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, 1996

                                       or

[_]        Transition report under Section 13 or 15(d) of the Exchange Act

           For the transition period from ______________ to _____________


                         Commission file number 0-13117

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


         New Jersey                                              22-2413505
 ------------------------------                              -------------------
(State or Other Jurisdiction of                                (IRS Employer
 Incorporation or Organization)                              Identification No.)

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

                                 (908) 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 4,822,142 shares of Common Stock outstanding at January 29, 1997

Transitional Small business Disclosure Format:

Yes [_]        No [X]


<PAGE>


                         MICROFRAME, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                     FOR THE QUARTER ENDED DECEMBER 31, 1996





PART I.    FINANCIAL INFORMATION                                            Page

Item 1.    Condensed Consolidated Financial Information                       2

           Condensed Consolidated Balance Sheets as of December 31, 1996
           and March 31, 1996 (Unaudited)                                     3

           Condensed  Consolidated  Statements of  Operations  for the
           three months ended December 31, 1996 and December 31, 1995;
           nine months ended December 31, 1996 and December 31, 1995
           (Unaudited)                                                        4

           Condensed Consolidated Statements of Cash Flows for the nine 
           months ended December 31, 1996 and December 31, 1995 (Unaudited)   5

           Notes to Condensed Consolidated Financial Statements (Unaudited)  6-8

Item 2.    Management's Discussion and Analysis or Plan of Operation        9-12

PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings                                                 13

Item 5.    Other Information                                                 13

Item 6.    Exhibits and reports on Form 8-K                                  13


SIGNATURES                                                                   14




<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 financial  statements and the notes thereto included in
the registrant's latest Annual Report on Form 10-KSB.







                                       -2-

<PAGE>

MicroFrame, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                           December 31,     March 31,
                                                               1996           1996
                                                           -----------    -----------
<S>                                                        <C>            <C>        
                    ASSETS

Current assets
   Cash and cash equivalents                               $   657,256    $    48,302
   Accounts receivable, less allowance for doubtful
      accounts of $100,000                                   1,532,220      1,540,561
   Inventory                                                   999,137      1,084,870
   Prepaid expenses and other current assets                   114,252         77,426
                                                           -----------    -----------
      Total current assets                                   3,302,865      2,751,159

   Property and equipment at cost, net                         367,491        409,866
   Capitalized software, less accumulated amortization
      of $766,811 and $649,332, respectively                   316,398        266,319
   Goodwill, less accumulated amortization of
      $13,625 and $5,766 respectively                           87,985         95,844
   Security deposits                                            34,110         34,983
                                                           -----------    -----------
      Total assets                                         $ 4,108,849    $ 3,558,171
                                                           ===========    ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
   Bank borrowings                                         $    41,261    $   538,754
   Accounts payable                                            192,396        395,619
   Accrued payroll and related liabilities                     206,086        285,651
   Deferred income                                             255,880        258,856
   Other current liabilities                                   347,532        435,215
                                                           -----------    -----------
      Total current liabilities                              1,043,155      1,914,095
                                                           -----------    -----------

Committments and contingencies                                    --             --   

Long-term debt                                                  41,353         72,833

Stockholders' equity
   Common stock - par value $.001 per share;
      authorized 50,000,000 shares, issued 4,822,542
      shares and outstanding 4,822,142 shares at
      December 31, 1996; issued 3,718,075 shares
      and outstanding 3,717,675 shares at March 31, 1996         4,822          3,718
   Preferred stock - par value $10 per share;
      authorized 200,000 shares, none issued                      --             --   
   Additional paid-in capital                                6,185,743      4,856,924
   Accumulated deficit                                      (3,162,244)    (3,285,399)
                                                           -----------    -----------
                                                             3,028,341      1,575,243
   Less - Treasury stock, 400 shares, at cost                   (4,000)        (4,000)
                                                           -----------    -----------
      Total stockholders' equity                             3,024,341      1,571,243
                                                           -----------    -----------

      Total liabilities and stockholders' equity           $ 4,108,849    $ 3,558,171
                                                           ===========    ===========
</TABLE>


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

                                       -3-

<PAGE>

MicroFrame, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                             Nine Months Ended             Three Months Ended            
                                                                December 31,                  December 31,                  
                                                                ------------                  ------------                  
                                                            1996           1995           1996           1995       
                                                         -----------    -----------    -----------    -----------
<S>                                                      <C>            <C>            <C>            <C>        
Net sales                                                $ 5,264,210    $ 4,334,057    $ 1,826,698    $ 1,727,117

Cost of sales                                              2,016,324      1,796,923        762,434        631,049
                                                         -----------    -----------    -----------    -----------

Gross Margin                                               3,247,886      2,537,134      1,064,264      1,096,068

   Research and development expenses                         664,711        440,082        236,701        146,032
   Selling, general and administrative expenses            2,464,871      2,811,044        781,852        904,907
                                                         -----------    -----------    -----------    -----------

Income (loss) from operations                                118,304       (713,992)        45,711         45,129

Interest income                                               27,620          3,262          6,520            200
Interest expense                                             (22,749)       (17,910)        (1,881)       (16,216)
                                                         -----------    -----------    -----------    -----------

Income (loss) before income tax provision/benefit            123,175       (728,640)        50,350         29,113
Income tax provision/benefit                                       0              0              0              0
                                                         -----------    -----------    -----------    -----------
Net income (loss)                                        $   123,175    $  (728,640)   $    50,350    $    29,113
                                                         ===========    ===========    ===========    ===========

Per share data
Primary
   Net income (loss) per share                           $      0.02    $     (0.20)   $      0.01    $      0.01
                                                         -----------    -----------    -----------    -----------

   Weighted average number of common shares outstandin     5,083,248      3,699,178      5,126,845      3,717,885
</TABLE>


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

                                       -4-

<PAGE>

MicroFrame, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                        Nine Months Ended
                                                                            December 31,
                                                                        1996           1995
                                                                     -----------    -----------
<S>                                                                  <C>            <C>         
Cash flows from operating activities
Net income                                                           $   123,175    $  (728,640)
Adjustments to reconcile net income to net cash
  provided by operating activities
   Depreciation and amortization                                         272,273        243,054
   Provision for bad debts                                                49,751         42,455
   Provision for inventory obsolescence                                   35,000         19,609
   (Increase) decrease in
      Accounts receivable                                                (41,410)       346,407
      Inventory                                                           50,733       (732,021)
      Prepaid expenses and other current assets                          (36,826)        16,259
      Security deposits                                                      873        (11,492)
   Increase (decrease) in
      Accounts payable                                                  (203,223)       167,312
      Accrued payroll and related liabilities                            (79,565)      (118,843)
      Deferred income                                                     (2,976)        29,814
      Other current liabilities                                          (87,683)        46,486
                                                                     -----------    -----------
      Net cash provided (used) by operating activities                    80,122       (679,600)
                                                                     -----------    -----------

Cash flows from investing activities
   Capital expenditures                                                 (104,560)      (194,410)
   Capitalized software                                                 (167,558)      (247,810)
   Acquisition of European Business Associates                                 0        (50,206)
                                                                     -----------    -----------
      Net cash used in investing activities                             (272,118)      (492,426)
                                                                     -----------    -----------

Cash flows from financing activities
   Proceeds of short-term borrowings                                           0        702,965
   Repayments of debt                                                   (528,973)             0
   Issuance of common stock                                            1,329,923          9,384
                                                                     -----------    -----------
      Net cash provided by financing activities                          800,950        712,349
                                                                     -----------    -----------

Net increase (decrease) in cash and cash equivalents                     608,954       (459,677)
Cash and cash equivalents - beginning of period                           48,302        490,261
                                                                     -----------    -----------
Cash and cash equivalents - end of period                            $   657,256    $    30,584
                                                                     ===========    ===========
</TABLE>

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

                                       -5-

<PAGE>


                         MICROFRAME, INC. AND SUBSIDIARY
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 1996
                                   (Unaudited)





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

The condensed  consolidated balance sheets as of December 31, 1996 and March 31,
1996,  the condensed  consolidated  statements of operations  for the nine month
periods  ended  December  31,  1996  and  1995  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 to
present fairly the financial  position,  results of operations and cash flows at
December 31, 1996 and 1995 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  financial  statements  and  notes
thereto as of March 31, 1996 and for the year then ended.





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

Inventory consists of the following:

                                        December 31, 1996     March 31, 1996
                                        -----------------     --------------

            Raw materials                   $  640,670           $  676,120
            Work in process                    325,405              367,820
            Finished goods                      33,062               40,930
                                            ----------           ----------
            
                      Total                 $  999,137           $1,084,870
                                            ==========           ==========






                                       -6-

<PAGE>



                         MICROFRAME, INC. AND SUBSIDIARY
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 1996
                                   (Unaudited)



Note 3 - Stockholders' Equity:
------------------------------

During the nine months ended December 31, 1996, stockholders' equity changed for
the following items:

             Net income                           $  123,175
                                               
             Issuance of common stock of          $1,329,923
                                        

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
$1,030,000.  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 at $1.25 per share
to four  current  shareholders  of  record  who  held the  contractual  right to
maintain  their  share of  ownership.  The  Company  received  net  proceeds  of
approximately  $300,000.  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.



Note 4 - Net Income Per Share:
------------------------------

The computation of earnings per common and common equivalent share is based upon
the weighted average number of common shares  outstanding during the period plus
(in  periods in which they have a dilutive  effect)  the effect of common  stock
equivalents,  comprised of outstanding stock options and warrants. Fully diluted
earnings per share also reflect additional dilution related to outstanding stock
options due to the use of the market price at the end of the period, when higher
than the average price for the period.


                                       -7-

<PAGE>




                         MICROFRAME, INC. AND SUBSIDIARY
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 1996
                                   (Unaudited)




Note 5 - Contingent Liabilities
-------------------------------

The  Company is  involved  in  proceedings  with  respect  to certain  sales tax
matters.  Total amounts included in other current  liabilities  related to these
proceedings is $75,000 at December 31, 1996. In the opinion of management of the
Company,  amounts  accrued  for  assessments  in  connection  with sales tax are
adequate  and  ultimate  resolution  of these  matters  will not have a material
effect on the Company's consolidated  financial position,  results of operations
or cash flows.



Note 6 - Stock-Based Compensation
---------------------------------


           In fiscal 1997,  the Company will be required to adopt the provisions
of  Statement  of  Financial  Standards  No. 123,  "Accounting  for  Stock-Based
Compensation".  This Statement  requires companies to estimate the fair value of
common stock, stock options, or other equity instruments ("Equity  Instruments")
issued to employees using pricing models which take into account various factors
such as current price of the common stock,  volatility  and expected life of the
Equity  Instrument.  The Standard permits  companies to either provide pro forma
footnote disclosure, or to adjust operating results, for the amortization of the
estimated  value of the Equity  Instrument over the vesting period of the Equity
Instrument.  The  Company  has  elected  to  account  for  stock  options  under
Accounting  Principles  Board Opinion No. 15 and will disclose certain pro forma
information beginning in fiscal 1997.






                                       -8-

<PAGE>



ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
           ---------------------------------------------------------


           This section and the financial  information  provided  herein contain
forward looking statements that involve risks and  uncertainties.  The Company's
actual results may differ  materially  from  Management's  expectations  and the
results discussed in the forward looking statements.



Results of Operations
---------------------


           Revenues for the quarter ended  December 31, 1996 were  $1,826,698 as
compared with revenues of $1,727,117 for the same quarter of the previous fiscal
year, or an increase of  approximately 6 %. This improvement is primarily due to
the successful  introduction of the Company's new flagship product, the Sentinel
2000,  as well as the first  delivery  of  another  member of the new  family of
products, the Manager 2000.


           Initially  introduced  during the fiscal quarter ended June 30, 1996,
shipments of the Sentinel 2000 have progressively increased in each of the three
fiscal  quarters in the current  fiscal year.  Shipments  for the quarter  ended
December  31,  1996 were  approximately  $739,000,  compared  to $585,000 in the
quarter  ended  September  30, 1996 and  $325,000 in the quarter  ended June 30,
1996.  The  Sentinel  2000  represented  the first  member of the new  family of
products,  collectively  referred to as Secure Network  Systems/2000,  which are
being introduced in the current fiscal year (ending March 31, 1997). The Manager
2000  represents  the second member of this family of industry  standards  based
products  which are  designed to address the growing  demand for remote  network
management  of  mission  critical  integrated  voice  and data  networks.  These
products  integrate  security  management,  remote access,  fault management and
problem  identification/resolution  into a powerful suite of network  management
solutions to monitor, maintain and increase the operational integrity and access
to the  voice  and data  network.  The  Secure  Network  Systems/2000  family of
products  generated  approximately 43% of the Company's revenues for the quarter
ended December 31, 1996.


           A large  portion of the  success of the new product is due to the new
contractual  relationships  the Company has formed with new customers,  the most
recent being with TELE  Business  Communications  of Finland,  a  subsidiary  of
Telecom  Finland,  the  state-owned   telecommunication  company.  Announced  in
November,   1996,  this   represented  the  Company's  first  major   successful
introduction in the European community.  After successful  introductions in both
the  Pacific  Rim and the  United  States in the first six  months of the fiscal
year,  this most  recent  relationship  continues  to  establish  the  Company's
worldwide  presence.  The Company believes these new relationships will continue
to build the foundation which this next generation of products has established.


                                       -9-

<PAGE>


           The  reliance  on  the  Company's  two  primary   customers,   Lucent
Technology  and MCI,  continues  to be  reduced as only 29% of  revenues  in the
quarter  ended  December  31,  1996 were  attributable  to these  two  long-term
customer  relationships.  This  is a  decrease  from  41% in the  quarter  ended
December  31,  1995 and a decrease  from 48% with  respect  to fiscal  1996 as a
whole. This is directly  attributable to the Company's  commitment to expand its
customer  base in order to reduce its  vulnerability  in relying on two  primary
customers.  In  addition,  the Company  experienced  a  significant  increase in
shipments  to  Europe,   primarily  due  to  the  aforementioned  TELE  Business
Communications  relationship,  after a  slowdown  experienced  in the  first six
months of the  fiscal  year.  Shipments  to the  European  market  increased  to
approximately  $434,000 in the quarter ended  December 31, 1996 from $165,000 in
the quarter ended  September 30, 1996 and $368,000 in the quarter ended December
31, 1995.


           The  Company's  cost of goods sold  increased  from  $631,049 for the
quarter ended  December 31, 1995 to $762,434 for the quarter ended  December 31,
1996 as a result of both increased  shipment  levels and increased costs for the
initial  shipments of the Sentinel  2000.  Cost of goods sold as a percentage of
sales  increased from 36.5% for the previous  comparable  fiscal period to 41.7%
for this fiscal period,  primarily due to the initially  higher costs of the new
family of products. The Company continues to focus on lowering the costs related
to these products as they begin to mature.


           Research  and  development  expenses,  net  of  capitalized  software
development,  increased  from $146,032 in the quarter ended December 31, 1995 to
$236,701 in the current  fiscal  quarter,  an increase of 62%.  This is a direct
reflection of the Company's increased activity related to the development of the
Secure Network  Systems/2000 set of products being introduced in fiscal 1997 and
the  significantly  lower  amounts of  development  expenses  being  capitalized
subsequent  to  the  initial  shipments  of  the  Sentinel  2000.  Research  and
development  expenses  as a  percentage  of revenues  increased  from 8% to 13%.
Selling, general and administrative expenses decreased 14% from $904,907 for the
prior year's  comparable  fiscal  period to $781,852 for the fiscal period ended
December  31,  1996.  This  is  a  result  of  Management's  focus  on  reducing
administrative overhead in order to help return the Company to profitability.


           The Company's  operating profit before interest and taxes were almost
identical for the comparable  quarters - $45,711 for the current  quarter verses
$45,129 for the prior  comparable  quarter.  However,  due to the  reduction  in
interest  costs to the  Company,  net income of $50,350 for the current  quarter
ended  December 31, 1996 exceeded the $29,113 net income  reported in the fiscal
quarter ended December 31, 1995. As the Company has available unused federal and
state  net  operating  loss   carryforwards  of  approximately   $2,400,000  and
$1,000,000,  respectively,  at March 31, 1996 and has fully provided a valuation
allowance  against its  existing  deferred  tax  assets,  it is in a position to
record  no income  tax  provision  until  such  time as the net  operating  loss
carryforwards  are utilized or expire.  The current  expiration dates range from
the years 2001 through 2011.

                                      -10-

<PAGE>


First Nine Months of Fiscal 1997 Versus First Nine Months Fiscal 1996
---------------------------------------------------------------------


           Revenues for the nine months ended December 31, 1996 were  $5,264,210
as  compared  with  revenues  of  $4,334,057  for the  comparable  period of the
previous fiscal year, or an increase of  approximately  21%. This improvement is
due to both the introduction of the Company's new flagship product, the Sentinel
2000, the expanding  domestic  customer  base,  and the poor  performance of the
Company in the quarter ended September 30, 1995. Sales of the Sentinel 2000 have
approximated  $1,650,000  (over 31% of revenue)  during the first nine months of
fiscal 1997, which represents,  the fastest  introduction rate of any product in
the Company's history. At the same time,  shipments to the Company's two primary
customers,  Lucent Technology and MCI, represent  approximately 26% of the total
revenues for the nine month  period  versus 42% over the  comparable  nine-month
period in fiscal  1996.  These  events  have  helped to offset the  decrease  in
shipments to the European market. Shipments to Europe decreased to approximately
$802,000 in the nine months ended  December 31, 1996 from  $851,000 in the prior
comparable period, or a decrease of 6%. As mentioned previously, European volume
did ramp up in the quarter ended December 31, 1996.

           The Company's cost of goods sold  increased  from  $1,796,923 for the
nine months  ended  December  31, 1995 to  $2,016,324  for the nine months ended
December 31, 1996 as a result of increased  shipment levels.  Cost of goods sold
as a percentage of sales decreased from 41.4% for the previous comparable fiscal
period to 38.3% for this fiscal  period,  as the increase in materials  cost for
the new product set has been offset by both increased  sales volume and improved
purchasing and materials management systems.

           Research  and  development  expenses,  net  of  capitalized  software
development,  increased from $440,082 in the nine months ended December 31, 1995
to  $664,711  in the  current  fiscal  period,  an  increase  of 51%.  As stated
previously,  this is a direct  reflection  of the Company's  increased  activity
related to the  development of the Secure Network  Systems/2000  set of products
being  introduced in fiscal 1997 and the substantial  reduction in the amount of
development  expenses being capitalized.  In addition,  research and development
expenses as a percentage  of revenues  increased  from 10.2% to 12.6%.  Selling,
general and  administrative  expenses  decreased  12.3% from  $2,811,044 for the
prior year's  comparable  fiscal period to $2,464,871  for the nine months ended
December  31,  1996  primarily  due  to  Management's   commitment  to  reducing
administrative overhead.

           The Company's operating profit before interest and taxes increased by
approximately $832,000 from an operating loss of $713,992 during the nine months
ended  December 31, 1995 to an operating  profit of $118,304 for the nine months
ended December 31, 1996. The Company's  available unused loss  carryforwards and
its fully provided valuation  allowance against its existing deferred tax assets
allows it to record no income tax provision currently.




                                      -11-

<PAGE>




Financial Condition and Capital Resources
-----------------------------------------

           During  the first nine  months of fiscal  year  1997,  the  Company's
financial  condition  improved  significantly as stockholder's  equity increased
from  $1,571,243 at March 31, 1996 to  $3,024,341 at December 31, 1996,  and the
Company's   working  capital   increased  from  $837,064  to  $2,259,710.   This
improvement  is a direct  result of the  completion  of a private  placement  of
860,000 shares of the Company's  Common Stock for net proceeds of  approximately
$1,030,000.  In  addition,  241,467  shares of the  Company's  Common Stock were
issued to existing  shareholders who had the contractual right to maintain their
percentage ownership in the Company. Net proceeds of approximately $300,000 were
received. Of the private placement net proceeds of $1,330,000, $500,000 was used
to pay down in full the Company's  line of credit which had been  outstanding at
March 31, 1996.


           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 December 31, 1996,  $82,614 remained  outstanding on
this loan.  The Company was  informed in June,  1996,  that the working  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 which stated that payment was to be
made no later than October 31, 1996. On August 30, 1996, the Company  executed a
credit  agreement  with  Farrington  Bank of North  Brunswick,  New Jersey.  The
agreement  provides the Company with a $500,000 line of credit to finance future
working  capital  requirements,  collateralized  by accounts  receivable  of the
Company.  The  agreement  expires on August 30, 1997.  No portion of this credit
line had been utilized as of December 31, 1996.

           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 financial requirements for the next twelve months.


                                      -12-

<PAGE>



                           PART II. Other Information




Item 1.    Legal Proceedings
           -----------------

           In March 1996, the Company  received a Notice of  Determination  from
the New York  State  Department  of  Taxation  and  Finance in which a sales tax
assessment was made in the sum of approximately $227,392, including interest and
penalties. The Company believes that New York's position is without merit and is
vigorously defending its position that no tax is owed. A conciliation conference
took place before the Bureau of Conciliation  and Mediation  services of the New
York State  Department of Taxation and Finance on October 21, 1996, at which the
Company  was  provided  an  additional  period  of  time to  provide  additional
documentation  to justify its position.  In the opinion of the management of the
Company,  amounts  accrued  for  assessments  in  connection  with sales tax are
adequate and the ultimate  resolution  of these matters will not have a material
effect on the Company's consolidated  financial position,  results of operations
or cash flows.


Item 5.    Other Information
           -----------------

           None.


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


           (a)        Exhibits:              None.



           (b)        Reports on Form 8-K:   None




                                      -13-

<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    , 1997



                                         MICROFRAME, INC.





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



                                         /s/ Mark A. Simmons
                                        -------------------------------
                                         Mark A. Simmons, Chief Financial
                                         Officer (Principal Financial Officer)











                                      -14-