U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


                                       X

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

                    For the fiscal year ended March 31, 1998

                                       OR



 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
                                  ACT OF 1934

           For the transition period from ____________ to ____________

                          Commission File No.: 0-13117

                                MICROFRAME, INC.
                                ---------------
                 (Name of Small Business Issuer in Its Charter)


                 New Jersey                             22-2413505
       -------------------------------    ------------------------------------
       (State or Other Jurisdiction of    (IRS Employer Identification Number)
       Incorporation or Organization)

    21 Meridian Road, Edison, New Jersey                     08820
 ------------------------------------------              ------------
 (Address of Principal Executive Offices)                (Zip Code)

Issuer's telephone number, including area code:  (732) 494-4440
                                                 --------------

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

Securities registered under Section 12(g) of the Exchange Act: 

                                                 Common Stock, $.001 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 there is no  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 registrant's knowledge, in
         definitive proxy  information  statements  incorporated by reference in
         Part III of this Form 10-KSB or any amendment to this Form 10-KSB.

The issuer's revenues for its most recent fiscal year totaled $10,217,911.

The aggregate market value of the voting stock held by  non-affiliates  computed
by  reference  to the  average of the bid and asked  prices as  reported  by the
National Quotation Bureau as of June 25, 1998 was approximately $17,531,345.

There were 5,296,479 shares of Common Stock outstanding as of June 25, 1998.


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None



                                       -1-

<PAGE>
                                     PART I


Item  1.      Description of Business.

General
-------

              MicroFrame,  Inc.,  a  New  Jersey  corporation  (the  "Company"),
founded in 1982,  designs,  develops and markets a broad range of remote network
management and remote  maintenance  and security  products for mission  critical
voice and data communications networks. The Company's products provide for alarm
and fault monitoring,  proactive administration and reporting capabilities which
are being used as a basis for remote,  intranet and internet network  management
and  maintenance.  In  addition,  by  incorporating  a variety of  hardware  and
software options for security and user authentication, these products can deter,
as well as  prevent,  unauthorized  dial-in  and/or  in- band  access to network
elements and systems (such as computers,  local area networks (LANs),  wide area
networks  (WANs),  routers,  hubs,  servers,  Private Branch Exchange  telephone
switches ("PBXs") as well as other network elements).  In addition they continue
to allow  authorized  personnel  access to  perform  needed  administration  and
maintenance of host devices and networks from remote locations.

              In  May  1993,  the  Company  completed  a  private  placement  to
accredited investors of an aggregate of 800,000 shares (after giving effect to a
reverse stock split as noted below) of common stock,  par value $.001 per share,
of the Company (the "Common Stock"), for $1,000,000.

              In September  1993, the Company  effected a  one-for-five  reverse
stock  split of the  issued  and  outstanding  shares of the  Common  Stock (the
"Reverse Stock Split").

              In September  1995, the Company formed a wholly-owned  subsidiary,
MicroFrame  Europe  N.V.,  which,  in  turn,  acquired  all  of the  issued  and
outstanding shares of capital stock of European Business Associates BVBA ("EBA")
of Brussels, Belgium.

              In April 1996,  the Company  completed  a private  placement  (the
"1996 Private  Placement") to accredited  investors of an aggregate of 1,101,467
Units for gross proceeds of $1,376,933.75,  each unit consisting of one share of
Common  Stock and one Class A Warrant and one Class B Warrant,  each of which is
exercisable  into one share of Common  Stock at an  exercise  price of $1.50 and
$2.00, respectively.


Principal Products and Markets
------------------------------

              The Company has established a strong customer base
(both domestically and  internationally)  through the development of a family of
modular  industry  standards based hardware and software  offerings  designed to
interface with a customer's  existing dial-up and/or in-band WAN  communications
and network management environment and/or on a standalone basis. The Company

                                                                                
                                       -2-

<PAGE>



believes that each of these offerings, when combined with the programmability as
provided by the Company's software, support and meet the needs of wide varieties
of  customer   element  network   management  and   intranet/internet   security
requirements.  The software is designed to permit relatively easy  modification,
thus allowing customized solutions for monitoring and controlling telemanagement
(intelligent agent) and/or network access.

              The  Company  develops  and  markets  a  broad  range  of  network
management,  remote  maintenance  and  security  products  for  voice  and  data
communications  networks.  The  Company's  products  are based  upon a family of
hardware and software components that, when combined with the Company's software
"engine," provide  programmability and modification wherein customized solutions
for  network  access,   monitoring  and   telemanagement   of   mission-critical
applications and network elements can readily be accommodated.

              In  fiscal  1997  and  continuing  in  fiscal  1998,  the  Company
continued  its  evolutionary  development  of products to address its  strategic
direction and goal of  establishing a competitive  position in the combined data
and  voice  Network  Management/  Distributed  Device  Management  and  Security
marketplaces.  The  introduction  of  a  new  family  of  products  referred  to
collectively  as Secure  Network  Systems/ 2000  ("SNS/2000")  based on industry
standards-based  products is  designed to address the growing  demand for remote
network  management  of  mission  critical  integrated  voice  and data  network
elements.  The SNS/2000  product  family  consists  primarily of Sentinel  2000,
Sentinel 2000S and Manager 2000.

              These products integrate element monitoring,  fault management and
security    management    as    well    as    remote    access    and    problem
identification/resolution  into a  suite  of  network  management  solutions  to
monitor,  maintain and  increase the  operational  integrity,  availability  and
access for mission-critical networks.

              As telecommunications  networks continue to expand to support more
and more mission- critical applications, the economic impact of downtime and the
importance  of secure  remote  access  to manage  and  maintain  these  networks
increase exponentially.  According to a third party study, "network downtime for
a typical network consisting of two servers and 100 personal computers" can cost
companies,  on average,  up to $1,000 per minute in lost  revenues  and employee
productivity.  The technical support staff necessary to administer,  support and
maintain  combined voice and data networks of a large distributed base of legacy
and standards-based  networking devices remain extremely costly and inefficient.
Faced with  budget  constraints  and a lack of skilled  staff  resources  due to
downsizing  programs,  network and system  managers  today are searching for new
tools to more  effectively  manage,  secure  and  control  their  expanding  and
increasingly  more  complex  networks.  The Company  believes  that the SNS/2000
family of products  provides cost  effective  solutions to these  problems.  The
products  are  completely  modular by design.  Each product  element  provides a
stand-alone feature/function set enabling one to choose only the products needed
to enhance the performance of their existing  network  management  systems.  For
maximum advantage,  the elements may be integrated into a secured telemanagement
and remote access  control  solution that can be customized and tailored to meet
specific organizational requirements.

                                                                                
                                       -3-

<PAGE>



              Secure Remote Telemanagement/Telemaintenance.  One major aspect of
              --------------------------------------------
the SNS/2000  family of products is its design which is to  specifically  reduce
network "downtime" by significantly  enhancing and bringing new capabilities for
detection, reporting, handling and resolution of alarm/fault conditions. It also
directly   addresses  the  requirement  to  manage  both  "legacy"  as  well  as
standards-based  communications  resources across widely dispersed heterogeneous
network  environments.   The  SNS/2000  product  set  is  fully  Simple  Network
Management Protocol ("SNMP") compliant. It offers stand-alone network management
and  remote  access  solutions  which  can be  fully  integrated  into  existing
SNMP-based central management systems and/or Trouble Ticket Management  Systems.
Its SNMP proxy agent capability  enables non-SNMP legacy devices,  such as PBXs,
to  communicate  with  SNMP  network  managers  (e.g.,  HP/Openview,   Cabletron
Spectrum,  IBM's Netview,  et al.) for more cohesive  centralized control of all
communications resources.

              SNS/2000 provides  redundant,  secured access and alarm monitoring
to all network  resource  maintenance  ports via both  in-band  and  out-of-band
connectivity  to  increase  system  reliability,  access and  availability.  All
network  access  and/or  access to network  elements may be channeled  through a
secure central gateway where users are authenticated  and  transparently  routed
only to  authorized  destinations.  Network  elements  are  monitored  by  local
intelligent  agents to proactively detect (and in many cases resolve) alarms and
fault  conditions  as well as threshold  violations.  This  monitoring  includes
ensuring that  environmental  conditions (e.g.  temperature,  moisture,  battery
voltage,  etc.)  at  various  points  in the  network  are  also  within  preset
thresholds.  Critical fault  conditions are promptly  identified and 1) resolved
via the  intelligent  agent  technology of these products  and/or 2) immediately
transmitted to the appropriate  management  center for analysis,  trouble ticket
generation,  corrective action,  and escalation where appropriate.  This enables
organizations  to improve network  availability  through  proactive  response to
potential network problems before they manifest  themselves in potential network
outages.

              Secure Remote  Access.  A second aspect of the SNS/2000  family of
              ---------------------
products is designed to address a rapidly growing group of telecommuters who are
redefining  the  boundaries of the  traditional  workplace.  They are placing an
increasing demand for convenient remote access to network resources.  By opening
the  networks  to meet  these  demands,  the  networks  are left  vulnerable  to
unauthorized  entry. Such unauthorized  access carries security  liabilities and
exposure to critical  company  resources,  data and  information.  In  addition,
unauthorized  users are  consuming  valuable  network  bandwidth,  thus reducing
availability  for  legitimate  users.  SNS/2000  offers remote  access  security
solutions for host computers,  LANs and WANs, as well as other network  elements
by providing front-end barriers to prevent unauthorized entry. Access control is
managed, monitored and administered via client server architecture.  Centralized
administration is provided to facilitate ease of administration,  monitoring and
maintenance.  Alerts are issued when user defined events occur and/or thresholds
are  exceeded.   Reporting  capabilities  are  provided  which  are  useful  for
identifying  trends  and  analyzing  network   utilization.   A  wide  range  of
authentication  technology is supported and, based on operational  needs, can be
incorporated into the Company's remote access security solutions.



                                                                                
                                       -4-

<PAGE>



              SNS/2000  feature/function/benefit  set.  The primary  benefits of
              SNS/2000 include:

o             SNMP Agent/Proxy
              Standards-based  SNMP  Proxy  alarm  reporting  for  non-compliant
              legacy  devices.  Centralized  telemaintenance  for both voice and
              data communications networks.

o             Alarm Reporting & Evaluation
              Distributed  Rules Based  (Intelligent  Agent) alarm  filtering to
              reduce network bandwidth consumption as well as insure delivery of
              critical   alarms/faults.    Multilevel   alarm   reporting   with
              programmable  escalation to insure prompt response. PBX toll fraud
              detection  and  reporting  to  reduce/minimize   toll  fraud  loss
              potential.

o             Remote Maintenance & Monitoring
              Programmed  monitoring of device fault tables to enable  proactive
              maintenance activity. Locally executed auto-recovery procedures to
              reduce costly downtime.

o             Security
              Secured  in-band/out-of-band  access to insure network  integrity.
              Secured  remote tele  commuting  access to eliminate  unauthorized
              network access.

o             Graphical User Interface ("GUI") Based System
              Central  GUI-based  system  administration  for convenient  system
              management.

o             Open Database ("ODBC") Compliant
              Integration  with  major  database  offerings   (Oracle,   Sybase,
              SQL/Server, Informix, etc.)

o             Controlled Access & Ethernet Capabilities
              Controlled vendor access for secure  out-of-band device management
              and   administration.   Ethernet  and  dial  access  allowing  for
              redundant    access/reporting    paths   for   increased   network
              reliability.  Distributed intelligent agent device controllers for
              reduced bandwidth utilization.

o             Buffering/Database Capabilities
              Central  relational  database  with ad hoc report  generation  for
              convenient activity/  utilization  analysis.  Buffering system for
              storage/retrieval of data (i.e. CDR Records, Critical Logs, etc.).

              SENTINEL 2000. Represents the flagship member of the Company's new
family of SNS/2000  products.  In the first  quarter of fiscal 1997,  MicroFrame
introduced  the  Sentinel  2000.  The  Sentinel  2000 is a  stand-alone,  secure
multi-port  programmable  Remote Site Element Manager which utilizes  integrated
application  software designed to provide alarm/fault  monitoring,  security and
remote access for  controlling/managing  remote voice and data network  elements
via their out-of- band dial-up maintenance ports as well as via in-band Ethernet
connectivity.  The system provides device alarm/fault  monitoring and reporting,
SNMP  management and SNMP proxy  functionality,  PCMCIA high speed modem(s) plus
Ethernet  connectivity,   environmental  monitoring  and  control,  and  secured
in-band/out-of-band access to device maintenance and control ports. The Sentinel
2000 is an element management  solution that facilitates  convenient,  reliable,
remote network  element  telemanagement  and  telemaintenance  of voice and data
networks.


                                                                                
                                       -5-

<PAGE>



              Based on the Motorola 68360  Multi-controller  processor chip, the
Sentinel 2000 is  administered  and maintained  with the Company's new GUI-based
Manager 2000 software  product  offering.  The Sentinel  2000  integrates a wide
range of  applications  that provide for Secure Remote Network  Management for a
wide  variety  of  network  elements  (either  directly  or  via an  SNMP  proxy
function).  These  include  Access  Security,  Alarm  Management,  Environmental
Monitoring  and Control,  PBX Toll Fraud  Detection and Remote Device Reboot and
power management capabilities.

              The Company has continued seeing strong acceptance of the Sentinel
2000 from such companies as PTT Holland, MCI, AT&T, Vyvx, Ameritech,  U.S. West,
TeleFinland,  Kaiser  Permanente,  and Telstra  Australia.  In fiscal 1998,  the
Company shipped  approximately 2,500 units of the Sentinel 2000,  generating net
revenues of  approximately  $6,000,000,  representing  60% of the  Company's net
revenues for the year. In fiscal 1997, the Company shipped  approximately  1,100
units of the Sentinel 2000, generating net revenues of approximately $2,670,000,
representing 36% of the Company's net revenues for the year.

              MANAGER  2000.  During the  fourth  quarter  of fiscal  1997,  the
Company  introduced a second member of the SNS/2000 family of products,  Manager
2000, a set of software  applications that  collectively  provide a solution for
remote site-management and the servicing of real-time alarms generated by remote
monitoring  equipment.  Manager 2000 integrates the Sentinel 2000 and IPC/Secure
Sentinel programmable remote-site managers with central-site management tools to
provide  maintenance  managers and technicians with a seamless network overview.
Manager 2000 automates many time-consuming  remote management tasks for a faster
response time,  improved fault  isolation,  identification  and resolution,  and
differentiation  of  critical  and  non-critical  events.  In  conjunction  with
Sentinel systems, Manager 2000 can limit access to maintenance ports and devices
to  authorized  individuals  only.  The  authorized  access is controlled at the
central  management  site. This permits  frequent  changes and the assignment of
temporary   privileges  to  outsiders.   Manager  2000  features  include  Alarm
Processing, Trouble Ticket Management, Secured Remote Site Access, Security, and
Remote  Site  Administration.  All of this is done  based on  industry  standard
architecture (Windows 3.1, Windows/95, Windows N/T, ODBC, etc.), and is designed
for scalability.


New Products and Markets
------------------------

              During  fiscal 1998,  the Company  introduced  the Sentinel  2000S
Slimline programmable Remote Site Manager that is designed to provide a "Virtual
Technician" that operates 24-hours-a- day,  7-days-a-week to manage, monitor and
provide secured remote access to voice, video, and data network elements such as
PBXs,  bridges,  hubs and routers.  The Slimline is a lower-cost offering with a
feature set  comparable  to the Sentinel  2000(TM)  from the  Company,  with the
exception of the 28 host port expandability.

              The Sentinel 2000S  Slimline  provides  alarm/fault  management by
monitoring data from remote network  elements.  When the Sentinel  determines an
alarm status, the appropriate  corrective- action procedures are initiated,  and
the alarms can be sent to a technician via ASCII text, pager or

                                                                                
                                       -6-

<PAGE>



E-mail, or to a central SNMP management product such as HP OpenView or Cabletron
Spectrum. Alarms can be escalated if a timely response is not received.  Network
security is managed by a variety of  authentication  technologies.  The Sentinel
monitors,  controls  and logs all  activity  on each port and  provides  central
and/or local audit reports, and can also detect PBX toll fraud by monitoring CDR
ports for activity that violates  pre-defined  threshold  levels in various call
classifications.

              On April 9, 1998, the Company signed a letter of intent to acquire
privately held Solcom Systems, Ltd. (Solcom), based in Livingston, Scotland. The
Company  proposes  to  issue to the  shareholders  of  SolCom  an  aggregate  of
approximately  5,600,000  shares of its common stock and/or  options to purchase
shares of its common  stock in  exchange  for all of the issued and  outstanding
share  capital and options of SolCom.  SolCom is a leading  developer  of remote
monitoring (RMON) technology.  Originally  approved by the Internet  Engineering
Task Force (IETF) in 1992,  Remote  MONitoring,  or RMON, is a standard protocol
for users to proactively manage multiple LANS and WANs from a central site. RMON
1 identifies  errors,  alerts  administrators  to network problems and baselines
networks in addition to its remote network analyzer capabilities.  RMON's recent
enhancement,  RMON 2, enables  trouble-shooting  and effective  network capacity
planning.  Consummation  of the transaction is subject to execution and delivery
of a definitive acquisition agreement,  approval of the shareholders of both the
Company and Solcom as well as various regulatory approvals.


Other Products and Markets
--------------------------

              The Company's first major product success,  the  DL-4000(TM),  was
introduced  in  1986  and  is  designed  to  protect  mainframe  computers  from
unauthorized  dial-up  access.  Since that time, more than 1,000 units have been
installed  worldwide  and the product  continues  to be a part of the  Company's
product offerings.

              Recognizing that  organizations were restructuring data processing
away from centralized  mainframes and into various network  configurations,  the
Company  re-engineered its original fixed- function,  "black box" product into a
flexible,  programmable hardware/software system capable of securing access at a
wide variety of "nodes" in the network. The foundation of this re-design was the
development   of  a  proprietary   software   "engine,"   which   maximizes  the
programmability  of the hardware,  defining and  controlling the functions to be
performed by various hardware components.

              Beginning  in 1991,  the  Company  determined  that an  additional
related  market  opportunity  was  developing  with the  proliferation  of PBXs,
voice-mail  systems and other privately owned voice  communications  systems and
security  devices.  The Company  believes that theft of long distance  telephone
services  ("toll  fraud")  through  unauthorized  access  to these  devices  has
resulted in substantial losses. Thus the support of PBXs through the development
and marketing of data communications security products has witnessed substantial
customer demand for greater system  reliability,  protection  against toll fraud
and security against network intrusion.


                                                                                
                                       -7-

<PAGE>



              A  vulnerability  of these systems results from the fact that PBXs
and  other  devices  used  in  the  voice  communications   system  have  remote
maintenance   and   administrative   "ports."   These  ports   permit  a  system
administrator  or maintenance  personnel to "dial in" or gain access to a device
electronically,  by  telephone,  and to monitor  and,  if  necessary,  change or
manipulate  the  software and hardware  embedded in the  equipment.  This can be
accomplished  without having a physical presence at the site where the equipment
is located.  Without proper security,  an unauthorized user can gain access to a
system through one of these ports, a potential exposure of PBX customers to toll
fraud.  With a remote  maintenance  facility,  PBX and other  telecommunications
product vendors can respond to and provide their  customers with  cost-effective
solutions that address customer demand for highly  responsive  service for their
products.

              After initiating discussions with major PBX suppliers, the Company
developed a group of products,  referred to as  "Intelligent  Port  Controllers"
("IPC"), designed to provide security for the dial-in access remote ports. Among
these products are a Remote Port Security Device (RPSD(TM)),  which was designed
and  manufactured  exclusively for AT&T (now Lucent  Technologies)  beginning in
1991 and the Secure Sentinel(TM) family of devices, which were introduced by the
Company in 1992.

              The RPSD is provided on an original equipment manufacturer ("OEM")
basis  under  Lucent  Technologies'  own label as a  security  device for Lucent
Technologies'  Definity  PBX. Over 16,200 RPSD units have been shipped to Lucent
Technologies  since 1991 and the Company has  commenced  shipping the product to
other  customers as well.  During fiscal 1997,  sales from the RPSD product line
were responsible for approximately 15% of the Company's overall revenue.

              The  Secure  Sentinel(TM)  is a family  of  programmable  hardware
platforms  that  combine  security   management  of  remote  maintenance  ports,
protection against toll fraud, fault and alarm reporting functions and real-time
call detail record analysis.  Since its  introduction,  the Company has expanded
both the number of Secure  Sentinels(TM)  offered and the functionality of each,
shipping more than 12,000 units which has accounted for more than $14,500,000 in
revenue.  During fiscal 1998,  sales from the Secure  Sentinel(TM)  product line
were responsible for approximately 15% of the Company's overall revenue.

              Beginning  in  fiscal  1993,  the  Company  began  offering  a new
product,  the Secured  Database Server  (SDS(TM)).  Like the DL-4000,  this is a
programmable  system  designed  to  prevent  unauthorized  dial-in  access  to a
computer or data  communications  network.  The SDS,  however,  incorporates the
technology of the DL-4000 in a personal  computer,  allowing  storage of greater
amounts of user data,  which permits a customer to both monitor a greater number
of users and to store more detailed identification data about each user. The SDS
also  incorporates  redundant  processor  elements,  reducing the possibility of
system  downtime.  This product is thus  suitable for  protecting  significantly
larger systems and is currently implemented by MCI to provide secured access for
network  administration  of over  500 of its  long  distance  service  switching
facilities, as well as for Chemical Bank, Key Corp., Lockheed/Marietta and other
major companies worldwide.


                                                                                
                                       -8-

<PAGE>



              Building on the SDS, in fiscal 1994,  the Company  introduced  the
Secured Gateway System  (SeGaSys(TM)),  designed to provide centrally controlled
access to and  administration of a large number of remotely located  maintenance
ports on both voice and data communications devices. The SeGaSys system contains
a  "communication  firewall"  or secured  gateway  that  controls and routes all
access to remote port destinations,  a central database  management server which
uses the SDS  software  to  administer  and  control  user  access and  resource
authorizations,  remote  security  modems and/or alarm  reporting  devices which
provide  fault/alarm  management  capabilities.  SeGaSys  effectively  manages a
number of Secure Sentinel  devices located at remote  locations that provide the
security, alarm monitoring and reporting for those locations.


Overall Target Markets
----------------------

              The Company  believes  its products  are well  positioned  to take
advantage  of  what  it  believes  are  current   significant   trends  in  data
communications and voice communications  networks.  In the view of the Company's
management,  organizations  are seeking to increase  productivity  by  providing
sophisticated  communications networks that connect all of their separate units,
whether  locally,  nationally  or  internationally.  As the  price of  equipment
decreases and power increases, such networks become cost effective,  justifiable
and  possible  for more and more  groups,  and it becomes  feasible to introduce
sophisticated  networks into technologically less advanced regions regardless of
size. At the same time, more of such organizations' data and other resources are
being made  available  to more  users by means of these  systems.  These  market
dynamics are causing  networks to become an ever  increasing and vital source of
revenue  generation  as  well as  employee  productivity.  Therefore,  proactive
management of these  networks to insure  network  availability,  which,  in turn
supports employee  productivity as well as revenue  generation,  is increasingly
becoming a  necessary  imperative  for all  companies.  Because of these  market
factors,  the Company believes that the security and network  management  issues
resulting from this growth will generate demand for the Company's products.


Remote Network Management and Remote Telemaintenance Markets
------------------------------------------------------------

              The requirement  for increased  service levels and overall network
availability,  especially for mission-critical  networks,  has created a rapidly
growing market demand for remote  element  network  management  and  distributed
device  management.  Remote element network  management  offerings include alarm
monitoring systems which monitor network elements and their internal  diagnostic
routines and fault tables,  determine alarm status,  and  automatically  execute
appropriate reporting and/or corrective action procedures.

              Alarm Monitoring: The Sentinel 2000 and Secure Sentinel(TM) alarms
can be  transmitted/reported  to central  network  management  systems  (such as
Cabletron's  Spectrum,  HP's  Openview,  IBM's  Netview,  etc.),  trouble ticket
management  packages  (such as  Remedy),  a single  or  multiple  PCS  (personal
communication system), personal pagers,. as well as provide for an alarm

                                                                                
                                       -9-

<PAGE>



to be  escalated  to  ensure  timely  response.  The  Sentinel  2000 and  Secure
Sentinel(TM) also allow programmed  administration of the host devices via their
maintenance port connection.

              Alarm  Reporting:  This  provides for  automatic  transmission  of
information  regarding  network  element  statuses,  alarms,  etc. It allows for
automatic  escalation  of alarms when there is no response.  Information  may be
automatically  transmitted  to computers  via modem,  or to humans via pager and
recorded voice.

              "Help Desk" Enhancements: Most data networks include a "help desk"
operator,  a resource available to assist other personnel and to resolve network
problems  encountered by dial-in users.  The Company's  proprietary  HelpNET(TM)
software  permits  the user to page the help  desk  terminal  and  automatically
effect  an  interactive  link  with  the  help  desk  operator  when the page is
acknowledged.  Without leaving the control  station,  the help desk operator can
then directly  observe and  participate  in the user's session with the relevant
network  device  and, if  necessary,  take  temporary  command of the session to
correct the problem,  thus providing more cost-effective  corrections than would
occur if the help desk operator  physically  had to visit the device in question
or had to "talk the user through" the necessary procedures.

              Environmental   Monitoring  and  Control:   Since   communications
equipment  is sensitive  to changes in the  physical  environment,  the Sentinel
2000, as well as the Secure Sentinel(TM),  can be enhanced to monitor changes in
temperature,  humidity,  moisture,  battery  voltage,  LED  indicators and other
similar  environmental  indicators to determine if current trends exceed pre-set
limits.  If such limits are  exceeded,  the device can be programmed to issue an
appropriate  alarm or take corrective  action using multiple  internal relays to
activate necessary environmental controls.


Security Market
---------------

              As   previously   noted,   widely   distributed   data  and  voice
communications  networks  incorporate  network elements and devices with dial-in
ports.  The  Company  offers a  variety  of  products,  e.g.,  Manager  2000 and
SeGaSys(TM),   which  when   combined  with  the  Sentinel  2000  and/or  Secure
Sentinel/IPCs, permits centralized control for secure remote access to all ports
on the network.  All users (such as maintenance  providers and others authorized
to service or administer  devices in the network) dial a single telephone number
and/or are  connected/authorized  in-band for access. Upon successful validation
of access  for the  requested  device  the user is  automatically  routed to the
targeted device by the Manager 2000 system and/or  SeGaSys(TM).  This eliminates
the security  risk inherent in providing  lists of telephone  numbers and access
codes for numerous devices,  as well as reduces the burden of administering many
remotely  located  security  devices.   Once   authenticated  and  routed,   the
transaction  (including  session activity,  if desired),  is logged to a central
database, available for audit review and analysis.

              The  Sentinel  2000  and  IPC  family  of  products  - the  Secure
Sentinel(TM)   and  the  RPSD,  are  designed  to  secure  the  maintenance  and
administration ports on a wide variety of network elements

                                                                                
                                      -10-

<PAGE>



and  communications  equipment.  In addition to preventing  unauthorized  access
through  these ports,  the products can be  customized  to provide the following
features:

              Security Management: Provide a secure path to network elements
 both via in-band (Ethernet) as well as out-of-band (dial up) protocols.

              PBX  Toll  Fraud/Abuse   Control:   PBXs  and  voice-mail  systems
frequently  permit  dial-in users access to outbound trunk lines to enable users
to take advantage of a company's WATs lines or similar services.  However, abuse
of these services can result in substantial  charges.  The product offerings can
be  programmed  to monitor and analyze all dial-in call activity to determine if
current activity exceeds specified parameters or selected criteria indicative of
potential  toll fraud or abuse.  If the  activity  exceeds the  parameters,  the
system  issues an alarm to the  appropriate  personnel or  initiates  protective
procedures.

              The  DL-4000  can be used to  secure  dial-up  access  to any host
computer,  LAN or WAN by  monitoring  and  centrally  administering  up to 4,096
dial-up "ports" or telephone  access points located in up to 256 locations.  The
SDS(TM),  as noted above,  expands the number of users and other features of the
DL-4000 by  incorporating  the same technology into a personal  computer.  Using
"open system" software, the products allow the system administrator to configure
each channel separately with one or more access control technologies as required
by the application assigned to the channel or as preferred by the user.

              The Sentinel  2000, IPC and  SeGaSys(TM)  incorporate a high-level
programming  language  and  program  editor  developed  specifically  for  these
products,  which is referred to as the  Communication  Control Language ("CCL").
This language allows standard  programs  incorporated  into these products to be
modified or enhanced to meet specific customer  requirements.  The incorporation
of CCL into these  products  also  facilitates  the  introduction  of additional
product enhancements.


Support Services
----------------

              In  addition  to the  normal  training,  installation  and  repair
services, the Company also provides professional services, including consulting,
specialized programming and turnkey installations.


Marketing and Distribution
--------------------------

              The Company  believes that the markets for remote element  network
management, distributed device management, and security are rapidly emerging and
growing.  Therefore,  the Company is  approaching  each of these markets with an
integrated marketing strategy.  The SNS/2000 family of products, the DL-4000 and
the  SDS(TM),  data  communications  security  products  have been sold and will
continue to be sold to major telecommunications companies, networking

                                                                                
                                      -11-

<PAGE>



companies,  network security customers,  systems integrators,  facility managers
and others via the Company's direct sales organization,  in-house  telemarketing
efforts and selected distributors.

              In fiscal  1995,  the Company  commenced  expansion  of its direct
sales force and its network of distributors into major geographic markets in the
United States as well as internationally. As this sales and distribution network
is  established  and  continues  to  grow,  the  telemarketing  effort  will  be
redirected to generate sales leads by the Company and to provide support for the
field organization. In addition, the Company will look to continue to expand its
channels of distribution via major systems  integrators,  facilities  management
companies and network outsourcers.

              With respect to the  communications  security market,  the Company
has recognized  that product sales could be effected more  economically if major
telecommunications companies could be convinced to promote the products to their
own customers.  The Company has established  contractual relations in the United
States with Lucent Technologies,  MCI, Southwestern Bell, US WEST and Ameritech.
During fiscal 1995, the Company expanded its distribution  into Canada through a
non-exclusive   distribution  agreement  with  TTS  Meridian  Systems,  Inc.  of
Willowdale,  Ontario,  a Northern  Telecom  subsidiary.  The Company  expects to
continue to seek additional  arrangements with the other network element and PBX
systems vendors and distributors in North America.

              In connection with the foreign  distribution of its products,  the
Company  appointed  EBA of Brussels,  Belgium in November  1993 as its exclusive
sales  representative  for Europe to provide sales and technical  support to the
Company's authorized distributors and to directly sell the Company's products to
accounts  in that  region.  In  September  1995,  the Company  acquired  through
MicroFrame  Europe  NV,  its  wholly-owned  subsidiary,  all of the  issued  and
outstanding shares of capital stock of EBA. In fiscal 1995, the Company signed a
five-year agreement with LM Ericsson ("Ericsson") of Stockholm, Sweden, a global
telecommunications   equipment   manufacturer  and  distributor.   Ericsson  has
qualified for use and will promote the Company's  Secure Sentinel  products with
Ericsson  PBX  equipment,  worldwide,  with an initial  roll-out in Europe,  the
Pacific Rim and the United States. During fiscal 1995, a three-year distribution
agreement  was  also  entered  into  with  Racal  Australia  PTY,  Ltd.  ("Racal
Australia") of Brookdale,  South Wales,  Australia, a wholly-owned subsidiary of
Racal  Electronics plc of the United Kingdom.  Racal  Australia,  which provides
data communications, data security and digital cellular equipment throughout the
Pacific Rim, will distribute the Company's  product line  throughout  Australia,
New Zealand,  Singapore and Hong Kong.  Additionally,  during  fiscal 1995,  the
Company signed its first  distribution  agreement in Eastern Europe with Netlink
of Prague,  in the Czech Republic.  With the acquisition of EBA in place and the
maturation of the agreements consummated in previous years, the revenues related
to the international  market were approximately  $1,530,000 (21%) in fiscal 1997
and approximately $2,500,000 (25%) in fiscal 1998.


                                                                                
                                      -12-

<PAGE>



Competition
-----------

              The markets for remote  element  network  management,  distributed
device  management as well as security products to monitor and control access to
computer and telecommunications  network elements are highly competitive.  There
can be no assurance that the  proprietary  technology  which forms the basis for
most of the Company's  products will continue to enjoy market acceptance or that
the Company will be able to compete successfully on an on-going basis.

              The Company believes the principal factors  affecting  competition
in this  market  include:  (1) the  products'  ability to conform to the network
topologies  and/or  computer  systems;   (2)  the  products'  ability  to  avoid
technological  obsolescence;  (3) the  willingness  and  ability  of a vendor to
support customization, training, and installation; and (4) price.

              Although  the  Company  believes  that its  present  products  and
services are  competitive,  the Company  competes in its general  markets with a
number of large computer, electronics and telecommunications manufacturers which
have financial,  research and development,  marketing,  and technical  resources
substantially  greater  than  those  of the  Company.  The  Company  also  faces
competition  from a  variety  of niche  market  players.  In the  context,  such
competitors include Security Dynamics,  Inc., Digital Pathways, Inc. and the Lee
Mah Data Systems  Corp. In the remote  network  management  and  telemaintenance
context,  they  include  TSB  International,  Inc.  and  Teltronics,  Inc.  Such
companies may succeed in producing and  distributing  competitive  products more
effectively  than the Company,  and may also  develop new products  that compete
effectively with those of the Company.


Sources and Availability of Materials
-------------------------------------

              The Company designs its products utilizing readily available parts
manufactured  by  multiple  suppliers  and the Company  currently  relies on and
intends to continue to rely on these suppliers. The Company has been and expects
to continue to be able to obtain the parts generally required to manufacture its
products without any significant interruption or sudden price increase, although
there can be no assurance that the Company will be able to continue to do so.

              The Company sometimes utilizes a component available from only one
supplier.  If a supplier  were to cease to supply  this  component,  the Company
would most likely have to redesign a feature of the  affected  device.  In these
situations,  the Company  maintains a greater supply of the component on hand in
order to allow the time necessary to effectuate a redesign or alternative course
of action should the need arise.



                                                                                
                                      -13-

<PAGE>



Dependence on Particular Customers
----------------------------------

              The Company has  continued to expand its customer base and broaden
its sales mix. These efforts have resulted in the Company  becoming less reliant
on any one particular customer. However, the Company sells a substantial portion
of  its  products  to  several  major  customers,   i.e.,  PTT  Holland,  Lucent
Technologies and MCI. Sales to PTT Holland,  Lucent  Technologies,  AT&T and MCI
represented  approximately 61% of the Company's revenue in fiscal 1998. The loss
of any of these customers could have a material  adverse effect on the Company's
business.

              The Company's  installed customer base is estimated to number over
200 companies  constituting  more than 2,300  customer sites  worldwide.  In the
United  States,  virtually  all of the  Company's  customers  are Fortune  1,000
industrial  companies and large U.S.  financial  institutions.  Customers in the
U.S.   represented   approximately  75%  and  79%  of  the  Company's   revenue,
respectively, in fiscal 1998 and fiscal 1997.

              Under an agreement with Lucent Technologies,  the Company has been
manufacturing  the RPSD for Lucent's resale to its PBX customers.  As of the end
of fiscal 1998, Lucent had purchased and installed more than 17,000 RPSD units.

              In fiscal 1996, MCI and the Company  expanded  their  relationship
across  multiple  operating  units within MCI,  including that  responsible  for
outsourcing and "Concert",  MCI's joint venture with British Telecom, as well as
with MCI/SHL.


Intellectual Property, Licenses and Labor Contracts
---------------------------------------------------

              The Company  holds no patents on any of its  technology.  Although
the Company  licenses some of its  technology  from third  parties,  it does not
consider any of these licenses to be critical to the Company's operations.

              The Company has made a  consistent  effort to minimize the ability
of competitors to duplicate the Company's  software  technology  utilized in its
products.  However,  the  possibility of  duplication of the Company's  products
remains and competing products have already been introduced.

              The Company's  name and the Secure  Sentinel  name are  registered
trademarks  of the Company  filed with the United  States  Patent and  Trademark
Office ("PTO"). The Company also has trademark applications pending with the PTO
for SeGaSys,  Sentinel 2000,  Sentinel  2000S,  Manager 2000,  PassKEY,  SofKEY,
Secure Network Systems 2000, the Company's  logo, the MicroFrame  Wizard and the
tagline  "We  Bring  Wizardry  To  Remote  Network   Management."   The  Company
anticipates  that  these  trademarks  shall be  registered  but  there can be no
assurance that such will occur.


                                                                                
                                      -14-

<PAGE>



              None of the Company's  employees are  represented by labor unions.
The Company considers its relations with its employees to be satisfactory.


Governmental Approvals Required and Effect of Government Regulation
-------------------------------------------------------------------

              Due  to  the  sophistication  of the  technology  employed  in the
Company's  products,  export thereof is subject to governmental  regulation.  As
required by law or demanded by customer  contract,  the Company obtains approval
of its products by Underwriters' Laboratories. Additionally, because many of the
Company's products interface with telecommunications  networks, its products are
subject to several  key Federal  Communications  Commission  ("FCC")  rules that
often requires FCC approval.

              Part 68 of the FCC rules  contains the  majority of the  technical
requirements  with  which  telephone  systems  must  comply to  qualify  for FCC
registration  for  interconnection  to the  public  telephone  network.  Part 68
registration  requires  telecommunication  equipment interfacing with the public
telephone  network  comply  with  certain  interference   parameters  and  other
technical  specifications.  FCC Part 68 registration for the Company's  products
has been granted and the Company  intends to apply for FCC Part 68  registration
for all of its new and future products.

              Part  15  of  the  FCC  rules  requires  equipment  classified  as
containing  a Class A  computing  device to meet  certain  radio and  television
interference  requirements,  especially  as they  relate  to  operation  of such
equipment in a residential area.  Certain of the Company's  products are subject
to and comply with Part 15.

              The European Community has developed a similar set of requirements
for its members and the Company has begun the compliance process of its products
for Europe.

              Although  the  Company  has  not  experienced   any   difficulties
obtaining such approvals, failure to obtain approval for new and future products
could have a material adverse effect on the Company's business.  The Company has
obtained  licenses to export  certain of its products in limited  quantities  to
Sweden, Norway,  Switzerland,  South Africa, the United Kingdom,  France, Italy,
Germany, Australia and Singapore.


Research and Development Activities
-----------------------------------

              During fiscal 1998, the Company continued development of its "next
generation" of products built on a new architecture that is ultimately  intended
to replace  its IPC  products - the Secure  Sentinel(TM)  and RPSD - referred to
collectively as SNS/2000.  As discussed  previously,  this family of products is
designed to address the growing demand for remote element network management and
security of  mission-critical  integrated voice and data networks.  Research and
development  expenses in connection therewith were $1,117,151 in fiscal 1998 and
$893,852 in fiscal 1997.

                                                                                
                                      -15-

<PAGE>


Costs of Compliance with Environmental Laws
-------------------------------------------

              The  Company's  business is not subject to  regulations  involving
discharge of materials into the environment.


Employees
---------

              As of June 23, 1998, the Company had 46 employees, all of whom are
full-time employees,  and of which 20 are technical  personnel,  9 are in sales,
marketing and support,  7 are in production  and 10 are in executive,  financial
and administrative capacities.


Item  2.      Description of Property.

              The  Company  currently  leases  8,900  square feet of space at 21
Meridian Road,  Edison, New Jersey for its  administrative,  sales and marketing
and research and development  functions (the "Lease").  The Lease provides for a
monthly  rental of  $5,428.55  and  expires  on June 30,  1999.  From the period
commencing  July 1, 1997  through  June 30, 1999,  the total  monthly  rental is
$5,579.17 per month.  An additional  2,000 square feet of office space and 2,600
square feet of  warehouse  space is  currently  leased to another  tenant with a
concurrent  expiration  date of June 30, 1999. The Company is the sole guarantor
for the full  performance  of this tenant's  obligations  through the expiration
date.

              In  addition,  the Company  currently  leases 5,112 square feet of
space at 300E Corporate  Court,  South  Plainfield,  New Jersey for its finance,
manufacturing,  and  warehousing  functions.  This lease  provides for a monthly
rental of $3,408.00 and expires on June 30, 1999.

              In addition,  the Company  currently  leases 245 square  meters of
office space in Antwerp, Belgium for its European operating headquarters..  This
lease  provides  for a  monthly  rental  of  81,083  Belgian  Francs  per  month
(US$2,316.00 at an exchange rate of 35BEF to 1US$) and expires on July 31, 2005,
with an option of the Company to terminate  the lease on either July 31, 1999 or
July 31, 2002, as applicable.


Item  3.      Legal Proceedings.

              The  Company   reached  a  settlement  with  the  New  York  State
Department  of  Taxation  and Finance in April 1997 as it related to a sales tax
assessment of $227,391.90  imposed in a Notice of  Determination  in March 1996.
The settlement amount of $55,512.73 was paid in full as of April 1997.



                                                                                
                                      -16-

<PAGE>



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

              None.

                                                                                
                                      -17-

<PAGE>



                                     PART II


Item  5.      Market For Common Equity and Related Stockholder Matters.

Market Information
------------------

              The Company's Common Stock commenced trading on August 17, 1995 on
the NASDAQ  SmallCap  Market under the symbol  "MCFR".  Prior to that date,  the
Common  Stock was not traded on any  registered  national  securities  exchange,
although several  registered  broker-dealers  made a market in the Common Stock.
The  following  table sets forth the high and low bid prices of the Common Stock
in the over-the-counter  market as reported by National Quotation Bureau through
August 16, 1995 and by NASDAQ from August 17, 1995 through  March 31, 1998.  The
quotations  set  forth  below  do  not  include  retail  markups,  markdowns  or
commissions and may not represent actual transactions.

                                                    HIGH                  LOW
                                                    ----                  ---
                           Fiscal 1997
                           -----------
                           June 30                 $2.88                $1.75
                           September 30             2.25                 1.06
                           December 31              2.56                 1.50
                           March 31                 2.44                 1.56

                           Fiscal 1998
                           -----------
                           June 30                 $1.88                $1.56
                           September 30             1.63                 1.25
                           December 31              1.84                 1.31
                           March 31                 2.75                 1.13


Holders
-------

              The  Company  believes  that  as of  June  25,  1998,  there  were
approximately 363 record holders of its Common Stock (including  brokers holding
in street name).


Dividends
---------

              The Company has not paid any cash  dividends  on its Common  Stock
during the two fiscal years ended March 31, 1998 and March 31, 1997. The Company
presently intends to retain all earnings to finance its operations and therefore
does not  presently  anticipate  paying any cash  dividends  in the  foreseeable
future.


                                                                                
                                      -18-

<PAGE>



              Under the terms of the  Company's  credit  agreement  with  United
National Bank, the Company may not,  without the prior written consent of United
National  Bank,  declare or pay any dividends in cash or otherwise on any shares
of capital stock of the Company.


Item  6.      Management's Discussion and Analysis.

A number of statements  contained in this report are forward-looking  statements
within the meaning of the Private Securities  Litigation Reform Act of 1995 that
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those expressed or implied in the applicable  statements.  These
risks and uncertainties include, but are not limited to, the recent introduction
and the costs  associated  with,  a new family of  products;  dependence  on the
acceptance  of this new  family of  products;  risks  related  to  technological
factors;  potential manufacturing  difficulties;  dependence on third parties; a
limited customer base; and liability risks.


Plan of Operation
-----------------

              During the next 12 months, the Company will continue its effort to
expand its existing customer  relationships and marketplace  penetration through
internal growth and the proposed  acquisition of Solcom Systems,  Ltd, a leading
developer of RMON technology,  while tightly controlling  operating costs. There
can be no assurance,  however,  that such acquisition  will be consummated.  The
Company anticipates placing substantial  emphasis on the distribution of its new
family of products as well as its acquired  products and begin  development of a
new family of products based on a combination of existing features  incorporated
in the Sentinel and Solcom's RMON technology, along with continued international
business expansion.  The Company will also look to continue its three-year trend
of reducing its reliance on several major customer organizations,  most notably,
MCI and Lucent.

              During fiscal 1998, the Company continued its development of a new
generation  of products  based on more  advanced  technology.  The products were
formally introduced at an industry trade show in January,  1996. The new network
management product family,  known as SNS/2000,  integrates  network  management,
security  management and fault  management as well as problem  resolution into a
suite of network management solutions.  This technology will allow for increased
operational  integrity  and  access  to voice  and data  networks.  The  Company
commenced  shipment of the new product of this next  generation  product family,
the Sentinel 2000 in May, 1996 and volume  production  shipments  began in June,
1996. To date, approximately 3,000 units of the Sentinel 2000 have been shipped.
In January,  1997,  another member of the SNS/2000 family, the Manager 2000, was
introduced.  Manager 2000 is a set of software  applications  that  collectively
provide tools for remote site  management and the servicing of real-time  alarms
being  generated  by remote  monitoring  equipment.  In October 1997 the Company
announced its newest product,  the Sentinel 2000S Slimline,  and began shipments
of this product in early 1998.


                                                                                
                                      -19-

<PAGE>



              With the  addition  of several  major new  customers,  the Company
continues to strengthen  its worldwide  customer  base,  which includes U.S. and
international  telecommunications  providers,  Private Branch  Exchange  ("PBX")
vendors,   financial  institutions,   Fortune  500  companies  and  governmental
agencies.  The Company has more than 2,300  installations  across North America,
South  America,  Europe and the Pacific Rim. The September  1995  acquisition of
European  Business  Associates  ("EBA")  has caused the Company to focus more on
expanding the international  customer base. Based in Brussels,  Belgium, EBA had
acted as the Company's  exclusive  sales  representative  in the European market
since November,  1993, providing both sales support and technical support to the
Company's  authorized  distributors,  as well as selling directly to accounts in
the region.  During the latter part of fiscal 1996, the Company's  international
revenue stream increased as it capitalized on relationships  with new global PBX
suppliers  including  LM  Ericsson  of  Stockholm,  Sweden and  Alcatel  Bell of
Antwerp, Belgium. A major new contractual relationship was formed in fiscal 1997
as a result of this improved focus.  After announcing this new relationship with
TELE Business  Communications  of Finland,  a subsidiary of Telecom Finland,  in
November,  1996,  the  Company  proceeded  to ship  over  $260,000  of  product,
primarily the Sentinel 2000, in the last four months of fiscal 1996. As a result
of this  continued  focus,  the Company  entered  into a  relationship  with PTT
Holland  during  fiscal  1998 for its  Sentinel  technology.  This  relationship
resulted in shipments of over  $2,000,000 to PTT during the year ended March 31,
1998. The Company  anticipates  continuing this  relationship  into fiscal 1999.
Additionally,  the Company  expanded its  distribution in the Pacific Rim with a
significant increase in shipments to Racal Australia.

              During  fiscal  1998,  the Company  forged  several  new  domestic
relationships  principally to offset a reduction in the Company's revenue stream
in respect of two major customers,  MCI and Lucent Technologies (formerly AT&T).
The most  significant was the new contractual  relationship  formed in September
1996 with US WEST Communications Services. Ongoing relationships, primarily with
Southwestern Bell Communications, were maintained.  Relationships in fiscal 1996
improved,   primarily  Ameritech   Information  Systems.   Finally,   other  new
relationships  were formed,  including Vyvx, Inc., Sprint  Communications and in
fiscal 1998, PTT Holland.  As a result of the above,  overall revenues generated
from the Company's two primary  customers has dropped from 60% in fiscal 1995 to
49% in fiscal 1996 to 34% in fiscal 1997 to 25% in fiscal 1998.  In fiscal 1999,
the Company  expects to continue to reduce such  percentages  through  continued
diversification of its customer base and the creation of new relationships. MCI,
Lucent and PTT remain the three  largest,  and most  significant to the Company.
The Company's  relationship with MCI extends to multiple  operating units within
the  organization,  each with  divergent  business  needs and  different  market
characteristics.  The Company  ships  multiple  products to MCI for security and
alarm management of various internal switch  installations,  including shipments
to Concert Global Networks, MCI's joint venture with British Telecom, as well as
to various  out-source  relations which MCI manages.  In its  relationship  with
Lucent  Technologies,  the Company has manufactured Remote Port Security Devices
(RPSDs) for Lucent's resale to its PBX customers.  The RPSD is a  secured-access
product provided under Lucent's own label and is custom designed to operate with
Lucent's PBX, Key Systems and Voice Processing  products (primarily the Definity
product line). As of the fiscal year ended March 31, 1997,  Lucent had purchased
and installed  more than 16,200 RPSDs since 1991.  In October 1995,  the Company
signed a two-year  renewal of an OEM agreement,  through which Lucent  purchases
RPSDs.

                                                                                
                                      -20-

<PAGE>



              The Company's employee base dropped from 42 full-time employees in
fiscal 1996 to 37 full-time employees during fiscal 1997. However, the Company's
employee  base  increased  to 46  full-time  during  fiscal  1998 as the Company
returned to greater  profitability.  Additional  resources  resulting  from such
profitability  are being devoted primarily to the marketing and development of a
more extensive  system  integration  capability that would enable the Company to
gain an  increasing  share of the  market.  Due to the growth  that the  Company
experienced  in fiscal 1995, an  additional  facility in South  Plainfield,  New
Jersey was leased with  expiration  terms  concurrent with its existing lease in
Edison, New Jersey. The Company's operations group relocated to this facility in
August  1995.  The  Company's  European  operation  also moved to a new,  larger
facility in Antwerp,  Belgium in August 1996.  The Company  believes that it has
space adequate to meet its growth requirements for the foreseeable future.

              The Company  believes that as data and voice networks  continue to
grow and companies grow more reliant on such networks for revenue generation and
employee productivity,  the recognition of system vulnerability will continue to
increase  and the  Company's  products  will be in  greater  demand.  After  the
unsatisfactory performance in fiscal 1996, the Company rebounded in fiscal 1997,
achieving management's primary mission for such year of returning the Company to
profitability.


                              RESULTS OF OPERATIONS

Fiscal Year 1998 Compared to Fiscal Year 1997
---------------------------------------------

              Revenues  for the year ended  March 31, 1998 were  $10,217,911  as
compared  with  revenues of  $7,343,624  for the year ended March 31,  1997,  an
increase of  approximately  39%.  The increase  was  primarily  due to increased
international  shipments of the Company's Sentinel 2000 product combined with an
overall  increase in Sentinel  2000  shipments.  The  Company  continued  to see
revenues  with  respect to the other member of the family of SNS  products,  the
Manager 2000.

              The  Company's  revenues  were  positively  impacted by  increased
domestic  sales and as a result of increased  shipments to the European  market,
including  shipments  under its contract  with PTT Holland.  Shipments to Europe
were  approximately  $3,000,000  for the year ended March 31,  1998  compared to
approximately $1,000,000 for the year ended March 31, 1997.

              The Company's  cost of goods sold  increased to $4,285,134 for the
year ended March 31, 1998  compared to  $2,903,705  for the year ended March 31,
1997  as a  result  of  increased  shipment  levels.  Cost  of  goods  sold as a
percentage of sales increased from 40% for the previous comparable fiscal period
to 42% for this fiscal  period,  primarily due to the increased  sales volume of
the Company's newer product line.

              Research and  development  expenses,  net of capitalized  software
development,  increased  from  $893,852  in the year  ended  March  31,  1997 to
$1,117,151 in the current fiscal year, an increase

                                                                                
                                      -21-

<PAGE>



of 25%. Research and development  expenses as a percentage of revenues decreased
slightly from  approximately  12% to 11%.  Selling,  general and  administrative
expenses  increased 32% from $3,355,961 for the prior year to $4,419,521 for the
year ended March 31, 1998. This increase was primarily the result of added sales
personnel during the fiscal year. However as a percentage of revenues,  selling,
general and  administrative  expenses decreased from 46% for the previous period
to 43% for the current fiscal period.

              The Company had income before taxes of $406,649 for the year ended
March 31, 1998  compared to income of $201,286 for the year ended March 31, 1997
primarily  due to increased  sales.  The net income for the year ended March 31,
1998 was $711,310  compared to net income of $342,451 for the prior fiscal year.
At March 31,  1997,  the  Company  had  provided a partial  valuation  allowance
against its  existing  deferred tax assets.  At March 31, 1998,  the Company has
reversed the remaining approximately $300,000 of valuation allowance relating to
its  federal  net  operating  losses  and  has  recorded  a  benefit  for  other
operational  temporary  difference  items.  The  expiration  dates  for  its net
operating losses range from the years 2001 through 2011.


Fiscal Year 1997 Compared to Fiscal Year 1996
---------------------------------------------

              The Company's revenues for fiscal 1997 were $7,343,624 as compared
with revenues of $6,258,243 for fiscal 1996, an increase of 17.3%. This increase
in  revenues  was  primarily  attributable  to the  expansion  of the  Company's
customer base outside of its two major customers,  MCI and Lucent  Technologies,
especially in the United States. Net revenues  generated in the U.S.,  excluding
revenue  attributable  to MCI and Lucent,  increased  from  approximately  $1.91
million to $3.33  million that  represented  a 74% increase  from fiscal 1997 to
fiscal  1996.  The Company  also showed  substantial  growth in the Pacific Rim,
where  net  revenues  (primarily  attributable  to  one  major  customer,  Racal
Australia) increased over threefold from approximately $98,000 to $350,000.

              The Company's cost of sales  increased from  $2,789,855 for fiscal
year 1996 to  $2,903,705  for  fiscal  year  1997.  However,  cost of sales as a
percentage  of sales  decreased  from 44.6% for fiscal  1996 to 39.5% for fiscal
1997. This substantial  decrease is primarily the result of a reduced  provision
for inventory  obsolescence (from $150,000 to $75,000,  or approximately 1.0% of
revenue),  a reduction in capitalized  software  amortization  (from $279,000 to
$163,000,  or  approximately  1.6% of  revenue),  and a general  improvement  in
purchasing and materials  efficiencies,  which was responsible for the remaining
2.5%  reduction.  This  improvement  was  achieved  despite the  initial  volume
shipments of the Sentinel 2000 that  witnessed  higher  initial costs  typically
associated with new product  introductions.  These initially lower gross margins
were more than offset by continuous improvements in the Company's mature product
lines.

              Selling,   general  and  administrative  expenses  decreased  from
$4,043,356  for fiscal 1996 to $3,355,961  for fiscal 1997, a decrease of 17.0%.
As a percentage of revenues,  the decrease was more pronounced as this reduction
occurred while revenues increased. Fiscal 1997 showed an improvement to 45.7% of
sales from 64.6% of sales in fiscal 1996. While  approximately  $250,000 of such
decrease was related to the one-time  adjustments  recorded at the end of fiscal
1996, the major

                                                                                
                                      -22-

<PAGE>



factor  contributing  to this  decrease was the  Company's  commitment to reduce
administrative overhead in order to achieve its targeted goal for fiscal 1997 of
a return to profitability.

              Research  and  development  costs,  net  of  capitalized  software
development,  increased  from  $713,441  during  fiscal year 1996 to $893,852 in
fiscal  year  1997.  As a  percentage  of  sales,  the  Company's  research  and
development  costs  increased  from 11.4% in fiscal year 1996 to 12.2% in fiscal
1997. This increase is directly attributable to the Company's increased activity
related to the  development  of the SNS/2000  family of products  introduced  in
fiscal 1997.

              The income tax benefit of  $141,165 in fiscal 1997  relates to the
Financial Accounting Standards Board's Statement No. 109, "Accounting for Income
Taxes."  This  Statement,  issued in  February  1992 and  adopted by the Company
effective  April 1, 1993,  requires  deferred tax assets and  liabilities  to be
recorded for the  difference  between the  financial  statement and tax bases of
assets and  liabilities  (temporary  differences)  using enacted tax rates.  The
Statement also requires that the Company record a valuation allowance when it is
"more  likely than not that some  portion or all of the deferred tax assets will
not be realized." It further states that "forming a conclusion  that a valuation
allowance is not needed is  difficult  when there is negative  evidence  such as
cumulative  losses in resent  years." Due to the operating  loss in fiscal 1996,
the  realization  of the deferred tax asset was more uncertain and, as a result,
the Company provided a full valuation  allowance  against deferred tax assets at
March 31, 1996. At March 31, 1997, the deferred tax asset and related  valuation
allowance  have been reduced  primarily  due to the  utilization  of federal and
state net operating loss carry forwards.


Liquidity and Capital Resources
-------------------------------

              During fiscal 1998,  the  Company's  financial  position  improved
substantially  as  assets  increased  from  $4,682,373  to  $6,375,432  and  the
Company's  working  capital  increased  from  $2,381,178 to  $2,563,503,  net of
deferred  tax  assets.  The  primary  contributor  to  this  improvement  in the
Company's  working capital  position was net income of  approximately  $712,000.
Included in this income were  non-cash  charges of  approximately  $500,000  for
depreciation and amortization.

             The Company's  operations provided  approximately  $54,500 of cash,
which  included a use of cash of  approximately  $55,000 to satisfy its New York
State tax settlement.  The Company also utilized  approximately $450,000 of cash
for capital and software-related expenditures and utilized approximately $50,000
of cash to pay down its long-term debt.

              The Company previously had a credit agreement with CoreStates Bank
("CoreStates") for a credit line of $1,000,000 to finance future working capital
requirements,  collateralized by accounts receivable,  inventory,  equipment and
all other  assets of the  Company,  as well as a  $150,000  credit  facility  to
finance  purchases of machinery  and  equipment,  convertible  into a three-year
secured term loan when  utilized.  The Company  borrowed  $124,000  against this
facility  in  November,  1995,  at which  time  this debt was  converted  into a
three-year term loan. As of March 31, 1997, $72,644 remained outstanding on this
loan. The Company was informed in June, 1996, that the working

                                                                                
                                      -23-

<PAGE>



capital  credit line would not be renewed upon its  expiration  date of July 31,
1996. The outstanding balance was repaid by the Company on September 5, 1996, in
accordance  with an agreement with  CoreStates.  On August 30, 1996, the Company
executed a credit agreement with Farrington Bank of North Brunswick,  New Jersey
(subsequently acquired by United National Bank of Bridgewater, New Jersey). This
agreement  provides the Company with a $500,000 line of credit to finance future
working  capital  requirements,  collateralized  by accounts  receivable  of the
Company.

              On August 30, 1997,  the Company's  line of credit  agreement with
United  National Bank of Bridgewater,  New Jersey expired.  In November 1997 the
Company successfully negotiated with United National to provide the Company with
a  $1,000,000  line of  credit,  collateralized  by all  business  assets of the
Company, to finance future working capital  requirements.  As of March 31, 1998,
the Company had utilized $300,000 of this line.

              Based on its current cash and working capital position, as well as
its available line of credit,  the Company believes that it will have sufficient
capital to meet its operational needs over the next twelve months.

              Effective  with the first  quarter of fiscal year 1999 the Company
will adopt SFAS No. 130, "Reporting  Comprehensive Income". SFAS 130 establishes
the  standards  for  reporting  and  displaying  comprehensive  income  and  its
components  (revenues,  expenses,  gains  and  losses)  as part of a full set of
financial statements. This statement requires that all elements of comprehensive
income be reported  in a financial  statement  that is  displayed  with the same
prominence as other financial  statements.  Since this standards applies only to
the  presentation of  comprehensive  income,  it will not have any impact on the
Company's results of operations, financial position or cash flows.

              In June 1997, the Financial Accounting Standards Board issued SFAS
131,  "Disclosure about Segments of an Enterprise and Related Information" which
becomes effective for financial  statements for periods beginning after December
15, 1997. This Statement  establishes standards for the way that public business
enterprises  report  information  about operating  segments in annual  financial
reports and requires that those  enterprises  report selected  information about
operating segments in interim financial reports issued to shareholders.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas, and major customers.  Management is currently  evaluating the
impact of SFAS 131 on the financial statements.

              In February 1998, the Financial  Accounting Standards Board issued
SFAS 132,  "Employers'  Disclosures  about  Pensions  and  Other  Postretirement
Benefits" which becomes effective for the Company's financial statements for the
year ended March 31,  1999.  SFAS No. 132  requires  revised  disclosures  about
pension and other  postretirement  benefits  plans and is not expected to have a
material impact on the Company's financial statements.

              In June 1998, The Financial Accounting Standards Board issued SFAS
133,  "Accounting  for  Derivative  Instruments  and Hedging  Activities"  which
becomes  effective for all fiscal  quarters of fiscal years beginning after June
15, 1999.  This Statement  establishes  accounting  and reporting  standards for
derivative  instruments,  including certain derivative  instruments  embedded in
other

                                                                                
                                      -24-

<PAGE>



contracts,  and for hedging  activities.  The  adoption of this  standard is not
expected to have a material impact on the Company's financial statements.


Item  7.      Financial Statements.

              The financial  statements required hereby are located on pages F-1
              through F-20.


Item  8.      Changes in and Disagreements with Accountants on Accounting and
              Financial  Disclosures.

              None


                                                                                
                                      -25-

<PAGE>



                                    PART III


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


Directors and Executive Officers
--------------------------------


Name                     Age        Position Held with the Company
----                     ---        ------------------------------
                          
Stephen M. Deixler       62         Chairman of the Board of Directors

Stephen B. Gray          40         President, Chief Executive Officer,
                                    Chief Operating Officer, Director

Michael Radomsky         45         Executive Vice President, Secretary,
                                    Director

William H. Whitney       43         Chief Technology Officer, Director
                                    (resigned effective May 19,1998)

John F. McTigue          37         Vice President Operations, Chief Financial
                                    Officer, Assistant Secretary and Treasurer

Robert M. Groll          64         Vice President Business Development

David I. Gould           67         Director (resigned effective June 16,1998)

Stephen P. Roma          50         Director

Alexander C. Stark       65         Director


              All  directors  of the Company  hold office  until the next annual
meeting  of  shareholders  and until  their  successors  have been  elected  and
qualified.  No family  relationship  exists  between any  director or  executive
officer and any other director or executive officer of the Company.

              The  officers of the Company are elected by the Board of Directors
at its first meeting after each annual meeting of the Company's shareholders and
hold office until their successors are chosen and qualified,  until their death,
or until they resign or have been removed from office.



                                                                                
                                      -26-

<PAGE>



              STEPHEN M.  DEIXLER has been  Chairman  of the Board of  Directors
since 1985 and served as Chief Executive  Officer of the Company from April 1996
to May 1997, as well as from June 1985 through October 1994. He was President of
the Company from May 1982 to June 1985.  Mr.  Deixler served as Treasurer of the
Company from its formation in 1982 until  September 1993 and since October 1994.
During  April  1995,  Mr.   Deixler  sold  his  interest  in  Princeton   Credit
Corporation,  a company engaged in the business of buying,  selling, and leasing
high  technology  products,  to Greyvest  Capital Inc., a Toronto Stock Exchange
company.  Prior to the sale,  Mr.  Deixler  was  Chairman  of  Princeton  Credit
Corporation.  He  previously  served  as  President  of  Atlantic  International
Brokerage,  a leasing  company,  which is a wholly owned  subsidiary of Atlantic
Computer  Systems,  Inc.,  which was  liquidated  as a result of the  bankruptcy
proceedings  of its parent  company,  Atlantic  Computer  Systems PLC.  Prior to
holding  this  position,  he was  President  and sole  shareholder  of Princeton
Computer Associates,  Inc. ("PCA"). PCA was a company engaged in the business of
buying,  selling  and  leasing  of  large-scale  computer  systems  as  well  as
functioning  in consulting  and  facilities  management and was sold to Atlantic
Computer Systems, Inc. in 1988.

              STEPHEN B. GRAY has been President,  Chief Operating Officer and a
director since April 1996. He was elected to serve in the additional capacity as
the Chief  Executive  Officer in May 1997.  He also is a director of  MicroFrame
Europe N.V. He Served as Senior Vice  President-Sales,  Marketing and Support of
the Company  From  December  1994  through  March 1996.  From July 1993  through
December 1994, Mr. Gray was an independent consultant, engaged in assisting both
private  and  publicly-held   companies  with  strategy  development,   internal
operational reviews and shareholder value enhancement  programs.  From September
1988 through June 1993, he held a series of management  positions within Siemens
Nixdorf  USA,  the last as Vice  President,  (reporting  to the Chief  Executive
Officer  and  Board of  Directors),  and a  member  of the  executive  committee
overseeing Siemens Information Systems businesses in the United States. Prior to
joining  Siemens,  Mr.  Gray  previously  held a series of  rapidly  progressive
positions  within  IBM  including   various   technical,   sales  and  marketing
assignments.

              ALEXANDER C. STARK JR. is the president of AdCon, Inc., a
consulting  firm  organized  to advise and  counsel  senior  officers  of global
telecom  companies.  Mr. Stark  previously  worked for 40 years at AT&T.  Ten of
those years he served as a Senior Vice  President.  Recently  retired from AT&T,
Mr. Stark is a former member of the Institute of Radio Engineers and a past Vice
President and  Treasurer  and a past Vice  President and Treasurer of Lambda Chi
Alpha. He is a former member of: the Board of Directors  College Careers Fund of
Westchester;  the Board of adjustment of Allendale; and the County Trust Company
Board of Advisors.  He was the 1977  General  Campaign  Chairman,  United Way of
Westchester,  and cited by the National  Conference of  Christians  and Jews for
imaginative  community  leadership.  Mr. Stark was honored as the  Distinguished
Engineer  of the Year by Rutgers  University  in 1991.  He also  served for many
years as a Director-at Large of the American Electronics Association and Chaired
the International Public Affairs Committee.

              MICHAEL  RADOMSKY  is an  original  founder of the Company and has
been the Executive Vice  President and a director since the Company's  formation
in 1982 and has served as Secretary of the Company  since  November  1994. He is
currently responsible for multiple tasks, the

                                                                                
                                      -27-

<PAGE>



most  important  being  the  identification  of  industry  directions,  and  the
technical  appropriateness  of  Company  designs as well as  products  acquired,
licensed or jointly  developed with others.  In addition,  Mr. Radomsky has been
responsible for the design of network topologies for large corporate  customers,
ensuring  compatibility  for future  products.  Mr. Radomsky has also previously
been   responsible  for  the  Company's   technical   support,   purchasing  and
manufacturing  operations.  Prior to 1989, Mr.  Radomsky was responsible for the
mechanical and electronic engineering of the Company's products.

              WILLIAM H.  WHITNEY is an original  founder of the Company and has
been the Chief  Technology  Officer  (formerly  titled Vice President - Software
Development) and a director since the Company's formation in 1982 and has served
as  Assistant  Secretary  of the Company  since  November  1994.  Along with Mr.
Radomsky,  he developed all of the  Company's  initial  products,  including the
DL-4000 and the IPC product line. As Chief Technology  Officer,  Mr. Whitney has
been  responsible  for  development  of  hardware  and  software  for all of the
Company's standard offerings,  including all products being sold through OEM and
distributor channels.  Mr. Whitney has tendered his resignation from the Company
and the Board effective May 19,1998.

              JOHN F. MCTIGUE has been the Company's Vice President - Operations
and Chief Financial Officer and Treasurer since July 1997. His  responsibilities
include finance,  administration,  information systems,  quality and production.
Mr. McTigue is a finance professional and Certified Public Accountant. From 1996
through 1997, he was with the Fundtech  Corporation,  a software developer where
he served as Chief  Financial  Officer.  From 1989 to 1996, Mr. McTigue was with
Dawn  Technologies,  Inc, a manufacturer of high-tech goods,  where he served as
the Chief Executive  Officer from 1994 through 1996 and Chief Financial  Officer
and Treasurer from 1989 through 1994.
Prior to this, he was with Rothstein Kass & Company.

              ROBERT M. GROLL has been Vice President - Marketing of the Company
since March 1986.  From 1970 until joining the Company in June 1985, as Director
of Marketing,  Mr. Groll was the President of PTM Associates,  Inc.  ("PTM"),  a
firm engaged in management  consulting  in the areas of technical  marketing and
computer  system design.  While with PTM, during 1983 and 1984, Mr. Groll became
Vice President of Cable Applications,  Inc. a New York corporation, where he was
responsible for initiating and managing new product development efforts.

              DAVID I. GOULD, retired as Vice Chairman of the Board of Directors
at the end of April 1995, a position in which he had served since December 1993.
He  presently  is a director of the Company and has been since April 1985 and he
is President of Gould  Consulting  since May 1, 1995. He served as President and
Chief  Operating  Officer of the Company from June 1985 until  December 1993. He
was Vice  President-Marketing  of the  Company  from April 1985 until June 1985.
From 1982 until  joining the Company in 1985,  he was an officer of The Ultimate
Corporation  ("Ultimate"),  a computer manufacturer listed on the New York Stock
Exchange,  eventually serving as Senior Vice President of Marketing.  During his
three years at Ultimate, Mr. Gould managed the growth of that company's revenues
from $40  million  to more  than  $100  million.  Mr.  Gould  has  tendered  his
resignation from the Board of the Company effective June 16, 1998.


                                                                                
                                      -28-

<PAGE>



              STEPHEN P. ROMA has been a director  of the Company  since  August
1991 and since August 1994 is the President and Chief Executive  Officer of WOW!
Work Out World a chain of neighborhood health and fitness centers.  During April
1995, he sold his interest in Princeton Credit Corporation, a company engaged in
the  business of buying,  selling  and  leasing  high  technology  products,  to
Greyvest Capital, Inc., a Toronto Stock Exchange company. Prior to the sale, Mr.
Roma was President and Chief Operating Officer of Princeton Credit  Corporation.
He previously  served as Vice  President of  Sales/Northeast  Region of Atlantic
Computer  Systems,  Inc.,  which was  liquidated  as a result of the  bankruptcy
proceedings of its parent  company,  Atlantic  Computer  Systems,  PLC. Prior to
holding this  position,  he was a principal and  President  and Chief  Operating
Officer of Princeton  Computer Group,  Inc., which was sold to Atlantic Computer
Systems, Inc. in 1988.


Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------

              The  following  persons  have  failed  to file on a  timely  basis
certain reports required by Section 16(a) of the Securities Exchange Act of 1934
as follows:  Each of Messrs.  Stephen M.  Deixler,  Stephen P. Roma and David I.
Gould filed one late report on Form 5,  disclosing  the grant of a  non-employee
stock option  pursuant to the Company's  1994 Stock Option Plan, as amended (the
"1994 Plan"). Each of Messrs. Stephen B. Gray, Michael Radomsky, William Whitney
and John F.  McTigue  filed one late report,  a Form 4  disclosing  the grant of
stock  option.  Mr.  William  Whitney  has  filed  two late  reports  on Form 4,
disclosing  the sale of stock.  During the fiscal year ended March 31, 1998, the
Company  is not aware of other  late  filings,  or  failure  to file,  any other
reports required by Section 16(a) of the Exchange Act.



                                                                                
                                      -29-

<PAGE>



Item  10.     Executive Compensation.


              The following table summarizes the compensation paid or accrued by
the  Company  during the three  fiscal  years  ended  March 31,  1998,  to those
individuals  who as of March 31, 1998 served as the  Company's  Chief  Executive
Officer  during  fiscal 1998 and to the Company's  four most highly  compensated
officers  other  than  those who served as the Chief  Executive  Officer  during
fiscal 1998 (these five executive officers being hereinafter  referred to as the
"Named Executive Officers").


                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>


                   Annual Compensation                                        Long Term Compensation
                   -------------------                                        ----------------------
                                                                  Awards                                       Payouts
                                                                  ------                                       -------
                                                                   Other
                                                                  Annual    Restricted  Securities              All Other
Principal                                                         Compen-      Stock    Underlying     LTIP     Compen-
Position               Year          Salary($)   Bonus($)(3)     sation($)  Award(s)($) Options (#) Payouts($)  sation($)
---------              ----          ---------   -----------     ---------  ----------- ----------- ---------- ----------


<S>                    <C>       <C>              <C>        <C>          <C>        <C>           <C>          <C>            
Stephen M. Deixler     1998
Chairman, Chief        1997        14,000(1)            --         --          --         10,000       --           --
Executive Officer(1)   1996               --            --         --          --             --       --           --

Stephen B. Gray        1998         252,829                                               75,000
President, Chief       1997         163,386             --         --          --        400,000       --           --
Executive Officer (2), 1996         134,675             --         --          --          2,309       --           --
Chief Operating
Officer

Michael Radomsky       1998         139,858                                               42,839
Executive Vice-        1997         128,773             --         --          --         90,000       --       541(4)
President              1996         122,800             --         --          --          8,208       --     1,047(4)
William H. Whitney     1998         127,980                                               42,839
Chief Technology       1997         128,773             --         --          --         90,000       --     2,318(4)
Officer                1996         122,800             --         --          --          8,136       --     2,152(4)

John F. McTigue (5)    1998          92,482                                              100,760              1,418(4)
V-P, Operations, Chief
Financial Officer, Treasurer
And Assistant Secretary

Mark A. Simmons        1998
V-P, Operations, Chief 1997         116,956             --         --          --         40,000       --     2,105(4)
Financial Officer      1996          92,800             --         --          --          6,579       --     1,612(4)

------------------------
</TABLE>

(1)        The Company  does not have a written  employment  agreement  with Mr.
           Stephen M.  Deixler,  the Company's  Chairman of the Board.  However,
           under an informal agreement, the Company has agreed to pay him $1,000
           per day to perform such services as jointly  agreed to by the Company
           and Mr. Deixler, and approved by the Board of Directors. Mr. Deixler

                                                                                
                                      -30-

<PAGE>


           ceased to serve as the Chief Executive  Officer of the Company on May
           19, 1997.

(2)        Mr. Gray was elected to serve in the additional capacity as the Chief
           Executive  Officer of the Company on May 19, 1997.  Compensation  for
           Mr. Gray includes  payments he earned as consultant to the Company in
           the amount of $42,000. Mr. Gray served as a consultant to the Company
           prior to the time he  became a  full-time  employee  pursuant  to his
           employment agreement with the Company dated March 27, 1995.

(3)        Represents  compensation  earned under the Company's  Incentive Bonus
           Plan for the fiscal year ended March 31, 1995 (the "Incentive Plan").
           The Incentive Plan covers all Company  employees and was effective as
           of October 1, 1994.  The Incentive  Plan is based on  achievement  in
           three specific areas - Company revenue, Company operating income, and
           individual/ departmental objectives.

(4)        Represents  contribution  of the Company under the  Company's  401(k)
           Plan.

(5)        Represents  compensation  for the  period  from July 2, 1997 (date of
           hire) through March 31, 1998.

                                                                                
                                      -31-

<PAGE>



                        Option Grants in Fiscal Year 1998

              The  following  table sets forth  certain  information  concerning
stock option grants during the year ended March 31, 1998 to the Named  Executive
Officers:
<TABLE>
<CAPTION>

                                                 Individual Grants
                               ---------------------------------------------------------------------------------

                                                       Percent
                               Number of               of Total
                               Securities              Options                  Exercise
                               Underlying              Granted to               or Base
                               Options                 Employees in             Price                Expiration
Name                           Granted(#)              Fiscal Year              ($/Sh)               Date
----                           -----------             -------------            ---------            ----------              

<S>                        <C>                           <C>                <C>                  <C>
Stephen M. Deixler             10,000(1)                     (1)                $1.50                9/17/01

Stephen B. Gray                75,000(2)                    4.2%                $1.75                05/04/07

Michael Radomsky               42,839(2)                    2.4%                $1.75                05/04/07

William H. Whitney             42,839(2)                    2.4%                $1.75                05/04/07

John F. McTigue                70,760(2)                    3.9%                $1.34                07/02/07
                               30,000                       2.5%                $1.34                07/02/07

</TABLE>



(1)        Represents  stock options granted to Mr. Deixler under the 1994 Stock
           Option  Plan in  consideration  of his  service  to the  Company as a
           director.

(2)        Represent  options issued under a Time  Accelerated  Restricted Stock
           Award Program (TARSAP).



                                      -32-

<PAGE>



                 Aggregated Option Exercises in Fiscal Year 1998
                        and Fiscal Year-End Option Values

              The following table sets forth certain information concerning each
exercise of stock options during the fiscal year ended March 31, 1998 by each of
the Named  Executive  Officers and the number and value of  unexercised  options
held by each of the Named Executive Officers on March 31, 1998.
<TABLE>
<CAPTION>




                                                                                               Value of
                                                                Number of Securities           Unexercised
                                                                Underlying Unexer-             In-the-Money
                             Shares                             cised Options                  Options at
                             Acquired on         Value          at FY-End(#)                   FY-End($)(1)
Name                         Exercise (#)        Realized($)    Exercisable/Unexercisable      Exercisable/Unexercisable
----                         ------------        -----------    -------------------------      --------------------------

<S>                     <C>                 <C>              <C>                        <C>   
Stephen M. Deixler           --                  --             15,000/5,000                   $1,250/$1,250

Stephen B. Gray              --                  --             202,309/200,000                $118,000/$118,000

Michael Radomsky             --                  --             99,400/0                       $53,100/$0

William H. Whitney           --                  --             99,345/0                       $53,100/$0

John F. McTigue

-----------------------
</TABLE>


(1)        The average  price for the Common  Stock as reported by the  National
           Quotation  Bureau on March 31,  1998 was  $2.78 per  share.  Value is
           calculated on the basis of the difference between the option exercise
           price and $2.78  multiplied  by the number of shares of Common  Stock
           underlying the options.




                                      -33-

<PAGE>

Compensation of Directors
-------------------------

              On September 17, 1997 Stephen M. Deixler,  Stephen P. Roma,  David
I. Gould and Alexander C. Stark, the Company's non-employee directors, were each
granted a  non-employee  director  option.  Pursuant to the Company's 1994 Plan,
each  Director  received an option to  purchase  10,000  shares of Common  stock
exercisable as to 2,500 shares upon each three-month  anniversary of the date of
grant,  provided  that  such  individual  continues  to serve as a  non-employee
director of the Company on such dates.

              In addition,  the Company adopted a policy  commencing  October 1,
1995,  that all  non-employee  directors  traveling  more than fifty  miles to a
meeting of the Board of directors shall be reimbursed for all reasonable  travel
expenses.


Employment Contracts, Termination of Employment and Change of Control 
---------------------------------------------------------------------
Arrangements
------------

              The Company has no employment agreements other then the employment
agreement  with  Stephen B. Gray,  the  Company's  Chief  Executive  Officer and
President.


Item  11.     Security Ownership of Certain Beneficial Owners and Management.

              The  following  table  sets  forth  the  number  of  shares of the
Company's  Common Stock owned by each person or institution  who, as of June 29,
1998, owns of record or is known by the Company to own  beneficially,  more than
five (5%)  percent of such  securities,  and by the  Company's  Named  Executive
Officers  and by its  Directors,  both  individually  and as a  group,  and  the
percentage of such  securities  owned by each such person and the group.  Unless
otherwise  indicated,  such persons have sole voting and  investment  power with
respect to shares listed as owned by them.
<TABLE>
<CAPTION>


Name and Address                        Shares Owned                    Percent of Class
----------------                        ------------                    -----------------
<S>                                     <C>                             <C>  
Stephen M. Deixler (1)                        760,532                         15.4%
371 Eagle Drive
Jupiter, Florida 33477

David I. Gould (2)                            199,337                          4.0%
10844 White Aspen Way
Boca Raton, Florida  33428

Stephen B. Gray (3)(12)                       517,309                          9.7%

Michael Radomsky (4)                          356,643                          7.2%
8 Zaydee Drive
Edison, New Jersey 08837

                                                                                
                                      -34-

<PAGE>


Name and Address                        Shares Owned                    Percent of Class
----------------                        ------------                    ----------------

William H. Whitney (5)                       214,998                          4.5%
15 Jackson Avenue
Chatham, New Jersey 07928

Robert M. Groll (6)                          100,852                          2.1%
52 Village Lane
Freehold, New Jersey 07728

John F. McTigue (7)(12)                      100,760                          2.0%

Stephen P. Roma (8)                          484,399                          9.8%
91 Durand Drive
Marlboro, New Jersey 07748

Special Situations Fund, III, L.P.(9)        855,863                         16.7%

MGP Advisers Limited Partnership (9)         855,863                         16.7%

AWM Investment Company, Inc. (9)           1,157,133                         22.2%

Austin W. Marxe (9)                        1,157,133                         22.2%

Jay Associates LLC (10)                      480,000                          9.3%
1118 Avenue J
Brooklyn, New York  11230

Alpha Investments LLC (11)                   336,000                          6.6%
5611 North 16th Street #300
Phoenix, Arizona  85016

Directors and executive
  officers as a group (8 Persons)          2,779,825                         45.8%

</TABLE>

(1)        Does  not  include  214,436  shares  of  Common  Stock  owned  by Mr.
           Deixler's wife, mother, children and grandchildren as to which shares
           Mr. Deixler disclaims beneficial  ownership.  Includes 120,406 shares
           of Common Stock held by Merrill Lynch Pierce Fenner & Smith custodian
           f/b/o Stephen M. Deixler, IRA. Includes 27,500 shares of Common Stock
           which may be acquired pursuant to currently exercisable  non-employee
           director  options under the 1994 Plan.  Also  includes  53,330 shares
           issuable upon exercise of currently  exercisable  Class A and Class B
           Warrants of the 1996 Private Placement.


                                      -35-

<PAGE>



(2)        Includes 50,000 shares of Common Stock which may be acquired pursuant
           to currently  exercisable  options granted outside the Company's 1984
           Stock Option Plan and the 1994 Plan.  Also includes  52,500 shares of
           common Stock which may be acquired pursuant to currently  exercisable
           non-employee director options under the 1994 Plan.

(3)        Includes  400,000  shares  of  Common  Stock  which  may be  acquired
           pursuant  to  currently   exercisable  options  granted  outside  the
           Company's  1994 Plan.  Also includes  117,309  shares of Common Stock
           which may be  acquired  pursuant  to  currently  exercisable  options
           granted under the Company's 1994 Plan.

(4)        Includes 90,000 shares of Common Stock which may be acquired pursuant
           to currently  exercisable  options granted outside the Company's 1994
           Plan.  Also  includes  52,339  shares  of Common  Stock  which may be
           acquired pursuant to currently  exercisable options granted under the
           Company's 1994 Plan.

(5)        Includes 90,000 shares of Common Stock which may be acquired pursuant
           to currently  exercisable  options granted outside the Company's 1994
           Plan.  Also  includes  52,184  shares  of Common  Stock  which may be
           acquired pursuant to currently  exercisable options granted under the
           Company's 1994 Plan.

(6)        Includes 56,684 shares of Common Stock which may be acquired pursuant
           to currently exercisable options granted under the 1994 Plan.

(7)        Includes  100,760  shares  of  Common  Stock  which  may be  acquired
           pursuant to currently exercisable options granted under the Company's
           1994 Plan.

(8)        Includes  47,877 shares of Common Stock held by  Donaldson,  Lufkin &
           Jenrette Securities Corporation custodian f/b/o Stephen P. Roma, IRA.
           Includes  8,400  shares of Common Stock held by Mr. Roma and his wife
           as joint tenants.  Also includes  27,500 shares of common Stock which
           may  be  acquired  pursuant  to  currently  exercisable  non-employee
           director  options under the 1994 Plan.  Also  includes  53,330 shares
           issuable upon exercise of currently  exercisable  Class A and Class B
           Warrants of the 1996 Private Placement. Does not include 1,200 shares
           of Common Stock held by Mr. Roma as  custodian  for his son or 29,108
           shares  owned by Mr.  Roma's  wife,  some of  which  are held in Mrs.
           Roma's  individual  retirement  account,  as to which shares Mr. Roma
           disclaims beneficial ownership.

(9)        Special  Situations  Fund III, L.P., a Delaware  limited  partnership
           (the "Fund"),  MGP Advisers Limited  Partnership,  a Delaware limited
           partnership  ("MGP"),  AWM  Investment  Company,   Inc.,  a  Delaware
           corporation  ("AWM"),  and Austin W. Marxe have filed a Schedule 13G,
           the  latest  amendment  of which  is  dated  January  27,  1997.  All
           presented  information is based on the  information  contained in the
           Schedule 13G and  subsequent  information  known to the Company.  The
           address of each of the reporting persons is 153 East 53rd Street, New
           York, New York 10022. The Fund has sole voting and dispositive  power
           with respect to 855,863 shares;  MGP has sole dispositive  power with
           respect to 855,863 shares;  AWM has sole voting power with respect to
           301,270 shares and sole

                                                                          
                                      -36-

<PAGE>



           dispositive power with respect to 1,157,133 shares; and Mr. Marxe has
           sole voting power with respect to 301,270 shares, shared voting power
           with  respect  to  855,863  shares  and sole  dispositive  power with
           respect  to  1,157,133  shares.  MGP  is a  general  partner  of  and
           investment  advisor to the Fund. AWM, which is primarily owned by Mr.
           Marxe, is the sole general  partner of MGP. Mr. Marxe,  the principal
           limited  partner  of MGP and the  President  of AWM,  is  principally
           responsible  for the selection,  acquisition  and  disposition of the
           portfolio  securities  by AWM on behalf of MGP,  the Fund and another
           fund  that   beneficially   owns   shares   included  in  the  shares
           beneficially owned by AWM and Mr. Marxe. Also includes 267,242 shares
           issuable upon exercise of currently  exercisable  Class A and Class B
           Warrants of the 1996 Private  Placement  held by the Fund and MGP and
           364,422 shares issuable upon exercise of currently  exercisable Class
           A and Class B Warrants of the 1996 Private  Placement held by AWM and
           Mr. Marxe.

(10)       Includes   320,000   shares   issuable  upon  exercise  of  currently
           exercisable  Class  A and  Class  B  Warrants  of  the  1996  Private
           Placement.

(11)       Includes   224,000   shares   issuable  upon  exercise  of  currently
           exercisable  Class  A and  Class  B  Warrants  of  the  1996  Private
           Placement.

(12)       The address of such person is c/o the  Company,  21 Meridian  Avenue,
           Edison, New Jersey 08820.


Item  12.     Certain Relationships and Related Transactions.

              Mr. David I. Gould,  formerly an executive officer and director of
the Company  entered into a consulting  agreement with the Company,  that became
effective on May 1, 1995 upon the expiration date of his employment agreement on
April 30, 1995. The consulting  agreement provides for a four-year term, with an
automatic one year renewal,  and  compensation at the rate of $1,000 per day for
services provided. The consulting agreement further provides that Mr. Gould will
not receive  less than  $40,000 nor more than  $220,000  per year,  and that the
rendering of any services  above $40,000 must be with the prior  approval of the
Company. During fiscal 1998, Mr. Gould was paid $40,000 under this agreement.

              On  April  1,  1996,   the  Company   entered   into  a  six-month
compensation  agreement with Mr. Lonnie L. Sciambi,  a former executive  officer
and director of the Company after the  expiration  of the  Company's  employment
agreement with Mr. Sciambi. The compensation agreement provided for compensation
in the aggregate sum of $100,000,  as well as certain  benefits during the term.
In addition,  Mr.  Sciambi was granted a stock option under the  Company's  1994
Plan to purchase 23,196 shares of Common Stock.

              In April 1996, the Company completed the 1996 Private Placement to
accredited  investors of an aggregate of 1,101,467  Units for gross  proceeds of
$1,376,933.75, each Unit consisting of one share of Common Stock and one Class A
Warrant and one Class B Warrant, each of which are exercisable into one share of
Common Stock. Stephen M. Deixler, an executive officer and a director

                                               
                                      -37-

<PAGE>



of the  Company and Stephen P. Roma,  a director of the  Company,  who each held
preemptive  rights to purchase  Units in this offering,  each  purchased  26,665
Units at a price of $1.25 per Unit for the aggregate consideration of $33,331.25
Additionally,  in connection with the 1996 Private Placement, Special Situations
Fund III, L.P., also the holder of preemptive rights, purchased 133,621 Units at
$1.25 for the aggregate consideration of $167,026.25.

              In September  1995, the Company formed a wholly-owned  subsidiary,
MicroFrame  Europe  N.V.,  which,  in  turn,  acquired  all  of the  issued  and
outstanding shares of capital stock of European Business Associates BVBA ("EBA")
of Brussels,  Belgium from Marc Kegelaers,  its sole shareholder.  In connection
with  such  acquisition,  MicroFrame  Europe  N.V.  entered  into  a  consulting
agreement with Mr. Kegelaers for a term of five years. The consulting  agreement
provides for a consulting  fee in the  aggregate sum of U.S.  $75,000  annually,
with annual 5% increases over the term, as well as the  reimbursement of certain
expenses during the term.


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

(a)    Exhibits
       --------
<TABLE>
<CAPTION>

Exhibit         
No.             Description                                 Exhibit Reference                                           
-------         -----------                                 -----------------
       
<S>          <C>                                         <C>                         
3.1             Certificate of Incorporation of the         Incorporated by reference to Exhibit 3.2 of the
                Company                                     Form 10-K for the fiscal year ended March 31,
                                                            1992 (the "1992 10-K")

3.2             By-Laws of the Company                      Incorporated by reference to Exhibit 3.2 of
                                                            Amendment No. 1 to the Company's
                                                            Registration Statement on Form SB-2 (No.
                                                            33-66688) dated October 26, 1993
                                                            ("Amendment No. 1 to the Registration
                                                            Statement")

3.3             Amendment to Certificate of                 Incorporated by reference to Exhibit 3.3 of the
                Incorporation filed September 14,           Form 10-KSB for the fiscal year ended March
                1992                                        31, 1993 (the "1993 10-KSB")

3.4             Amendment to Certificate of                 Incorporated by reference to Exhibit 3.4 of
                Incorporation filed September 20,           Amendment No. 1 to the Registration
                1993                                        Statement



                                                                                                                     7/14/98
                                      -38-

<PAGE>
Exhibit                                                                         
No.             Description                                 Exhibit Reference   
-------         -----------                                 -----------------   

3.5             Form of Specimen Common Stock               Incorporated by reference to Exhibit 3.5 of
                Certificate                                 Amendment No. 2 to the Company's
                                                            Registration Statement on Form SB-2 (No.
                                                            33-66688) dated December 1, 1993
                                                            ("Amendment No. 2 to the Registration
                                                            Statement")

10.1            1984 Stock Option Plan                      Incorporated by reference to Exhibit 10.4 of
                                                            the of the Form 10-K for the fiscal year ended
                                                            March 31, 1985

10.2            Amendment No. 2 to 1984 Stock               Incorporated by reference to Exhibit 10.5 of
                Option Plan                                 the Form 10-K for the fiscal year ended March
                                                            31, 1986 (the "1986 10-K")

10.3            Lease Agreement                             Incorporated by reference to Exhibit 10.6 of
                                                            the Form 10-K for the fiscal year ended March
                                                            31, 1991 (the "1991 10-K")

10.4            Stock Purchase Agreement dated              Incorporated by reference to Exhibit 10.4 of
                May 10, 1993 pursuant to Private            the 1993 10-KSB
                Placement

10.5            Employment Agreement dated as               Incorporated by reference to Exhibit 10.5 of
                of May 2, 1992 between David I.             Amendment No. 2 to the Registration
                Gould and the Company                       Statement

10.6            Loan Agreement between the                  Incorporated by reference to Exhibit 10.6 of
                Company and New Jersey                      the 199310-KSB
                National Bank

10.7            Letter Agreement dated April 28,            Incorporated by reference to Exhibit 10.7 of
                1993 between the Company and                Amendment No. 1 to the Registration
                New Jersey National Bank                    Statement

10.8            Form of Consulting Agreement                Incorporated by reference to Exhibit 10.8 of
                between David I. Gould and the              Amendment No. 1 to the Registration
                Company                                     Statement



                                                                                                                     7/14/98
                                      -39-

<PAGE>
Exhibit                                                                         
No.             Description                                 Exhibit Reference   
-------         -----------                                 -----------------   

10.9            Agreement between American                  Incorporated by reference to Exhibit 10.9 of
                Telephone and Telegraph                     Amendment No. 2 to the Registration
                Company and the Company dated               Statement
                September 17, 1993

10.10           Joint Marketing Agreement                   Incorporated by reference to Exhibit 10.10 of
                between MCI Telecommunica                   Amendment No. 2 to the Registration
                tions Corporation and the                   Statement
                Company dated September 1,
                1992, together with Amendment
                No. 1 dated July 7, 1993

10.11           Employment Agreement dated as               Incorporated by reference to Exhibit 10.11 of
                of January 1, 1994 between                  Form 10-KSB for the fiscal year ended March
                Michael Radomsky and the                    31, 1994 (the "1994 10-KSB")
                Company

10.12           Employment Agreement dated as               Incorporated by reference to Exhibit 10.12 of
                of January 1, 1994 between                  the 1994 10-KSB
                William H. Whitney and the
                Company

10.13           Employment Agreement dated as               Incorporated by reference to Exhibit 10.13 of
                of January 1, 1994 between                  the 1994 10-KSB
                Robert M. Groll and the Company

10.14           Employment Agreement dated as               Incorporated by reference to Exhibit 10.15 of
                of January 1, 1994 between P.               Amendment No. 2 to the Registration
                David Bocksch and the Company               Statement

10.15           Amendments to Lease                         Incorporated by reference to Exhibit 10.15 of
                                                            the 1994 10-KSB

10.16           Amendment to Loan and Security              Incorporated by reference to Exhibit 10.16 of
                Agreement between the Company               Form 10-QSB for the quarter ended
                and CoreStates Bank, N.A. dated             September 30, 1994
                September 8, 1994.

10.17           Consulting Agreement between                Incorporated by reference to Exhibit 10.17 to
                the Company and P. David                    Form 8-K dated November 30, 1994
                Bocksch dated November 14,
                1994


                                                                                                                     7/14/98
                                      -40-

<PAGE>

Exhibit                                                                         
No.             Description                                 Exhibit Reference   
-------         -----------                                 -----------------   

10.18           Employment Agreement dated as               Incorporated by reference to Exhibit 10.18 to
                of October 11, 1994 between the             Form 10-QSB for the quarter ended December
                Company and Lonnie L. Sciambi               31, 1994

10.19           Incentive Bonus Plan of the                 Incorporated by reference to Exhibit 10.19 to
                Company for the fiscal year ended           Form 10-QSB for the quarter ended December
                March 31, 1995                              31, 1994

10.20           Letter from Feldman Sablosky &              Incorporated by reference to Exhibit 10.20 to
                Company to the Securities and               Form 8-K dated March 13, 1995
                Exchange Commission relating to
                Item 4 of Form 8-K

10.21           1994 Stock Option Plan                      Incorporated by reference from the Company's
                                                            Proxy Statement dated August 15, 1994 for
                                                            the Company's Annual Meeting of
                                                            Shareholders held on September 19, 1994

10.22           Non-Qualified Stock Option                  Incorporated by reference to Exhibit 10.22 of
                Agreement dated December 19,                the 1994 10-KSB
                1994 between the Company and
                Cameron Towey Neilson, Inc.

10.23           Purchase Agreement dated                    Incorporated by reference to Exhibit 10.23 of
                December 21, 1994 between the               the 1994 10-KSB
                Company and Ericsson Business
                Networks AB

10.24           Employment Agreement dated as               Incorporated by reference to Exhibit 10.24 of
                of March 27, 1995 between the               the 1994 10-KSB
                Company and Stephen B. Gray

10.25           Letter dated April 5, 1995 from             Incorporated by reference to Exhibit 10.25 of
                the Company to P. David Bocksch             the 1994 10-KSB
                terminating his Consulting
                Agreement

10.26           Incentive Bonus Plan of the                 Incorporated by reference to Exhibit 10.26 of
                Company for the fiscal year ending          the 1994 10-KSB
                March 31, 1996



                                                                                                                     7/14/98
                                      -41-

<PAGE>
Exhibit                                                                         
No.             Description                                 Exhibit Reference   
-------         -----------                                 -----------------   

10.27           Letter of Intent dated April 9,             Filed herewith
                1998 With Solcom Systems, Ltd.

10.28           Line of Credit Agreement with               Filed herewith
                United National Bank Dated
                November 17, 1997


23.1            Consent of Pricewaterhouse                  Filed herewith
                Coopers LLP
</TABLE>


(b)    Reports on Form 8-K

               On May 19, 1998,  the Company filed a Current  Report on Form 8-K
disclosing  a press  release in  connection  with the  execution  of a letter of
intent relating to the Company's proposed acquisition of SolCom Systems Limited.


                                                                             
                                      -42-


<PAGE>
                         MICROFRAME, INC. AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                   For the years ended March 31, 1998 and 1997



Index to Consolidated Financial Statements


Report of Independent Accountants                            F-1

Consolidated Balance Sheets as of March 31, 1998
    and March 31, 1997                                       F-2

Consolidated Statements of Operations for the years
    ended March 31, 1998 and 1997                            F-3

Consolidated Statements of Cash Flows for the years
    ended March 31, 1998 and 1997                            F-4

Consolidated Statements of Stockholders' Equity for
     the years ended March 31, 1998 and March 31, 1997       F-5

Notes to Consolidated Financial Statements                   F-6-20

                                                                                
                                      

<PAGE>



Report of Independent Accountants



To the Board of Directors and Stockholders of
MicroFrame, Inc. and Subsidiary:



In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  cash flows and  stockholders'  equity
present fairly, in all material respects,  the financial position of MicroFrame,
Inc. and Subsidiary  (the "Company") at March 31, 1998 and 1997, and the results
of their operations,  cash flows and changes in stockholders' equity for each of
the two years in the period ended March 31, 1998, in conformity  with  generally
accepted   accounting   principles.   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 of these  statements  in  accordance  with  generally  accepted  auditing
standards which 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



/s/ PricewaterhouseCoopers LLP


New York, New York
June 26, 1998

                                                                                
                                       F-1

<PAGE>



MICROFRAME, INC. AND SUBSIDIARY

Consolidated Balance Sheets
as of March 31, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                    1998                    1997
                                                                              -----------------      ------------------
                                   ASSETS
<S>                                                                         <C>                     <C>
Current assets:
   Cash and cash equivalents                                                    $       507,726         $       539,214
   Accounts receivable, less allowance for doubtful
      accounts of $126,000 and $100,000, respectively                                 2,667,319               1,898,810
   Inventory, net                                                                     1,425,351               1,030,343
   Current deferred tax assets                                                          366,137                 314,242
   Prepaid expenses and other current assets                                            153,568                 120,990
                                                                              -----------------      ------------------

        Total current assets                                                          5,120,101               3,903,599

Property and equipment at cost, net                                                     421,701                 343,123
Capitalized software, less accumulated amortization
   of $1,054,827 and $812,257, respectively                                             396,351                 315,568
Noncurrent deferred tax assets                                                          326,083                       -
Goodwill, less accumulated amortization of $26,130
   and $16,230, respectively                                                             75,480                  85,380
Security deposits                                                                        35,716                  34,703
                                                                              -----------------      ------------------
      Total assets                                                               $    6,375,432          $    4,682,373
                                                                              =================      ==================

        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Bank borrowings                                                               $      300,000                       -
   Current portion of long-term debt                                                     30,009                  42,266
   Accounts payable                                                                     910,842                 361,537
   Accrued payroll and related liabilities                                              348,397                 280,512
   Deferred income                                                                      181,573                 268,518
   Other current liabilities                                                            405,263                 255,346
                                                                              -----------------      ------------------

      Total current liabilities                                                       2,176,084               1,208,179
                                                                              -----------------      ------------------

Commitments and contingencies (Notes 8 and 9)
Deferred tax liabilities                                                                196,394                 173,077
Long-term debt                                                                        -                          30,398

Stockholders' equity:
   Preferred stock - par value $10 per share; authorized
      200,000 shares, none issued
   Common  stock - par value  $.001 per  share;  authorized  50,000,000  shares,
      issued  4,849,531  shares,  outstanding  4,849,131  shares and  subscribed
      50,000 shares at March 31, 1998; issued 4,839,203 shares and outstanding
      4,838,803 shares at March 31, 1997                                                  4,899                   4,839
   Additional paid-in capital                                                         6,345,613               6,212,828
   Stock subscription receivable                                                      (104,000)              -
   Accumulated deficit                                                              (2,231,638)             (2,942,948)
   Cumulative translation adjustment                                                    (7,920)              -
                                                                              -----------------      ------------------

                                                                                      4,006,954               3,274,719

Less - Treasury stock, 400 shares, at cost                                              (4,000)                 (4,000)
                                                                              -----------------      ------------------

      Total stockholders' equity                                                      4,002,954               3,270,719
                                                                              -----------------      ------------------

        Total liabilities and stockholders' equity                               $    6,375,432          $    4,682,373
                                                                              =================      ==================

</TABLE>
 
        The accompanying notes are an integral part of these consolidated
                             financial statements.
                                     
                                      F-2
<PAGE>

MICROFRAME, INC. AND SUBSIDIARY

Consolidated Statements of Operations
for the years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                  1998                   1997
                                                                           ------------------      ----------------

<S>                                                                         <C>                    <C>        
Net sales                                                                        $ 10,217,911           $ 7,343,624

Cost of sales                                                                       4,285,134             2,903,705
                                                                           ------------------      ----------------

Gross margin                                                                        5,932,777             4,439,919

Research and development expenses                                                   1,117,151               893,852
Selling, general and administrative expenses                                        4,419,521             3,355,961
                                                                           ------------------      ----------------

Income from operations                                                                396,105               190,106

Interest income                                                                        14,888                35,560
Interest expense                                                                      (4,344)              (24,380)
                                                                           ------------------      ----------------

Income before income tax benefit                                                      406,649               201,286

Income tax benefit                                                                  (304,661)             (141,165)
                                                                           ------------------      ----------------

Net income                                                                        $   711,310           $   342,451
                                                                           ==================      ================

Per share data:
Basic                                                                          $         0.15        $         0.07
Diluted                                                                        $         0.14        $         0.07
                                                                           ------------------      ----------------

Weighted average number of common shares outstanding                                4,840,357             4,730,713
                                                                           ------------------      ----------------


        The accompanying notes are an integral part of these consolidated
                             financial statements.
</TABLE>


                                       F-3

<PAGE>



MICROFRAME, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows
for the years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                      1998                   1997
                                                                                -----------------      -----------------
<S>                                                                                <C>                             <C>
Cash flows from operating activities:
   Net income                                                                          $  711,310                342,451
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization                                                       485,738                360,263
      Provision for doubtful accounts                                                      26,000                 55,751
      Provision for inventory obsolescence                                               (15,000)                 75,000
      Noncash stock-based compensation charge                                              15,150                     --
      Deferred tax provision                                                            (354,661)              (141,165)
      Changes in operating assets and liabilities:
        Accounts receivable                                                             (794,509)              (414,000)
        Inventory                                                                       (380,008)               (20,473)
        Prepaid expenses and other current assets                                        (32,578)               (43,564)
        Security deposits                                                                 (1,013)                    280
        Accounts payable                                                                  549,305               (34,082)
        Accrued payroll and related liabilities                                            67,885                 10,738
        Deferred income                                                                  (86,945)                  9,662
        Other current liabilities                                                         141,997              (179,869)
                                                                                -----------------      -----------------

                 Net cash provided by operating activities                                332,671                 20,992
                                                                                -----------------      -----------------

Cash flows from investing activities:
   Capital expenditures                                                                 (311,846)              (120,131)
   Capitalized software                                                                 (323,353)              (212,174)
                                                                                -----------------      -----------------

                 Net cash used in investing activities                                  (635,199)              (332,305)
                                                                                -----------------      -----------------

Cash flows from financing activities:
   Borrowings under line of credit                                                        300,000             --
   Repayments of debt                                                                    (42,655)              (538,923)
   Issuances of common stock                                                               13,695              1,341,148
                                                                                -----------------      -----------------

                 Net cash provided by financing activities                                271,040                802,225
                                                                                -----------------      -----------------

Net (decrease) increase in cash and cash equivalents                                     (31,488)                490,912

Cash and cash equivalents - beginning of period                                           539,214                 48,302
                                                                                -----------------      -----------------

Cash and cash equivalents - end of period                                           $     507,726                539,214
                                                                                =================      =================

Supplemental information:
      Cash paid during period for interest                                         $        4,344                 24,380
                                                                                -----------------      -----------------

Noncash investing and financing activities:
   Common stock issued in connection with European Business
      Associates share earn out agreement                                                  12,538                 15,877
                                                                                =================      =================

</TABLE>

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

                                                                                
                                       F-4

<PAGE>



MICROFRAME, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders' Equity
for the years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>





                                                     Additional      Stock                        Cumulative              Total
                                 Common Stock         Paid-in     Subscription   Accumulated   Translation   Treasury  Stockholders'
                            Shares         Par        Capital      Receivable      Deficit      Adjustment     Stock       Equity
                                          Value
                          -----------  -----------  ------------ -------------- -------------- ------------- --------- -------------

<S>                   <C>              <C>        <C>                         <C>             <C>            <C>       <C>  
Balance, March 31,1996      3,717,675        3,718  $  4,856,924                $  (3,285,399)  $              $  (4000) $ 1,571,243

Net income                                                                             342,451                               342,451

Issuances of common stock   1,121,128        1,121     1,355,904                                                           1,357,025
                          -----------  -----------  ------------ -------------- --------------  -------------  --------- -----------

Balance, March 31, 1997     4,838,803        4,839     6,212,828                   (2,942,948)                   (4,000)   3,270,719
                          -----------  -----------  ------------ -------------- --------------  -------------  --------- -----------

Net income                                                                            711,310                                711,310

Issuances of common stock      10,328           10        13,685                                                              13,695

Noncash stock-based
compensation                                              15,150                                                              15,150

Stock subscription             50,000           50       103,950 $    (104,000)

Translation adjustments                                                                               (7,920)                (7,920)
                          -----------  -----------  ------------ -------------- --------------  -------------  --------- -----------

Balance, March 31, 1998     4,899,131        4,899  $  6,345,613 $    (104,000) $  (2,231,638)  $     (7,920)  $ (4,000) $ 4,002,954
                          ===========  ===========  ============ ============== ==============  =============  ========= ===========



</TABLE>

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

                                                                                
                                       F-5

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
For the Years Ended March 31, 1998 and 1997

1.       Organization:

         The Company

         MicroFrame,  Inc.,  founded in 1982,  designs,  develops  and markets a
         broad range of  security,  network  management  and remote  maintenance
         products for voice and data communications networks. By incorporating a
         variety of hardware and software options for user authentication, these
         products  can deter  unauthorized  dial-in  access to both  devices and
         systems  (such as  computers,  local area  networks and Private  Branch
         Exchange  telephone  switches),  while  allowing  authorized  personnel
         access to perform needed administration and maintenance of host devices
         and networks  from remote  locations.  The products  also provide alarm
         monitoring  and  reporting  capabilities,  a basis for  remote  network
         management and maintenance.

2.       Summary of Significant Accounting Policies:

         Principles of Consolidation

         The accompanying consolidated financial statements include the accounts
         of MicroFrame,  Inc. and its subsidiary (collectively,  the "Company").
         All material intercompany accounts and balances have been eliminated.

         Cash and Cash Equivalents

         The Company  considers all highly liquid  investments  with an original
         maturity  of three  months or less at the time of  purchase  to be cash
         equivalents.

         Inventory

         Inventory  is  stated  at the lower of cost  (first-in,  first-out)  or
         market,  and consists of hardware and software  components  designed to
         interface with network communications environments.

         The markets for the  Company's  products are  characterized  by rapidly
         changing  technology and the  consequential  obsolescence of relatively
         new  products.  The Company has  recorded  certain  estimated  reserves
         against inventories related to such technological obsolescence.

         Property and Equipment

         Property and  equipment  are stated at cost.  Depreciation  is provided
         using the  straight-line  method over the estimated useful lives of the
         assets,  which are  generally  three to five  years.  Expenditures  for
         maintenance  and repairs,  which do not extend the economic useful life
         of the related assets, are charged to operations as incurred.  Gains or
         losses on disposal of  property  and  equipment  are  reflected  in the
         statements of operations in the period of disposal.

                                                                                
                                       F-6

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997






2.       Summary of Significant Accounting Policies (Continued)

         Capitalized Software

         The  Company  capitalizes   computer  software   development  costs  in
         accordance  with the  provisions  of Statement of Financial  Accounting
         Standards No. 86,  "Accounting for the Costs of Computer Software to be
         Sold, Leased or Otherwise  Marketed" ("SFAS 86"). SFAS 86 requires that
         the Company  capitalize  computer  software  development costs upon the
         establishment  of the  technological  feasibility of a product,  to the
         extent that such costs are  expected  to be  recovered  through  future
         sales of the product.

         The Company capitalized  $323,353 and $212,174 of software  development
         costs for fiscal 1998 and 1997, respectively. These costs are amortized
         by the greater of the amount  computed using (i) the ratio that current
         gross  revenues from the sales of software bear to the total of current
         and anticipated  future gross revenues from sales of that software,  or
         (ii) the  straight-line  method over the  estimated  useful life of the
         product  (generally three years). It is reasonably  possible that those
         estimates of anticipated future gross revenues, the remaining estimated
         economic life of the product, or both will be reduced  significantly in
         the near term (due to competitive pressures). As a result, the carrying
         amount of the capitalized  software costs may be reduced  materially in
         the near term.  Amortization  expense totaled $242,570 and $162,925 for
         fiscal 1998 and fiscal 1997, respectively.

         Goodwill

         Goodwill,  which  represents  the excess of cost over the net assets of
         acquired  companies,  is being amortized on a straight-line  basis over
         ten years.

         Research and Development Costs

         The Company  charges all costs incurred to establish the  technological
         feasibility  of a product or  enhancement  to research and  development
         expense.

         Revenue Recognition Policy

         The Company  records  revenue from product  sales upon  shipment to the
         customer if no significant  vendor obligations exist and collectibility
         is probable.  Maintenance contracts are sold separately and maintenance
         revenue  is  recognized  on a  straight-line  basis over the period the
         service is provided,  generally  one year.  At March 31, 1998 and 1997,
         the Company has deferred  income  related to  maintenance  contracts of
         $181,573 and $268,518 respectively.


                                                                                
                                       F-7

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997






2.       Summary of Significant Accounting Policies (Continued)

         Warranty Costs

         Warranty  costs  associated  with the sale of hardware and software are
         accrued at the time of sale. The warranty  reserve as of March 31, 1998
         and 1997 included in other current  liabilities  amounts to $45,000 and
         $35,000, respectively.

         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  reported  amounts  of  assets  and
         liabilities and disclosure of contingent  assets and liabilities at the
         date of the financial  statements and the reported  amounts of revenues
         and expenses  during the year.  Actual  results could differ from those
         estimates. The significant estimates include the allowance for doubtful
         accounts,  allowance  for  inventory  obsolescence,  deferred tax asset
         valuation allowance and depreciation and amortization lives.

         Fair Value of Financial Instruments

         The carrying value of cash and cash equivalents,  accounts  receivable,
         accounts  payable,  accrued payroll and related  liabilities,  deferred
         income, and other current  liabilities  approximates fair value because
         of the relatively  short maturity of these  instruments.  The Company's
         line of credit has a variable  interest rate which adjusts with changes
         in market  interest  rates and the book value of such  indebtedness  is
         deemed to approximate fair value.

         Long-Lived Assets

         Statement of Financial  Accounting  Standards No. 121,  "Accounting for
         the  Impairment  of  Long-Lived  Assets  and  Long-Lived  Assets  to be
         Disposed Of" ("SFAS 121"),  requires that long-lived assets be reviewed
         for impairment  whenever  events or changes in  circumstances  indicate
         that  the  carrying  amount  of  the  asset  in  question  may  not  be
         recoverable.  The Company adopted SFAS 121 during fiscal 1997 and there
         was no material impact on the Company's  financial  position or results
         of operations.

         Per Share Data

         Earnings per share has been  calculated in accordance with Statement of
         Financial  Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
         The weighted  average number of common shares  outstanding  during 1998
         and 1997  were  used to  compute  basic  earnings  per  share.  Diluted
         earnings  per share is computed  using the weighted  average  number of
         common shares  outstanding  plus the dilutive  potential  common shares
         outstanding.  Dilutive  potential  common shares are additional  common
         shares assumed to be exercised,  which approximated 355,000 and 238,000
         in 1998 and 1997, respectively.


                                                                                
                                       F-8

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997






2.       Summary of Significant Accounting Policies (Continued)

         Foreign Currency Translation

         The  financial  statements of the foreign  subsidiary  were prepared in
         local  currency and translated  into U.S.  dollars based on the current
         exchange  rate at the end of the  period  for the  balance  sheet and a
         weighted-average  rate for the period on the  statement of  operations.
         Translation  adjustments are reflected as foreign currency  translation
         adjustments in stockholders' equity and, accordingly, have no effect on
         net income.  Transaction  adjustments  for the foreign  subsidiary  are
         included in income.

         Income Taxes

         The Company accounts for income taxes in accordance with the provisions
         of Statement of Financial Accounting Standards No. 109, "Accounting for
         Income Taxes" ("SFAS 109").  SFAS 109 requires  recognition of deferred
         tax liabilities and assets for the expected future tax  consequences of
         events  that have been  included  in the  financial  statements  or tax
         return.  Under this  method,  deferred tax  liabilities  and assets are
         determined based on the difference between the financial  statement and
         tax basis of assets and  liabilities  ("temporary  differences")  using
         enacted tax rates in effect for the year in which the  differences  are
         expected to reverse.  Recognition of a deferred tax asset is allowed if
         it is more  likely  than not that the  asset  will be  realized  in the
         future.

         Reclassification

         The Company has reclassified certain prior year amounts to conform with
         the 1998 presentation.

3.       Inventory:

         Inventory,  net of reserve for obsolescence of $185,000 and $200,000 at
         March 31, 1998 and 1997, respectively, consists of the following:



                                    1998                      1997
                             ------------------       ---------------------

        Raw materials        $          818,132         $           625,583
        Work-in-process                 525,918                     374,802
        Finished goods                   81,301                      29,958
                             ------------------       ---------------------

                             $        1,425,351         $         1,030,343
                             
                             ==================       =====================



                                                                                
                                       F-9

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997


4.       Property And Equipment At Cost, Net:

         At March 31,  1998 and 1997  property  and  equipment  consists  of the
         following:


                                                  1998               1997
                                              ---------------  ----------------

        Demonstration and service equipment   $     1,125,987   $       832,478
        Furniture and fixtures                        195,767           180,940
        Leasehold improvements                         71,850            68,340
                                              ---------------  ----------------

                                                    1,393,604         1,081,758

        Less:  Accumulated depreciation             (971,903)         (738,635)
                                              ---------------  ----------------

        Total                                 $       421,701   $       343,123
                                              ===============  ================

         Depreciation  expense for  property and  equipment  for the years ended
         March  31,  1998  and  1997   amounted  to   $233,268   and   $186,874,
         respectively.

5.       Bank Borrowings:

         The Company has an available  line of credit  through July 30, 1998, in
         the amount of  $1,000,000.  At March 31, 1998,  $300,000 had been drawn
         down under this line of credit.  All  amounts  were unused at March 31,
         1997. The line is collateralized by all business assets of the Company.
         Any  advances  under the bank line are  payable at  maturity,  and bear
         interest  at the Wall Street  prime rate (8.5% at March 31,  1998) plus
         0.5%.  At March 31,  1996,  $500,000  was  outstanding  under a line of
         credit.  The final  installment on this  outstanding line of credit was
         made on September 5, 1996 at which time the bank line was closed.

         In  addition,  the Company had an  outstanding  facility of $150,000 to
         support 80% of its capital  expansion.  In November 1995,  $124,000 was
         borrowed  against  the  facility  with a term of three  years,  payable
         monthly, at an interest rate of 8.55%. Upon expiration of this facility
         at July 31, 1996,  the bank agreed to honor the existing  terms of this
         credit facility. At March 31, 1998 and 1997, respectively,  $30,009 and
         $72,664 was outstanding.  Future  principal  repayments under this loan
         are $30,009 for the year ending March 31, 1999.

         The bank line of credit contains a covenant which restricts the payment
         of a dividend without the prior approval of the bank.



                                                 
                                      F-10

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997








6.       Income Taxes:

         As of March 31, 1998, the Company has available federal and foreign net
         operating loss  carryforwards of  approximately  $896,000 and $914,000,
         respectively,   to  offset  future  taxable  income.  The  federal  net
         operating loss carryforwards expire during the years 2001 through 2011.
         In  addition,  the  Company  has  investment  credit and  research  and
         development credit carryforwards  aggregating  approximately  $136,098,
         which may provide future tax benefits, expiring from 1999 through 2002.

         The  components of the income tax benefit for the years ended March 31,
         1998 and 1997 are as follows:


                                               1998              1997
                                         ---------------   ----------------

         Current:
             Federal                     $        16,000           -
             State                                34,000           -
                                         ---------------   ----------------

                                                  50,000           -
                                         ---------------   ----------------

         Deferred:
             Federal                     $     (301,442)   $      (119,990)
             State                              (53,219)           (21,175)
                                         ---------------   ----------------

                                               (354,661)          (141,165)
                                         ---------------   ----------------

                                         $     (304,661)   $      (141,165)
                                         ===============   ================

         The reasons for the difference between the Company's effective tax rate
         and the United States federal statutory rate are as follows:


                                                              March 31,
                                                   ---------------------------
                                                        1998         1997
                                                   --------------  -----------

         Effective tax rate reconciliation:
         Statutory federal tax rate                           34%          34%
         State taxes, net of federal benefit                   6%           6%
         Effect of reversal of valuation allowance          (76)%        (70)%
         Foreign loss with no benefit                         29%          53%
         Utilization of NOL's                               (70)%        (93)%
         Other                                                 2%      -
                                                   --------------  -----------
                                                            (75)%        (70)%
                                                   ==============  ===========



                                                                                
                                      F-11

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997








6.       Income Taxes (Continued)

         The tax effect of temporary  differences  which make up the significant
         components  of the net  deferred  tax asset and  liability at March 31,
         1998 and 1997 are as follows:


                                                    1998              1997
                                                --------------   ---------------

         Current deferred tax assets:
             Inventory                          $      214,000   $       192,000
             Accrued expenses                           83,737            82,242
             Allowance for doubtful accounts            68,400            40,000
                                                --------------   ---------------

         Total current deferred tax assets      $      366,137   $       314,242
                                                ==============   ===============

         Noncurrent deferred tax assets:
             Net operating loss carryforwards   $      715,669   $       834,324
             Research and development credit           136,098           131,046
             Alternative minimum tax credit             21,572
                                                --------------   ---------------

         Total noncurrent deferred tax assets          873,339           965,370

         Valuation allowance                         (547,256)         (965,370)
                                                --------------   ---------------

         Net noncurrent deferred tax assets     $      326,083   $             -
                                                ==============   ===============

         Deferred tax liabilities:
             Depreciation                       $     (37,854)   $      (46,849)
             Capitalized software                    (158,540)         (126,228)
                                                --------------   ---------------

         Total deferred tax liabilities         $    (196,394)   $     (173,077)
                                                ==============   ===============

         The Company has recorded a valuation  allowance against the foreign net
         operating loss carryforwards and the research and development credit as
         it is more likely than not that such assets will not be  realized.  The
         change  in the  valuation  allowance  is due  to  the  reversal  of the
         valuation   allowance   recorded  against  the  remaining  federal  net
         operating loss carry forwards,  as management believes these assets are
         more likely than not to be utilized based on existing temporary taxable
         differences and expected  levels of future taxable  income,  as well as
         the  utilization of federal and state net operating loss  carryforwards
         offset  partially  by  the  increase  in  foreign  net  operating  loss
         carryfowards during the year ended March 31, 1998.



                                                                                
                                      F-12

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997


7.       Stockholders' Equity:

         During the year ended March 31, 1998, the Company  entered into a stock
         subscription  agreement  with one of its  directors,  under  which  the
         director agreed to acquire 50,000 shares of the Company's Common Stock.

         During the years ended March 31, 1998 and 1997,  respectively,  options
         to purchase 500 and 9,500  shares of common  stock under the  Company's
         stock option plans were exercised,  for an aggregate  consideration  of
         $625 and $15,755. In addition,  9,828 and 10,161 shares of common stock
         were  issued as part of the stock earn out as  stipulated  in the Share
         Purchase  Agreement  (see Note 12).  The  aggregate  fair value of this
         consideration was $13,070 and $15,877.

         During the year ended March 31, 1996,  options to purchase 5,877 shares
         of common stock under the Company's  stock option plans were exercised,
         for an aggregate consideration of $9,425. In addition, 25,000 shares of
         common stock were issued as part of the  consideration for the purchase
         of European Business  Associates BVBA (see Note 12). The aggregate fair
         market  value of  consideration  of $78,124 was recorded as part of the
         total consideration paid for this acquisition.

         In April,  1996,  the Company  sold  860,000  shares of common stock to
         unrelated  investors,  at $1.25 per share and  received net proceeds of
         approximately  $1,023,559.  In conjunction with this sale,  warrants to
         purchase 860,000 shares of common stock with an exercise price of $1.50
         and warrants to purchase an additional  860,000  shares of common stock
         with an exercise price of $2.00 were issued.  These warrants  expire in
         April, 2000.

         In addition,  the Company  sold 241,467  shares of common stock to four
         current  shareholders  of  record  who  held the  contractual  right to
         maintain their share of ownership. The Company received net proceeds of
         $301,834.  In conjunction with this sale,  warrants to purchase 241,467
         shares of common stock with an exercise  price of $1.50 and warrants to
         purchase an additional  241,467 shares of common stock with an exercise
         price of $2.00 were issued.
         These warrants expire in April, 2000.

         Warrants

         During October 1995, in connection  with services being  performed by a
         consultant,  the Company issued  250,000  warrants to the consultant to
         purchase  shares of the Company's  common  stock.  Warrants to purchase
         50,000  shares of common stock at $3.25 per share  vested  immediately.
         Warrants to purchase each  additional  block of 50,000 shares of common
         stock are  exercisable  at  $3.75,  $4.25,  $4.75 and $5.25 per  share,
         respectively,  and shall vest on each three  month  anniversary  of the
         agreement. The warrants expire five years from the date of grant.


                                                                                
                                      F-13

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997






7.       Stockholders' Equity (Continued)

                  Stock Option Plans

         In August  1994,  the Company  adopted its 1994 Stock  Option Plan (the
         "1994 Plan"). The 1994 Plan, as amended, increased the number of shares
         of common  stock for  which  options  may be  granted  to a maximum  of
         1,250,000  shares.  The aggregate fair market value  (determined at the
         time the option is granted) of shares which are exercisable  during any
         calendar year by any one individual may not exceed  $100,000.  The term
         of these  non-transferable  stock options may not exceed ten years. The
         exercise  price of these stock  options may not be less than 100% (110%
         if the person  granted  such  options owns more than ten percent of the
         outstanding  common stock) of the fair market value of one common stock
         on the date of grant. During the year ended March 31, 1997, the Company
         granted  options to purchase  657,629  shares of its common stock under
         the 1994 Plan.  At March 31, 1997,  298,693  options  were  outstanding
         under the 1994 Plan, of which 270,483 options were exercisable.

         Of the  options  granted  in  1998,  455,645  were  granted  under  the
         Company's Time Accelerated Restricted Stock Award Plan ("TARSAP").  The
         options vest after seven years,  however,  under the TARSAP the vesting
         is  accelerated  to the  last  day of the  current  fiscal  year if the
         Company meets certain  predetermined sales and net income targets.  The
         Company  met the targets  for 1998 and,  as such,  all options  granted
         under the TARSAP in 1998 vested as of March 31, 1998.

         Other Options

         During the year ended March 31, 1998, the Company issued 30,000 options
         to a  consultant,  of which 15,000 were  immediately  vested and 15,000
         were to vest  contingent on an extension of the  consulting  agreement.
         This agreement and the unvested options were  subsequently  terminated.
         Compensation  expense of $15,150 was recorded  relative to the grant of
         the original 15,000 options during 1998.

         During  September 1996, the Company issued options to certain  officers
         and directors to purchase 620,000 shares of the Company's common stock,
         of which 420,000  vested  immediately  and 100,000 vest each April 1 of
         1998 and 1999.  Options  expire ten years  from the date of grant.  The
         exercise  price of the  options  is equal  to the  market  value of the
         Company's stock on the date of grant.

         The Company also has outstanding  options to purchase 130,000 shares of
         the Company's stock. Options expire in terms ranging from 5 to 10 years
         from the date of grant.  The exercise  price of the options is equal to
         the market value of the Company's stock on the date of grant.



                                                                                
                                      F-14

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997






7.       Stockholders' Equity (Continued)

         Accounting for Stock-Based Compensation

         The Company continues to apply Accounting  Principles Board Opinion No.
         25,   "Accounting   for  Stock   Issued  to   Employees"   and  related
         Interpretations  in  accounting  for  its  options.   Accordingly,   no
         compensation  cost has been recognized for its fixed stock option plans
         in its results of operations.

         The Company has adopted the disclosure-only  provisions of Statement of
         Financial  Accounting  Standards No. 123,  "Accounting  for Stock-Based
         Compensation"  ("SFAS  123").  If the Company had elected to  recognize
         compensation  costs  based on the fair  value at the date of grant  for
         awards in fiscal 1998 and 1997,  consistent with the provisions of SFAS
         No. 123, the  Company's  net income and basic  earnings per share would
         have  been  reduced  by  $426,614  and  $.09  and  $462,088  and  $.10,
         respectively.

         The  proforma  effect on net income for fiscal 1998 and 1997 may not be
         representative  of the pro forma  effect on net income of future  years
         because  the  SFAS  No.  123  method  of   accounting   for  pro  forma
         compensation  expense has not been applied to options  granted prior to
         April 1, 1995.

         The  weighted-average  fair values at date of grant for options granted
         during fiscal 1998 and 1997 were $1.00 and $.96, respectively. The fair
         value of each option grant for the Company's  common stock is estimated
         on the date of the grant using the Black Scholes  option pricing model,
         with the  following  weighted  average  assumptions  used for grants in
         fiscal 1998 and 1997:


                                            1998                 1997
                                     ------------------------------------------

        Expected volatility                   77%                  77%
        Risk-free interest rate              6.34%                6.56%
        Expected option lives             5.54 years           6.34 years



                                                                                
                                      F-15

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997






7.       Stockholders' Equity (Continued)

         Accounting for Stock-Based Compensation (Continued)

         Details of options granted are as follows:
<TABLE>
<CAPTION>


                                                                                          Weighted
                                                                                           Average
                                                                                          Exercise              Option Price
                                                                     Shares                 Price               Per Share ($)
                                                                 --------------     ---------------------     -----------------
<S>                                                          <C>                 <C>                      <C> 
        Options outstanding at March 31, 1996                           435,998             2.11              1.25 to 3.13
        Granted                                                       1,277,629             1.31              1.16 to 2.00
        Canceled                                                      (636,634)             1.55              1.25 to 3.13
        Exercised                                                       (9,500)             1.66              1.25 to 1.83
                                                                 --------------                               -----------------

        Options outstanding at March 31, 1997                         1,067,493             1.49              1.16 to 2.87

        Granted                                                         807,740             1.78              1.34 to 3.13
        Canceled                                                       (79,937)             1.85              1.25 to 2.87
        Exercised                                                         (500)             1.25                    1.25
                                                                 --------------                               -----------------

        Options outstanding at March 31, 1998                         1,794,796             1.60              1.16 to 3.13

         Options exercisable at March 31, 1998                        1,425,932             1.65              1.16 to 3.13
</TABLE>

<TABLE>
<CAPTION>

                                                       Options Outstanding                                 Options Exercisable
                                    ----------------------------------------------------------      --------------------------------
                                                              Weighted
                                                              Average
                                                             Remaining            Weighted
                                                              Years of             Average
        Range of                         Number             Contractual           Exercise
        Exercise Prices               Outstanding               Life                Price             Exercisable          Weighted
        ----------------------      ----------------      ----------------     ---------------      ---------------     ------------

       <S>                          <C>                           <C>        <C>                        <C>          <C>  
        $1.16 - $1.72                        876,422                    5.02   $            1.25            615,422     $   1.26
        $1.83 - $2.14                        817,542                    4.81   $            1.83            709,922     $   1.81
        $2.25 - $3.13                        100,832                    3.12   $            2.86            100,588     $   2.86

</TABLE>


                                                                               
                                      F-16

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997


8.       Commitments:

         Operating Leases

         In  June  1993,   the   Company   amended  its  lease  for  office  and
         manufacturing facilities.  Such amendment extends the term of the lease
         until June 30, 1999. In July 1995,  the Company  executed an additional
         building   lease  for  the   purpose  of   expanding   its  office  and
         manufacturing  facilities.  The terms of the new lease  provide  for an
         expiration date concurrent with that of the existing building lease. In
         August  1996,  the Company  executed a building  lease for its European
         operation in Antwerp, Belgium. The lease expires in August 1999.

         The fixed minimum payments under operating leases for future periods is
         as follows:


                Year ending March 31,      
                 1999                          $          150,800
                 2000                                      44,500
                 2001                                           0
                 2002                                           0
                 2003                                           0
                 Thereafter                                     0
                                               ------------------

                Total minimum lease payments   $          195,300
                                               ==================
                                                                                

         Rent  expense,  in addition to allocated  occupancy  expenses,  for the
         years ended March 31, 1998 and 1997 approximated $153,954 and $145,700,
         respectively.

         Consulting Contract

         The Company  entered into a consulting  agreement with an officer which
         became   effective  upon  the  expiration  (or  mutually   agreed  upon
         termination) of his employment  agreement on May 2, 1995. The agreement
         provides  that the officer  will not receive less than $40,000 per year
         nor more than  $220,000  per year,  the amount of which is dependent on
         the level of  services  provided.  The costs  incurred  related  to the
         consulting  agreement  are $33,000 and $40,000,  respectively,  for the
         years ended March 31, 1998 and 1997.

         In connection with the acquisition of European Business Associates BVBA
         of  Brussels,  Belgium from Marc  Kegelaers  (see Note 12), the Company
         entered into a consulting  agreement  with Mr.  Kegelaers for a term of
         five years. The consulting  agreement provides for an annual consulting
         fee of $75,000 with 5% annual  increments,  as well as reimbursement of
         certain expenses.


                                                                                
                                      F-17

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997


9.       Contingent Liabilities:

         From time to time the  Company  and its  subsidiary  may be involved in
         legal  proceedings,  claims and  assessments  arising  in the  ordinary
         course of business.  In the opinion of management,  the outcome of such
         current  legal  proceedings,  claims and  assessments  would not have a
         material effect on the Company's reported financial  position,  results
         of  operations  or cash flows as of and for the years  ended  March 31,
         1998 and 1997.

10.      Employee Benefit Plans:

         Effective  April 1, 1993,  the Company  adopted a defined  contribution
         savings  plan.  The terms of the plan  provide for  eligible  employees
         ("participants")  who have met certain age and service  requirements to
         participate  by electing to  contribute up to 15% of their gross salary
         to  the  plan,  as  defined,   with  the  Company  matching  30%  of  a
         participant's  contribution  in cash  up to a  maximum  of 6% of  gross
         salary, as defined.  Company  contributions  vest at the rate of 25% of
         the  balance  at each  employee's  second,  third,  fourth,  and  fifth
         anniversary of employment. The employees' contributions are immediately
         vested.  The Company's  contribution  to the savings plan for the years
         ended March 31, 1998 and 1997 was $28,222 and $27,641, respectively.

         The Company has a plan in effect under which its employees earn a bonus
         if the Company meets a  predetermined  revenue target for the year. The
         Company met the target for 1998 and has accrued approximately  $117,000
         for payment of bonuses under the plan.

11.      Sales:

         Sales by  geographic  area for the years  ended March 31, 1998 and 1997
are as follows:

                                 
                                              1998                 1997
                                       ------------------ ----------------------

                 United States         $        7,435,586   $          5,813,584
                 Europe                         2,677,193              1,047,980
                 Pacific Rim                       23,611                349,732
                 Other                             81,521                132,328
                                       ------------------      -----------------
                                       $       10,217,911   $          7,343,624
                                       ==================      =================

         The  Company  sold a  substantial  portion  of  its  products  to  four
         customers.  Sales to these customers amounted to $6,232,390 (61% of net
         sales) in 1998 and $2,547,894 in 1997 (35% of net sales), respectively.
         At March 31, 1998 and 1997,  amounts due from these customers  included
         in accounts receivable,  were $1,279,486 and $1,022,787,  respectively.
         The loss of any of these customers would have a material adverse effect
         on the Company's financial position and results of operations.


                                                                             
                                      F-18

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997


12.      Concentration of Credit Risk:

         The Company  maintains  deposits in a  financial  institution  which is
         insured by the Federal  Deposit  Insurance  Corporation  ("FDIC") up to
         $100,000.  At March 31,  1998 and  periodically  throughout  1998,  the
         Company had  deposits in this  financial  institution  in excess of the
         amount insured by the FDIC.

13.      Impact of The Future Adoption of Recently Issued Accounting Standards:

         Effective  with the first  quarter of fiscal year 1999 the Company will
         adopt  SFAS  No.  130,  "Reporting   Comprehensive  Income".  SFAS  130
         establishes  the standards for reporting and  displaying  comprehensive
         income and its  components  (revenues,  expenses,  gains and losses) as
         part of a full set of financial  statements.  This  statement  requires
         that all  elements of  comprehensive  income be reported in a financial
         statement that is displayed with the same prominence as other financial
         statements.  Since this standards  applies only to the  presentation of
         comprehensive  income,  it will not have any  impact  on the  Company's
         results of operations, financial position or cash flows.

         In June 1997, the Financial Accounting Standards Board issued SFAS 131,
         "Disclosure  about Segments of an Enterprise  and Related  Information"
         which becomes effective for financial  statements for periods beginning
         after December 15, 1997. This Statement  establishes  standards for the
         way that public business enterprises report information about operating
         segments  in  annual   financial   reports  and  requires   that  those
         enterprises  report selected  information  about operating  segments in
         interim financial  reports issued to shareholders.  It also establishes
         standards  for  related   disclosures   about  products  and  services,
         geographic   areas,  and  major  customers.   Management  is  currently
         evaluating the impact of SFAS 131 on the financial statements.

         In February 1998, the Financial  Accounting Standards Board issued SFAS
         132,  "Employers'  Disclosures about Pensions and Other  Postretirement
         Benefits"   which  becomes   effective  for  the  Company's   financial
         statements  for the year ended March 31,  1999.  SFAS No. 132  requires
         revised  disclosures  about pension and other  postretirement  benefits
         plans and is not  expected to have a material  impact on the  Company's
         financial statements.

         In June 1998, The Financial Accounting Standards Board issued SFAS 133,
         "Accounting for Derivative  Instruments and Hedging  Activities"  which
         becomes  effective  for all fiscal  quarters of fiscal years  beginning
         after  June  15,  1999.  This  Statement  establishes   accounting  and
         reporting  standards  for  derivative  instruments,  including  certain
         derivative  instruments  embedded in other  contracts,  and for hedging
         activities.  The  adoption of this  standard is not  expected to have a
         material impact on the Company's financial statements.



                                                                          
                                      F-19

<PAGE>


MICROFRAME, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements (Continued)
For the Years Ended March 31, 1998 and 1997

14.      Subsequent Events:

         On June 23,  1998,  the Company  entered  into an  agreement to acquire
         Solcom  Systems,  Ltd.  ("Solcom"),  a developer  of remote  monitoring
         technology,  for  approximately  5.6  million  shares of the  Company's
         common stock. The acquisition is expected to be completed in the second
         quarter of 1999.

         The  acquisition  of Solcom will be  accounted  for under the  purchase
         method,  whereby the purchase price will be allocated to the underlying
         assets and liabilities based upon their estimated fair values.

                                                                                
                                      F-20

<PAGE>






                                   SIGNATURES

              In accordance with the  requirements of Section 13 or 15(d) of the
Securities  Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the  undersigned,  thereunto duly  authorized,  in this City of
Edison and State of New Jersey, on June 29, 1998.

                                     MICROFRAME, INC.



                                     By:  /s/ Stephen B. Gray
                                         ------------------------------------
                                         Stephen B. Gray, President, Chief
                                         Executive Officer, and Chief Operating
                                         Officer

              In accordance with the requirements of the Securities Exchange Act
of 1934,  this report has been signed by the following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

                               Signature and Title
                               -------------------




/s/ Stephen B. Gray                                      June 29, 1998
--------------------------------------
Stephen B. Gray, President, Chief
Executive Officer, Chief Operating
Officer (Principal Executive Officer)




/s/ John F. McTigue                                      June 29, 1998
----------------------------------------------------
John F. McTigue, Vice President -
Operations, Chief Financial Officer, Treasurer and
Assistant secretary (Principal Financial Officer and
Principal Accounting Officer)




/s/ Stephen M. Deixler                                   June 29, 1998
-------------------------------------------------
Stephen M. Deixler, Chairman of the
Board of Directors, Treasurer





                                                        
<PAGE>





/s/ Michael Radomsky
---------------------------------------
Michael Radomsky, Executive Vice                         June 29, 1998
President, Secretary, Director



/s/ Stephen P. Roma                                      June 29, 1998
---------------------------------------
Stephen P. Roma, Director





/s/ Alexander C. Stark                                   June 29, 1998
--------------------------------------
Alexander C. Stark, Director


<PAGE>


                                  Exhibit Index
<TABLE>
<CAPTION>


Exhibit          
No.             Description                                 Exhibit Reference
 ------         -----------                                 -----------------                                          

<S>          <C>                                          <C>                                                 
3.1             Certificate of Incorporation of the         Incorporated by reference to Exhibit 3.2 of the Form 10-
                Company                                     K for the fiscal year ended March 31, 1992 (the "1992
                                                            10-K")

3.2             By-Laws of the Company                      Incorporated by reference to Exhibit 3.2 of Amendment
                                                            No. 1 to the Company's Registration Statement on Form
                                                            SB-2 (No. 33-66688) dated October 26, 1993
                                                            ("Amendment No. 1 to the Registration Statement")

3.3             Amendment to Certificate of Incorporation   Incorporated by reference to Exhibit 3.3 of the Form   
                filed September 14, 1992                    10-KSB for the fiscal year ended March 31, 1993 (the                   
                                                            "1993 10-KSB)
               

3.4             Amendment to Certificate of Incorporation   Incorporated by reference to Exhibit 3.4 of Amendment
                filed September 20, 1993                    No. 1 to the Registration Statement


3.5             Form of Specimen Common Stock               Incorporated by reference to Exhibit 3.5 of Amendment
                Certificate                                 No. 2 to the Company's Registration Statement on Form
                                                            SB-2 (No. 33-66688) dated December 1, 1993
                                                            ("Amendment No. 2 to the Registration Statement")

10.1            1984 Stock Option Plan                      Incorporated by reference to Exhibit 10.4 of the of the
                                                            Form 10-K for the fiscal year ended March 31, 1985

10.2            Amendment No. 2 to 1984 Stock Option        Incorporated by reference to Exhibit 10.5 of the Form 10-
                Plan                                        K for the fiscal year ended March 31, 1986 (the "1986
                                                            10-K")

10.3            Lease Agreement                             Incorporated by reference to Exhibit 10.6 of the Form 10-
                                                            K for the fiscal year ended March 31, 1991 (the "1991
                                                            10-K")

10.4            Stock Purchase Agreement dated May 10,      Incorporated by reference to Exhibit 10.4 of the 1993 10-
                1993 pursuant to Private Placement          KSB


10.5            Employment Agreement dated as of May        Incorporated by reference to Exhibit 10.5 of Amendment
                2, 1992 between David I. Gould and the      No. 2 to the Registration Statement
                Company

10.6            Loan Agreement between the Company          Incorporated by reference to Exhibit 10.6 of the 199310-
                and New Jersey National Bank                KSB


10.7            Letter Agreement dated April 28, 1993       Incorporated by reference to Exhibit 10.7 of Amendment
                between the Company and New Jersey          No. 1 to the Registration Statement
                National Bank


<PAGE>
Exhibit                                                                         
No.             Description                                 Exhibit Reference   
 ------         -----------                                 -----------------   

10.8            Form of Consulting Agreement between        Incorporated by reference to Exhibit 10.8 of Amendment
                David I. Gould and the Company              No. 1 to the Registration Statement


10.9            Agreement between American Telephone        Incorporated by reference to Exhibit 10.9 of Amendment
                and Telegraph Company and the Company       No. 2 to the Registration Statement
                dated September 17, 1993

10.10           Joint Marketing Agreement between MCI       Incorporated by reference to Exhibit 10.10 of
                Telecommunications Corporation and the      Amendment No. 2 to the Registration Statement
                Company dated September 1, 1992,
                together with Amendment No. 1 dated
                July 7, 1993

10.11           Employment Agreement dated as of            Incorporated by reference to Exhibit 10.11 of Form 10-
                January 1, 1994 between Michael             KSB for the fiscal year ended March 31, 1994 (the "1994
                Radomsky and the Company                    10-KSB")

10.12           Employment Agreement dated as of            Incorporated by reference to Exhibit 10.12 of the 1994
                January 1, 1994 between William H.          10-KSB
                Whitney and the Company

10.13           Employment Agreement dated as of            Incorporated by reference to Exhibit 10.13 of the 1994
                January 1, 1994 between Robert M. Groll     10-KSB
                and the Company

10.14           Employment Agreement dated as of            Incorporated by reference to Exhibit 10.15 of
                January 1, 1994 between P. David            Amendment No. 2 to the Registration Statement
                Bocksch and the Company

10.15           Amendments to Lease                         Incorporated by reference to Exhibit 10.15 of the 1994
                                                            10-KSB

10.16           Amendment to Loan and Security              Incorporated by reference to Exhibit 10.16 of Form 10-
                Agreement between the Company and           QSB for the quarter ended September 30, 1994
                CoreStates Bank, N.A. dated September 8,
                1994.

10.17           Consulting Agreement between the            Incorporated by reference to Exhibit 10.17 to Form 8-K
                Company and P. David Bocksch dated          dated November 30, 1994
                November 14, 1994

10.18           Employment Agreement dated as of            Incorporated by reference to Exhibit 10.18 to Form 10-
                October 11, 1994 between the Company        QSB for the quarter ended December 31, 1994
                and Lonnie L. Sciambi

10.19           Incentive Bonus Plan of the Company for     Incorporated by reference to Exhibit 10.19 to Form 10-
                the fiscal year ended March 31, 1995        QSB for the quarter ended December 31, 1994

                                                                   
<PAGE>
Exhibit                                                                         
No.             Description                                 Exhibit Reference   
 ------         -----------                                 -----------------   

10.20           Letter from Feldman Sablosky &              Incorporated by reference to Exhibit 10.20 to Form 8-K
                Company to the Securities and Exchange      dated March 13, 1995
                Commission relating to Item 4 of Form 8-
                K

10.21           1994 Stock Option Plan                      Incorporated by reference from the Company's Proxy
                                                            Statement dated August 15, 1994 for the Company's
                                                            Annual Meeting of Shareholders held on September 19,
                                                            1994

10.22           Non-Qualified Stock Option Agreement        Incorporated by reference to Exhibit 10.22 of the 1994
                dated December 19, 1994 between the         10-KSB
                Company and Cameron Towey Neilson,
                Inc.

10.23           Purchase Agreement dated December 21,       Incorporated by reference to Exhibit 10.23 of the 1994
                1994 between the Company and Ericsson       10-KSB
                Business Networks AB

10.24           Employment Agreement dated as of            Incorporated by reference to Exhibit 10.24 of the 1994
                March 27, 1995 between the Company          10-KSB
                and Stephen B. Gray

10.25           Letter dated April 5, 1995 from the         Incorporated by reference to Exhibit 10.25 of the 1994
                Company to P. David Bocksch terminating     10-KSB
                his Consulting Agreement

10.26           Incentive Bonus Plan of the Company for     Incorporated by reference to Exhibit 10.26 of the 1994
                the fiscal year ending March 31, 1996       10-KSB

10.27           Letter of Intent dated April 9, 1998 With   Filed herewith
                SolCom Systems, Ltd.

10.28           Line of Credit Agreement with United        Filed herewith
                National Bank Dated November 17, 1997


23.1            Consent of Pricewaterhouse Coopers LLP      Filed herewith

</TABLE>