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

                                   FORM 10-QSB

  ---
/ X  /   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----
         ACT OF 1934

         For the quarterly period ended December 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.
               --------------------------------------------------
              (Exact 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)

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

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     ---       
     ---
There were 5,586,367 shares of Common Stock outstanding as of February 16, 1999.

Transitional Small Business Disclosure Format:

Yes                     No       X  
     ---                        ---

<PAGE>




                         MICROFRAME, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                     FOR THE QUARTER ENDED DECEMBER 31, 1998



PART I.   FINANCIAL INFORMATION                                             Page
                                                                            ----

Item 1.   Condensed Consolidated Financial Information                        1

          Condensed Consolidated Balance Sheets as of December 31, 1998
                and March 31, 1998 (Unaudited)                                2

          Condensed Consolidated Statements of Operations for the Three and 
                Nine Months Ended December 31, 1998 and 1997 (Unaudited)      3

          Condensed Consolidated Statements of Cash Flows for the Nine
                     Months Ended December 31, 1998 and 1997 (Unaudited)      4

          Notes to Condensed Consolidated Financial Statements (Unaudited)   5-7

Item 2.   Management's Discussion and Analysis                              8-12

PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K                                   12

SIGNATURES                                                                   13

<PAGE>




                          PART I. FINANCIAL INFORMATION


Item 1.           Condensed Consolidated Financial Information.
                  --------------------------------------------

         The condensed  consolidated  financial  statements included herein have
been  prepared  by the  registrant  without  audit  pursuant  to the  rules  and
regulations of the Securities and Exchange  Commission.  Although the registrant
believes that the disclosures are adequate to make the information presented not
misleading,  certain information and footnote  disclosures  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations.  It is suggested that these condensed financial  statements be read
in  conjunction  with the audited  financial  statements  and the notes  thereto
included  in the  registrant's  Annual  Report on Form 10-KSB for the year ended
March 31, 1998.


<PAGE>

<TABLE>
<CAPTION>


MicroFrame, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(unaudited)


                                                                             December 31,                  March 31,
                              ASSETS                                             1998                        1998

<S>                                                                   <C>                       <C>                 
Current assets
    Cash and cash equivalents                                            $         345,892           $         507,726
    Accounts receivable, less allowance for doubtful                                                                       
       accounts of $95,249 and $126,000                                          2,823,565                   2,667,319
    Inventory, net                                                               2,036,567                   1,425,351
    Deferred tax asset                                                             337,512                     366,137
    Prepaid expenses and other current assets                                      461,557                     153,568
                                                                             -------------               -------------
           Total current assets                                                  6,005,093                   5,120,101
    Property and equipment at cost, net of Accumulated                                                                     
       Depreciation and Amortization of $585,015 and $971,903                      693,423                     421,701
    Capitalized software, less accumulated amortization                                                                    
       of $1,309,856 and $1,054,827                                              1,426,567                     396,351
   Noncurrent deferred tax assets                                                        0                     326,083
   Goodwill, less accumulated amortization of $33,555                                                                      
        and $26,130                                                                 68,055                      75,480
   Security deposits                                                                39,798                      35,716
   Other assets                                                                  1,026,064           
                                                                            --------------               -------------
           Total assets                                                  $       9,259,000           $       6,375,432
                                                                            ==============               =============
               LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
    Current portion of long-term debt                                    $       1,100,428           $         330,009
    Accounts payable                                                             1,694,260                     910,842
    Accrued payroll and related liabilities                                        212,348                     348,397
   Deferred income                                                                  95,673                     181,573
   Other current liabilities                                                       337,697                     405,263
                                                                             -------------                ------------
           Total current liabilities                                             3,440,406                   2,176,084
Deferred tax liabilities, net                                                       48,888                     196,394
Long-term debt                                                                     500,000                           0
Commitments and contingencies
Stockholders' equity
   Common stock - par value $.001 per share; authorized                                                                    
       50,000,000 shares, issued 5,558,428 shares and                                                                      
       outstanding 5,496,397 shares at December 31, 1998;                                                                  
       issued 4,849,531 shares and outstanding 4,849,131 shares                                                            
       and subscribed 50,000 shares at March 31, 1998                                6,652                       4,899
   Preferred stock - par value $10 per share;                                                                              
       authorized 200,000 shares, none issued                                                                              
   Additional paid-in capital                                                    7,366,221                   6,345,613
    Stock subscription receivable                                                                             (104,000)
    Accumulated deficit                                                         (1,886,534)                 (2,231,638)
   Cumulative translation adjustment                                                (9,434)                     (7,920)
                                                                             -------------              --------------
                                                                                 5,476,905                   4,006,954
   Less - Treasury stock, 62,031 shares, at cost                                  (207,199)                     (4,000)
                                                                             -------------              --------------
           Total stockholders' equity                                            5,269,706                   4,002,954
                                                                             -------------              --------------
           Total liabilities and stockholders' equity                    $       9,259,000           $       6,375,432
                                                                             =============              ==============

                                       2
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

MicroFrame, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(unaudited)


                                                      Three Months Ended                          Nine Months Ended
                                                         December 31,                                December 31,
                                                         ------------                                ------------
                                                 1998                   1997                 1998                  1997

<S>                                        <C>                  <C>                   <C>                 <C>           
Net sales                                  $   3,273,701        $    3,051,537        $   9,451,604       $    7,069,810
Cost of sales                                  1,372,154             1,366,641            3,436,590            3,153,739
                                             -----------           -----------          -----------          -----------
Gross Margin                                   1,901,547             1,684,896            6,015,014            3,916,071
   Research and development                                                                                                    
      expenses                                   232,702               254,796            1,285,809              722,144
   Selling, general and                                                                                                        
      administrative expenses                  1,488,556             1,213,739            4,125,665            3,075,161
                                             -----------           -----------          -----------          -----------
Income from operations                           180,289               216,361              603,540              118,766
Interest income                                        0                 5,448                5,139               14,652
Interest expense                                 (25,445)                 (980)             (55,725)               3,617
                                             -----------           -----------          -----------          -----------
Income before income tax provision                                                                                             
   (benefit)                                     154,844               220,829              552,954              129,801
Income tax provision (benefit)                    59,259              (144,690)             207,850             (152,410)
                                             -----------           -----------          -----------          -----------
Net income                                 $      95,585        $      365,519        $     345,104       $      282,211
                                             ===========           ===========          ===========          ===========
Per share data
   Basic                                   $                    $                     $                   $                 
                                                    0.02                  0.08                 0.06                 0.06
                                             ===========           ===========          ===========          ===========
   Diluted                                 $        0.02        $         0.07        $        0.05       $         0.06
                                             ===========           ===========          ===========          ===========

</TABLE>

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

                                       3
<PAGE>
<TABLE>
<CAPTION>



MicroFrame, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(unaudited)


                                                                                Nine Months Ended
                                                                                  December 31,
                                                                        1998                      1997

<S>                                                                   <C>                   <C>                 
Cash flows from operating activities
Net income (loss)                                                     $    345,104        $    282,211
Adjustments to reconcile net income to net cash                                                              
   provided by operating activities                                                                          
      Depreciation and amortization                                        454,418             314,626
      Provision for bad debts                                              (30,751)            (44,374)
      Deferred tax provision                                               207,850            (152,410)
      Increase (decrease) in
         Accounts receivable                                              (125,495)           (910,449)
         Inventory                                                        (611,216)           (237,029)
         Prepaid expenses and other current assets                        (307,989)            (24,502)
         Security deposits                                                  (4,082)             (2,436)
      (Increase) decrease in
         Accounts payable                                                  783,418             620,417
         Accrued payroll and related liabilities                          (136,049)           (166,316)
         Deferred income                                                   (85,900)            246,964
         Other current liabilities                                         (67,566)            127,746
                                                                        ----------         -----------
         Net cash provided by operating activities                         421,742              54,448
                                                                        ----------         -----------
Cash flows from investing activities
   Capital expenditures                                                   (383,582)           (126,217)
   Capitalized software                                                 (1,285,245)           (179,917)
   Other assets                                                         (1,026,064)        
                                                                        -----------        -----------
         Net cash used in investing activities                          (2,694,891)           (306,134)  
                                                                        ----------         -----------
Cash flows from financing activities
   Repayments of debt                                                      (30,009)            (31,609)
   Proceeds of short-term borrowings                                     1,300,428         
   Issuance of common stock                                                840,896                 624
                                                                        ----------         ------------
         Net cash provided by (used in) financing activities             2,111,315             (30,985) 
                                                                        ----------         -----------
Net decrease in cash and cash equivalents                                 (161,834)           (282,671)
Cash and cash equivalents - beginning of period                            507,726             539,214
                                                                        ----------         -----------
Cash and cash equivalents - end of period                             $    345,892        $    256,543
                                                                        ==========         ===========

</TABLE>

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

                                       4
<PAGE>


MicroFrame, Inc. and Subsidiary
Notes to Condensed Consolidated
Financial Statements
December 31, 1998
(Unaudited)


Note 1 - Condensed Consolidated Financial Statements:
----------------------------------------------------

The condensed  consolidated balance sheets as of December 31, 1998 and March 31,
1998, the condensed consolidated statements of operations for the three and nine
month  periods ended  December 31, 1998 and 1997 and the condensed  consolidated
statements  of cash  flows  for the nine  month  periods  then  ended  have been
prepared  by the  Company  without  audit.  In the  opinion of  management,  all
adjustments (which include only normal recurring  adjustments) necessary for the
fair presentation of the Company's financial position, results of operations and
cash flows at December 31, 1998 and 1997 have been made.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted.  It is suggested that these condensed  financial
statements be read in  conjunction  with the audited  financial  statements  and
notes  thereto  included in the annual  report on Form 10-KSB for the year ended
March 31, 1998.


Note 2 - Inventory:
------------------

Inventory consists of the following:

                                              December 31,          March 31,
                                                 1998                1998

Raw materials                                 $ 1,455,619         $ 1,003,132
Work in process                                   682,981             525,918
Finished goods                                     82,967              81,301
                                             ------------        ------------
                                                2,221,567           1,610,351
Less, allowance for obsolescence                 (185,000)           (185,000)
                                             ------------        ------------
       Total                                  $ 2,036,567         $ 1,425,351
                                             ============        ============


Note 3 - Earnings Per Share:
---------------------------

The Company has adopted the  provisions  of the Financial  Accounting  Standards
Board's  Statement of Financial  Accounting  Standards  No. 128,  "Earnings  Per
Share"  ("SFAS 128") in the quarter ended  December 31, 1997.  All prior periods
presented have been restated to account for this change.


                                       5
<PAGE>
MicroFrame, Inc. and Subsidiary
Notes to Condensed Consolidated
Financial Statements
December 31, 1998
(Unaudited)


The  computation  of Basic  Earnings Per Share is based on the weighted  average
number of common shares  outstanding for the period.  Diluted Earnings Per Share
is based on the weighted  average  number of common shares  outstanding  for the
period  plus the  dilutive  effect of common  stock  equivalents,  comprised  of
outstanding stock options and warrants.

The following is a reconciliation  of the denominator used in the calculation of
basic and diluted earnings per share:
<TABLE>
<CAPTION>


                                           Three Months           Three Months           Nine Months           Nine Months
                                               Ended                  Ended                 Ended                 Ended
                                             12/31/98               12/31/97              12/31/98              12/31/97
                                                                                              
<S>                                       <C>                    <C>                  <C>                    <C>      
Weighted Average # of Shares    
  Outstanding                               5,465,331              4,839,303            5,490,922              4,697,257
Incremental Shares for Common                                                                                            
  Equivalents                                 727,023                207,368              964,476                288,652
                                            ---------              ---------            ---------              ---------
Diluted shares outstanding                  6,192,354              5,046,671            6,455,398              4,985,909
                                            =========              =========            =========              =========
</TABLE>


Note 4 - Comprehensive Income:
-----------------------------

The Company adopted  Statement of Financial  Accounting  Standards  ("SFAS") No.
130, "Reporting Comprehensive Income".

The  following  table  reflects  the  reconciliation  between net income per the
financial statements and comprehensive income:
<TABLE>
<CAPTION>

                                              Three Months       Three Months       Nine Months         Nine Months
                                                  Ended             Ended               Ended               Ended
                                                12/31/98           12/31/97           12/31/98            12/31/97

<S>                                            <C>               <C>               <C>                 <C>      
Net income                                       $95,585           $365,519          $ 345,104           $ 282,211
Effect of foreign currency translation           (11,755)             -                 (1,514)                -
                                                --------           --------          ---------           ---------
Comprehensive income                             $83,830           $365,519          $ 343,590           $ 282,211
                                                ========           ========          =========           =========

</TABLE>

                                       6
<PAGE>


MicroFrame, Inc. and Subsidiary
Notes to Condensed Consolidated
Financial Statements
December 31, 1998
(Unaudited)



Note 5 - Long Term Debt and Bank Borrowings:
-------------------------------------------

In October 1998, the Company  successfully  negotiated with United National Bank
to provide  the Company  with a  $2,000,000  line of credit and a $500,000  term
loan,  collateralized by the Company's accounts receivable.  The borrowings bear
interest at the prime rate (8.25% at December 31, 1998) plus 25 basis points.

Note 6 - Recent Pronouncements:
------------------------------

In June 1997, the Financial  Accounting  Standards Board (FASB) issued SFAS 131,
"Disclosure  about  Segments of an  Enterprise  and Related  Information"  which
becomes effective for financial  statements for periods beginning after December
31, 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.  The adoption of this  standard is not
expected to have a material impact on the Company's financial statements.

In February 1998,  the FASB issued SFAS No. 132,  "Employers'  Disclosure  about
Pensions  and  Other  Postretirement   Benefits."  Among  other  provisions,  it
standardizes   certain   disclosure   requirements   for   pension   and   other
postretirement  benefits,  requires  additional  information  on  changes in the
benefit obligations and fair values of plan assets, and eliminates certain other
disclosures. The standard is effective for fiscal years beginning after December
15, 1997.  Since the standard  applies only to the  presentation  of pension and
other postretirement benefit information and MicroFrame does not currently offer
such plans,  the statement does not have any impact on  MicroFrame's  results of
operations, financial position or cash flows.

In March 1998, the American  Institute of Certified  Public  Accountants  issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed  or  Obtained  for  Internal  Use." Among  other  provisions,  the SOP
requires that  entities  capitalize  certain  internal-use  software  costs once
certain  criteria are met. The SOP is effective  for  financial  statements  for
fiscal  years  beginning  after  December 15, 1998,  through  early  adoption is
encouraged.  Management  is  currently  assessing  the  impact  on  MicroFrame's
consolidated financial statements.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  Among other provisions,  it requires that
entities recognize all derivatives as either assets
                                                                               


                                       7
<PAGE>



or  liabilities  in the  statement  of  financial  position  and  measure  those
instruments at fair value.  Gains and losses  resulting from changes in the fair
values of those  derivatives  would be accounted for depending on the use of the
derivative  and whether it  qualifies  for hedge  accounting.  This  standard is
effective  for fiscal  years  beginning  after  June 15,  1999,  though  earlier
adoption is encouraged and  retroactive  application  is prohibited.  Management
does not expect  the  adoption  of this  standard  to have a material  impact on
MicroFrame's results of operations, financial position or cash flows.

Item 2.           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 of, and the costs  associated with, a new product line;  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.

Results of  Operations-Three  Months ended December 31, 1998 verses Three Months
ended December 31, 1997

         Revenues for the quarter  ended  December 31, 1998 were  $3,273,701  as
compared with revenues of $3,051,537 for the quarter ended December 31, 1997, an
increase of  approximately  7.3%.  The increase was  primarily  due to increased
shipments of the Company's  Sentinel 2000 product line. The Company continued to
see  interest  in other  members of the family of SNS  products,  including  the
Manager 2000 and Segasys 2000. The Company's revenues continued to be positively
impacted as a result of shipments  to both the  European  and domestic  markets,
including  shipments under its contracts with PTT Holland,  MCI, AT&T and Lucent
Technologies.

         The Company's  cost of goods sold  increased  from  $1,366,641  for the
quarter ended December 31, 1997 to $1,372,154 for the quarter ended December 31,
1998. The Company's  cost of goods sold as a percentage of sales  decreased from
45% for the previous  comparable  fiscal  period to 42% for this fiscal  period.
This is due to the fact that the  Company  continues  to focus on  lowering  the
costs  related  to the  manufacture  of  products  and has seen an  increase  in
software related sales that generate a higher margin.

         Research  and  development   expenses,   net  of  capitalized  software
development,  decreased to $232,702 from $254,796 in the quarter ended  December
31, 1997. As a result of increased  capitalization of  technologically  feasible
projects,  research  and  development  expenses  as  a  percentage  of  revenues
decreased  from  8.3% to 7.1%.  Selling,  general  and  administrative  expenses
increased  approximately  22.6% from $1,213,739 for the prior year's  comparable
quarter to $1,488,556 for the quarter ended December 31, 1998.

         The Company's income from operations  increased 13% to $180,289 for the
three months ended  December 31, 1998 compared to $216,361 for the same period a
year ago. Primarily due to

                                       8
<PAGE>



the fact that  during  the  period  ended  December  31,  1997,  there was a tax
benefit, as compared to a tax expense for the period ended December 31,1998, the
net income for the period ended December 31, 1998 decreased approximately 74% to
$95,585  compared to net income of $365,519 for the quarter  ended  December 31,
1997.

First Nine Months of Fiscal 1999 Versus First Nine Months Fiscal 1998

         Revenues for the nine months ended December 31, 1998 were $9,451,604 as
compared with revenues of $7,069,810 for the  comparable  period of the previous
fiscal year, an increase of  approximately  34%. This  improvement is due to the
success of the Company's Sentinel 2000 family of products,  continued  shipments
into the European market, sales of Segasys 2000 and increased software sales and
continued  shipments into the expanding  domestic  market for Business  Oriented
Network  Management.  The Company's  revenues for the nine months ended December
31, 1998  continued  to be  positively  impacted as a result of shipments to the
European market,  including shipments under its contract with PTT Holland and in
the US, market  shipments to MCI, AT&T and Lucent  Technologies.  The Company is
continuing to aggressively pursue customers in the global market place.

         The Company's  cost of goods sold  increased to $3,436,590 for the nine
months ended  December 31, 1998 compared to $3,153,739 for the nine months ended
December 31, 1997 as a result of increased  shipment levels.  Cost of goods sold
as a percentage of sales decreased from 45% for the previous  comparable  fiscal
period  to 36% for  this  fiscal  period.  This is  primarily  a  result  of the
increased  sales  volume of the  Company's  product  lines and the fact that the
Company  continues to focus on lowering the costs related to the  manufacture of
products and has increased software related sales that generate a higher margin.
The Company expects continued manufacturing  efficiencies as the products mature
and through improvement of purchasing and materials management systems.

         Research  and  development   expenses,   net  of  capitalized  software
development,  increased from $722,144 in the nine months ended December 31, 1997
to  $1,285,809  during the nine months ended  December 31, 1998,  an increase of
78%,  primarily as a result of the increase in development and engineering staff
under  the  Company's  growth  plan  and  payments  to  SolCom  Systems  Limited
("SolCom") under certain  technology  agreements.  The Company paid $150,000 and
$350,000  for the three month and nine month  periods  ended  December 31, 1998,
respectively,   to  SolCom  under  such  technology  agreements.   Research  and
development  expenses as a percentage of revenues increased to 13.4% compared to
approximately  10%  in the  prior  year.  Selling,  general  and  administrative
expenses  increased 34% from $3,075,161 for the prior year's  comparable  fiscal
period  to  $4,125,665  for the  nine  months  ended  December  31,  1998.  As a
percentage of revenues,  selling,  general and administrative  expenses remained
relatively  constant from the fiscal quarter ended December 31, 1998 as compared
with the fiscal quarter ended December 31, 1997.

         Due to the factors  outlined  above,  the Company had income before net
interest  expense and taxes of $603,540 for the nine months  ended  December 31,
1998 compared to $118,766 for the nine


                                       9
<PAGE>



months  ended  December  31,  1997,  an  increase of 408%.  The Company  expects
continued  positive  growth as a result of the increase in the sales force and a
resulting  increase  in sales  volumes  and  manufacturing  efficiencies  gained
thereby as its  products  continue to mature.  The net income for the period was
$345,104  compared to a net increase of $282,211 for the same period in 1997, an
increase of 22%.

Financial Condition and Capital Resources

         During the first nine months of fiscal year 1999, the Company  recorded
net income of approximately $345,000.  Included in this net income were non-cash
charges of approximately $454,000 for depreciation and amortization and $208,000
of deferred taxes.

         The  Company's  operations  provided  $422,000 of cash  primarily  as a
result  of  an  increase  in  accounts  payable,  accrued  payroll  and  benefit
liabilities  and deferred  income.  These  increases were offset by decreases in
cash due to an inventory buildup of $611,000 as the Company prepares to ship its
backlog going into the fourth quarter.

         The Company utilized  approximately  $2.7 million of cash for investing
activities  during the  nine-month  period ended  December 31, 1998. The bulk of
this use of cash was for increased  capital  spending on plant and equipment and
capitalized  software  projects as well as for merger  related costs  associated
with the Company's  planned  acquisition  of SolCom,  which is expected to close
early in calendar year 1999.

         Financing  activities  provided  approximately  $2.1  million  of  cash
primarily  from stock  option  and  warrant  exercises  ($841,000)  and  amounts
borrowed  under  the  Company's  line of  credit  ($1,300,000)  to  finance  the
Company's working capital needs and its growth plans. The Company also paid down
$30,000 of debt in the nine months ended December 31, 1998.

         In October  1998,  the  Company  successfully  negotiated  with  United
National to provide the Company with a $2,000,000  line of credit and a $500,000
term loan,  collateralized  by accounts  receivable  of the Company,  to finance
future working capital requirements.

           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.

         In June 1997, the Financial  Accounting  Standards  Board (FASB) issued
SFAS 131,  "Disclosure about Segments of an Enterprise and Related  Information"
which becomes  effective for financial  statements for periods  beginning  after
December 31, 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.  The adoption of
this standard is not expected to have a material impact on the


                                       10
<PAGE>

Company's financial statements.

         In February 1998, the FASB issued SFAS No. 132, "Employers'  Disclosure
about Pensions and Other  Postretirement  Benefits." Among other provisions,  it
standardizes   certain   disclosure   requirements   for   pension   and   other
postretirement  benefits,  requires  additional  information  on  changes in the
benefit obligations and fair values of plan assets, and eliminates certain other
disclosures. The standard is effective for fiscal years beginning after December
15, 1997.  Since the standard  applies only to the  presentation  of pension and
other postretirement  benefit information,  it will not have any material impact
on the Company's results of operations, financial position or cash flows.

         In March 1998, the American  Institute of Certified Public  Accountants
issued  Statement of Position (SOP) 98-1,  "Accounting for the Costs of Computer
Software  Developed or Obtained for Internal Use." Among other  provisions,  the
SOP requires that entities capitalize certain  internal-use  software costs once
certain  criteria are met. The SOP is effective  for  financial  statements  for
fiscal  years  beginning  after  December 15,  1998,  though  early  adoption is
encouraged.  Management  is  currently  assessing  the  impact on the  Company's
consolidated financial statements.

         In June 1998, the FASB issued SFAS No. 133,  "Accounting for Derivative
Instruments and Hedging  Activities."  Among other provisions,  it requires that
entities  recognize  all  derivatives  as either  assets or  liabilities  in the
statement of financial  position and measure  those  instruments  at fair value.
Gains and losses resulting from changes in the fair values of those  derivatives
would be accounted  for  depending on the use of the  derivative  and whether it
qualifies  for hedge  accounting.  This  standard is effective  for fiscal years
beginning  after June 15,  1999,  though  earlier  adoption  is  encouraged  and
retroactive  application is prohibited.  Management does not expect the adoption
of  this  standard  to  have a  material  impact  on the  Company's  results  of
operations, financial position or cash flows.

Year 2000 Disclosures

         Background.  Some  computers,  software,  and other  equipment  include
programming  code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct  results if "00" is interpreted to mean 1900,  rather
than 2000.  These  problems  are widely  expected to increase in  frequency  and
severity  as the year  2000  approaches,  and are  commonly  referred  to as the
"Millennium Bug" or "Year 2000 Problem."

         Assessment.  The  Company  is in  the  process  of  modifying  software
components  that it uses so that such  software will  properly  recognize  dates
beyond  December  31,  1999  ("Year 2000  Compliance").  The Company  expects to
complete the internal  review of its Year 2000 Compliance  status  shortly.  The
cost for such  modifications  and  replacements is not currently  expected to be
material.  If the Company is not successful in  implementing  the necessary Year
2000  changes,  it  expects to then  develop  contingency  plans to address  any
matters not  corrected  in a timely  manner.  The Company has  initiated  formal
communications with its significant vendors and certain of its
     

                                       11
<PAGE>

customers  to  determine  the extent  that Year 2000  Compliance  issues of such
parties  may  affect  the  Company.   To  the  extent  that  responses  to  such
communications  with the  Company's  vendors  are  unsatisfactory,  the  Company
expects to take steps to ensure that its  vendors'  products  have  demonstrated
Year 2000 Compliance.  The Company has recently compiled information  concerning
the Year 2000  Compliance of certain of its significant  customers'  systems and
expects to contact other  customers.  There can be no guarantee that the systems
of the  Company's  vendors and customers  will be timely  converted or that such
conversion  will be  compatible  with the Company's  systems  without a material
adverse  effect on the  Company's  business,  financial  condition or results of
operation.


                           PART II. OTHER INFORMATION


Item 6.           Exhibits and Reports on Form 8-K
                  --------------------------------


                  (a)      Exhibits.

                           27.1     Financial Data Schedule


                  (b)      Reports on Form 8-K.

                                    No Reports on Form 8-K were filed during the
                                    quarter.       

                            

                                       12
<PAGE>




                                   SIGNATURES
                                   ----------


         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Date:  February 18, 1998



                                    MICROFRAME, INC.




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



                                    /s/ John F. McTigue      
                                    --------------------------------------------
                                    John F. McTigue, Chief Financial Officer
                                    and Treasurer (Principal Financial Officer)


                                       13

<PAGE>


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



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

     27.1                   Financial Data Schedule