, respectively.

The provisions of the loan agreement related to this line of credit require the
Company to maintain minimum cash flows to debt service coverage ratios. As a
result of operating losses, the Company was in violation of the minimum cash
flow to debt service coverage covenant at March 31, 1999.

The Company also has two other lines of credit with U.S. banks. One line for
$100,000 is payable on demand and bears interest at the bank's prime lending
rate plus 1.5% (8.75% at March 31, 1999). There was $80,000 and $100,000
outstanding on this line of credit as of March 31, 1999, and 1998, respectively.
The other line for $450,000 is payable on demand, has a fixed interest rate of
7.75%, and had an outstanding balance of $269,000 as of March 31, 1999. The bank
has informed the Company that they intend to call this credit line.

F-13
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

9. Notes Payable and Debt (Continued)

Long-Term Debt

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
March 31
1999 1998
-------------- ---------------
<S> <C> <C>
Note payable in monthly installments of $1,765 including principal
and interest at 7.5% through August 2013, collateralized by real
property. Interest-only payments paid through March 31, 1994 $ 186,275 $ 193,197

Note payable in quarterly installments of $22,132 including principal
and interest at 5.93% commencing December 1994 through
September 2013, collateralized by real property. Interest-only payments
from date of first proceeds payment through initial 15 months 875,480 893,386

Note payable in monthly principal installments of $6,667 plus interest
at 3/4% above prime through September 1998, collateralized by assets
of the business -- 38,233

Note payable in monthly installments of $1,030 including principal
and interest at 8.5% commencing October 1998 through September
2002, collateralized by assets of the business 36,974 --

Note payable in monthly installments of $1,368 plus interest at 8.5%
commencing January 1995 through January 2001, collateralized by
assets of the business 47,393 51,450

Note payable in monthly installments of $623 including principal
and interest at 6.0% commencing January 1995 through December 2000 21,140 23,691

Note payable in monthly installments of $1,190 plus interest at prime
plus 1% commencing November 1994 through September 2002,
collateralized by assets of the business 36,600 50,886

Note payable in monthly installments of $557 including principal and
interest at 9.0% commencing January 1997 through December 2001,
collateralized by assets of the business 10,793 16,242

Note payable in monthly installments of $3,333 plus interest at 7.75%
commencing January 1999 through January 2001, collateralized by
assets of the business 76,981 --
---------- ----------

$1,291,636 $1,267,085
========== ==========
</TABLE>

The fair value of the Company's debt was determined using quoted market prices
and is $1,748,000 at March 31, 1999.

F-14
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

9. Notes Payable and Debt (Continued)

Combined maturities for long-term debt by year and in the aggregate consisted of
the following:

March 31
--------------

2000 $ 170,306
2001 133,656
2002 85,683
2003 60,977
2004 58,846
Thereafter 782,168
--------------

$1,291,636
==============

During the years ended March 31, 1999, 1998, and 1997, the Company paid interest
related to these borrowings of $80,000, $91,000, and $92,000, respectively.

Additionally, the Company leases equipment under capital leases, all of which
expire by the year 2003. The cost of the equipment was $37,812, and the
accumulated amortization was $14,678 at March 31, 1999. Future minimum lease
payments under these capital leases are $15,123, $8,814, $2,506, and $1,359 in
the years 2000, 2001, 2002, and 2003, respectively.

10. Lease Commitments

The Company leases office space for its subsidiaries Computer Site, Computer
One, SuiteOne and CompSource. These leases expire in various months through
October 2004. The Company leases office space in Hagerstown, MD. This lease
expires in November 1999. The annual expense associated with the Hagerstown
lease is $9,000. The Company leases equipment and automobiles under the terms of
various capital lease and operating lease agreements, all of which expire by the
year 2006.

Future minimum payments under non-cancelable operating leases consisted of the
following:

March 31
--------------

2000 $ 147,191
2001 117,550
2002 85,500
2003 88,625
2004 93,000
Thereafter 54,250
--------------

$ 586,116
==============

Rent expense related to the operating leases was $240,000, $183,000, and
$152,000 for the years ended March 31, 1999, 1998, and 1997, respectively.
Interest expense recognized and paid on the capital lease obligations was
$1,900, $1,000, and $1,000 during the years ended March 31, 1999, 1998, and
1997, respectively.

F-15
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

11. Income Taxes

At March 31, 1999, the Company had federal net operating loss carryforwards of
approximately $2,800,000 which will begin to expire in 2011. Income tax
regulations contain certain provisions which may limit the net operating loss
carryforwards available to be used in any given year if certain events occur,
including changes in ownership interest.

Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>

March 31
1999 1998
---------------- --------------

<S> <C> <C>
Net operating loss carryforward $ 1,241,605 $ 883,620
Allowance for doubtful accounts 125,831 128,260
Foreign tax carryforward 83,841 131,256
Research and development credit carryforward 39,046 37,476
Intangible assets 20,245 21,068
Other 45,565 34,393
----------- -----------

Total deferred tax assets 1,556,133 1,236,073

Investment 64,247 64,400
Research and development expense 2,200 26,279
Other 6,923 6,870
----------- -----------

Total deferred tax liabilities 73,370 97,549
----------- -----------

Net future income tax benefit 1,482,763 1,138,524
Valuation allowance for deferred tax assets (1,482,763) (1,138,524)
----------- -----------

$ -- $ --
=========== ===========

</TABLE>

At March 31, 1999, the Company had foreign tax credit carryforwards of
approximately $84,000 which expire in the years 2000 to 2002.

At March 31, 1999, the Company had federal capital loss carryforwards of
approximately $11,000 which expire in the year 2000. The state capital loss
carryforwards vary by states.

The reasons for the difference between total tax expense and tax computed by
applying the U.S. Federal income tax rates to earnings before income taxes for
the years ended March 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ------------
<S> <C> <C> <C>
U.S. Federal statutory rate -34.0% -34.0% -34.0%
State income tax, net of federal income tax benefit -2.8% -2.7% 0.1%
Non-deductible expenses, net of non-taxable income 2.3% 2.8% 2.0%
Change in valuation allowance 35.9% 31.4% 33.9%
Other -1.4% 2.4% -2.1%
--------- ----------- ------------

0.0% 0.0% 0.0%
========= =========== ============

</TABLE>

F-16
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

12. Stock Options

The Company grants certain options under the 1994 Stock Plan. This plan provides
for the granting of qualified and non-qualified stock options to key employees
and non-qualified stock options to non-employee directors to purchase an
aggregate of up to 300,000 shares of common stock. Vesting provisions for
individual awards are at the discretion of the Compensation Committee.

The following table summarizes the option activity for the three-year period
ended March 31, 1999:

Common Weighted-Average
Stock Exercise Price
-------- ----------------

Balance at March 31, 1996 110,848 $3.14

1997 Activity
- -------------
Granted 3,000 1.94

Exercised (32,212) 0.01

Forfeited (38,048) 3.87
-------

Balance at March 31, 1997 43,588 $5.00

1998 Activity
- -------------
Granted 3,000 1.69

Exercised -- --

Forfeited (15,588) 5.82
-------
Balance at March 31, 1998 31,000 $4.27

1999
- ----
Granted 136,333 1.96

Exercised -- --

Forfeited (26,000) 1.75
------- -------
Balance at March 31, 1999 141,333 $2.50

All options granted have an exercise price equal to or greater than the fair
value of the Company's common stock on the grant date. Of the outstanding
options at March 31, 1999, 1998, and 1997, 87,611, 24,250, and 23,226,
respectively, were exercisable. Exercise prices for options outstanding as of
March 31, 1999, ranged from $7.00 to $1.406. The weighted-average remaining
contractual life of those options is 6 years. The weighted-average fair value of
options granted during the years ended March 31, 1999, 1998, and 1997 is $1.96,
$1.69, and $1.94, respectively.

Pro Forma Disclosures Required by Statement 123

To determine the pro forma data required by Statement 123 for 1999 and 1998, the
Company used the Black-Scholes option pricing model to measure the fair value of
options at the date of grant. Options valued using the Black-Scholes option
pricing model assumed the following for 1999 and 1998, respectively: risk-free
interest rate of 5.5%; dividend yields of 0%; volatility factors of 1.1 and .78;
and a weighted-average expected life of the options of 5.4 years.

F-17
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

12. Stock Options (Continued)

The Black-Scholes option pricing model and other models were developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net loss is $1,022,459 and $425,256 for the years ended March 31, 1999,
and 1998, respectively. Pro forma loss per common share and assuming dilution is
$0.35 and $0.17 for the years ended March 31, 1999, and 1998, respectively.

13. Segment Reporting

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 supercedes
Financial Accounting Standards Board Statement No. 14, Financial Reporting for
Segments of a Business Enterprise, and establishes new standards for the way
that public business enterprises report selected information about operating
segments in annual and interim financial statements. It also established
standards for the related disclosures about products and services, geographical
areas, and major customers. Statement 131 is effective for financial statements
for fiscal years beginning after December 15, 1997. The Company adopted
Statement 131 in 1999, and accordingly, the disclosures for all periods have
been presented to conform to the Statement 131 requirements.

The Company provides services through three distinct operating segments. The PC
Connectivity segment involves AS/400 Connectivity products that allow PC users
to access applications and data on IBM midrange computers. The IT Services
segment provides customers with a broad selection of computer and software
products and services, as well as, computer and network system design and
integration, training and other support type services. The Other Products and
Services segment includes various Internet services.

The Company evaluates performance and allocated resources based on operating
income before depreciation and amortization, general and administrative expenses
and income taxes. The Company does not allocate assets to its reportable
segments as assets are not specifically attributable to any particular segment.
Accordingly, asset information by reportable segment is not presented. The
accounting policies used by the reportable segments are the same as those used
by the Company and described in Note 1 to the consolidated financial statements.
There are no significant intercompany sales or transfers.

F-18
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

13. Segment Reporting (Continued)

The Company's reportable segments are business units that offer distinct
services. The segments are managed separately by division presidents who are
most familiar with the segment operations. The following table sets forth
information on the Company's reportable segments:

<TABLE>
<CAPTION>
Year Ended March 31, 1999
------------------------------------------------------------------
PC IT Other Product
Connectivity Services and Services Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,494,954 $10,665,295 $ 53,592 $12,213,841
Cost of goods sold 469,352 7,201,204 3,320 7,673,876
----------- ----------- ----------- -----------
Segment profit $ 1,025,602 $ 3,464,091 $ 50,272 $ 4,539,965

<CAPTION>
Year Ended March 31, 1998
------------------------------------------------------------------
PC IT Other Product
Connectivity Services and Services Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,906,424 $ 9,151,539 $ 294,169 $12,352,132
Cost of goods sold 1,277,509 7,109,232 33,656 8,420,397
----------- ----------- ----------- -----------
Segment profit $ 1,628,915 $ 2,042,307 $ 260,513 $ 3,931,735

<CAPTION>
Year Ended March 31, 1997
------------------------------------------------------------------
PC IT Other Product
Connectivity Services and Services Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $5,390,995 $3,987,576 $ 281,290 $9,659,861
Cost of goods sold 1,982,489 3,002,156 72,109 5,056,754
---------- ---------- ---------- ----------
Segment profit $3,408,506 $ 985,420 $ 209,181 $4,603,107
</TABLE>

A reconciliation of segment profit for all segments to loss before income taxes
is as follows:

1999 1998 1997
----------- ----------- -----------

Operating Profit:
Total segment profit $ 4,539,965 $ 3,931,735 $ 4,603,107
Unallocated operating expenses:
Salaries and benefits 3,266,383 2,547,103 2,584,018
Depreciation and amortization 370,339 299,967 434,863
Office and equipment rental 248,797 159,555 91,254

General and adminstrative expenses 1,539,819 1,489,700 3,280,736
Other income (expense) (72,035) 143,602 (340,559)
----------- ----------- -----------
5,497,373 4,352,723 6,731,430
----------- ----------- -----------

Loss before income taxes $ (957,408) $ (420,988) $(2,128,323)
=========== =========== ===========

Substantially all of the revenue and assets of the Company's reportable segments
are attributed to or located in the United States. Additionally, the Company
does not have a single customer which represents ten percent or more of its
consolidated revenues.

F-19
<PAGE>

Micro-Integration Corp. and Subsidiaries
Notes to Consolidated Financial Statements

14. Employee Benefit Plans

In 1988, the Company initiated an Employee Stock Ownership Plan ("ESOP"), which
covers all eligible employees. Contributions are made at the Company's
discretion and approved by the Board of Directors after consideration of the
Company's results of operations and other factors. The Company made no
contributions in the years ended March 31, 1999, 1998, and 1997, respectively.

The Company also has an Employee Savings 401(k) Plan, which covers all eligible
employees. Under this plan, employees may contribute to their accounts up to 10%
of their compensation, subject to the rules of Section 401(k) of the Internal
Revenue Code. The Company, at its discretion, matches up to 50% of the
employee's contribution. The Company made no contributions to the plan during
the years ended March 31, 1999, 1998, and 1997, respectively.

F-20
<PAGE>

Exhibit Index
-------------

Exhibit
Number Description of Document
------ -----------------------

4.2 Form of Common Stock Certificate, filed as Exhibit 4.2 to Amendment
No. 1 to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.

4.3 Form of Underwriter's Warrant, filed as Exhibit 4.3 to Amendment No.
1 to the Company's Registration Statement on Form SB-2, Registration
No. 33-72752, is hereby incorporated by reference.

10.1 Micro-Integration Corp. Employee Savings and Stock Ownership Plan,
filed as Exhibit 10.1 to the Company's Registration Statement on
Form SB-2, Registration No. 33-72752, is hereby incorporated by
reference.

10.2 1994 Stock Plan of Micro-Integration Corp., filed as Exhibit 10.2 to
the Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.

10.3 Agreement between Micro-Integration Corp., Micro-Integration Europe
n.v. and Gabor Weiner entered into September 28, 1990, filed as
Exhibit 10.3 to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.

10.4 Agreement between Micro-Integration Corp. and Gabor Weiner entered
into on September 28, 1990, filed as Exhibit 10.4 to the Company's
Registration Statement on Form SB-2, Registration No. 33-72752, is
hereby incorporated by reference.

10.5 Amendment to Agreements between Micro-Integration Corp.,
Micro-Integration Europe n.v., and Gabor Weiner, entered into on
March 21, 1994, filed as Exhibit 10.5 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.

10.6 Contract of Sale made on August 23, 1995, between CCSAC Federal
Credit Union and Micro-Integration Corp., filed as Exhibit 10.6 to
the Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.

10.7 Agreement made as of May 20, 1993, between Micro-Integration Corp.
and Lashley Construction, Inc., filed as Exhibit 10.7 to the
Company's Registration Statement on Form SB-2, Registration No.
33-72752, is hereby incorporated by reference.

10.8 Contract of sale made on September 16, 1992, between
Micro-Integration Corp., Cumberland Allegany County Industrial
Foundation and the Board of County Commissioners of Allegany County,
Maryland, filed as Exhibit 10.8 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752, is

<PAGE>

Exhibit Index
-------------

hereby incorporated by reference.

10.9 Promissory Note dated September 24, 1993, payable to
Micro-Integration Corp. to the Board of Commissioners of Allegany
County, Maryland or order, filed as Exhibit 10.9 to the Company's
Registration Statement on Form SB-2, Registration No. 33-72752, is
hereby incorporated by reference.

10.10 Promissory Note dated September 24, 1993, payable by
Micro-Integration Corp. to the order of the Board of County
Commissioners of Allegany County, Maryland, filed as Exhibit 10.10
to the Company's Registration Statement on Form SB-2, Registration
No. 33-72752, is hereby incorporated by reference.

10.12 Business Promissory Note dated September 22, 1993, payable by
Micro-Integration Corp. to the order of The First National Bank of
Maryland, filed as Exhibit 10.12 to the Company's Registration
Statement on Form SB-2, Registration No. 33-72752, is hereby
incorporated by reference.

10.13 Agreement and Plan of Reorganization made in April 1986 by and among
Micro-Integration Corp., Micro-Integration Inc., John A. Parsons,
i.e. Systems, Inc. and the Stockholders named therein, filed as
Exhibit 10.13 to the Company's Registration Statement on Form SB-2,
Registration No. 33-72752, is hereby incorporated by reference.

10.14 Indemnification Agreements between Micro-Integration Corp. and its
directors and officers, filed as Exhibit 10.14 to the Company's Form
10-KSB for the year ended March 31, 1996, is hereby incorporated by
reference.

21.1 Subsidiaries of Micro-Integration Corp.

23.1 Consent of Independent Accountants.

F-22

Exhibit 21.1 - Subsidiaries of Micro-Integration Corp.

Name Jurisdiction
---- ------------

Computer Site, Inc. Ohio

Computer One of Ohio, Inc. Ohio

SuiteOne Computer Services, Inc. Pennsylvania

CompSource, Inc. Pennsylvania

Exhibit 23.1 - Consent of Independent Auditors

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-72752) pertaining to the 1994 Stock Option Plan and the Employee
Savings and Stock Ownership Plan of Micro-Integration Corp. of our report dated
April 30, 1999, with respect to the consolidated financial statements of
Micro-Integration Corp. included in the Annual Report (Form 10-KSB) for the year
ended March 31, 1999.

/s/ Ernst & Young LLP

Baltimore, Maryland
July 13, 1999

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 74,543
<SECURITIES> 0
<RECEIVABLES> 1,557,282
<ALLOWANCES> 209,317
<INVENTORY> 619,735
<CURRENT-ASSETS> 2,334,095
<PP&E> 3,568,356
<DEPRECIATION> 1,748,564
<TOTAL-ASSETS> 5,326,636
<CURRENT-LIABILITIES> 1,901,137
<BONDS> 0
0
0
<COMMON> 30,311
<OTHER-SE> 2,263,967
<TOTAL-LIABILITY-AND-EQUITY> 5,326,636
<SALES> 12,213,841
<TOTAL-REVENUES> 12,213,841
<CGS> 7,673,876
<TOTAL-COSTS> 7,673,876
<OTHER-EXPENSES> 5,425,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,541
<INCOME-PRETAX> (957,408)
<INCOME-TAX> 0
<INCOME-CONTINUING> (957,408)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (957,408)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)

</TABLE>