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 September 30, 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 5,403,480 shares of Common Stock outstanding as of November 10, 1998.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
MICROFRAME, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Condensed Consolidated Financial Information 2
Condensed Consolidated Balance Sheets as of September 30, 1998
and March 31, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations for the Three and Six
Months Ended September 30, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended September 30, 1998 and 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-8
Item 2. Management's Discussion and Analysis 8-11
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 14
</TABLE>
<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.
2
<PAGE>
<TABLE>
<CAPTION>
MicroFrame, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
- -------------------------------------------------------------------------------------------------------------------------
(unaudited)
September 30, March 31,
ASSETS 1998 1998
<S> <C> <C>
Current assets
Cash and cash equivalents $ 268,710 $ 507,726
Accounts receivable, less allowance for doubtful
accounts of $122,000 and $126,000, respectively 3,553,863 2,667,319
Inventory, net 1,776,074 1,425,351
Deferred tax asset 391,166 366,137
Prepaid expenses and other current assets 412,593 153,568
--------------------- ----------------
Total current assets 6,402,406 5,120,101
Property and equipment, less accumulated depreciation
of $584,260 and $971,903 629,747 421,701
Capitalized software, less accumulated amortization
of $1,175,299 and $1,054,827 573,763 396,351
Deferred tax assets, net - 129,689
Goodwill, less accumulated amortization of $31,080 and $26,130 70,530 75,480
Security deposits 39,496 35,716
Other assets 732,600
--------------------- ---------------
Total assets $ 8,448,542 $ 6,179,038
===================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank borrowings $ 900,000 $ 300,000
Current portion of long-term debt - 30,009
Accounts payable 1,247,402 910,842
Accrued payroll and related liabilities 371,698 348,397
Deferred income 328,777 181,573
Other current liabilities 433,989 405,263
--------------------- ---------------
Total current liabilities 3,281,866 2,176,084
--------------------- ---------------
Deferred tax liabilities, net 23,242 -
Committments and contingencies
Stockholders' equity
Common stock - par value $.001 per share; authorized 50,000,000 shares,
issued 5,537,480 shares and outstanding 5,475,449 shares at September
30, 1998; issued 4,849,531 shares and outstanding 4,849,131
and subscribed 50,000 shares at March 31, 1998 5,537 4,899
Preferred stock - par value $10 per share;
authorized 200,000 shares, none issued
Additional paid-in capital 7,324,828 6,345,613
Stock subscription receivable (104,000)
Accumulated deficit (1,982,053) (2,231,638)
Accumulated Comprehensive income 2,321 (7,920)
--------------------- ----------------
5,350,633 4,006,954
Less - Treasury stock, 62,031 shares at September 30, 1998
and 400 at March 31, 1998, at cost (207,199) (4,000)
--------------------- ----------------
Total stockholders' equity 5,143,434 4,002,954
--------------------- ----------------
Total liabilities and stockholders' equity $ 8,448,542 $ 6,179,038
===================== ================
</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 Operations
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ --------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Gross Sales $ 3,213,930 $ 2,281,727 $ 6,177,903 $ 4,018,273
Cost of sales 1,056,431 1,046,052 2,064,436 1,787,098
------------ ------------------- ------------ ------------
Gross margin 2,157,499 1,235,675 4,113,467 2,231,175
Research and development expenses 640,140 180,796 1,053,107 467,348
Selling, general and administrative expenses 1,417,461 966,731 2,637,109 1,853,922
------------ ------------------- ------------ ------------
Income (loss) from operations 99,898 88,148 423,251 (90,095)
Interest income 2,869 3,559 5,205 9,204
Interest expense (21,311) (1,213) (30,280) (2,637)
------------ ------------------- ------------ ------------
Income (loss) before income tax provision (benefit) 81,456 90,494 398,176 (83,528)
Income tax provision (benefit) (6,985) 12,501 148,591 (7,720)
------------ ------------------- ------------ ------------
Net income (loss) $ 88,441 $ 77,993 $ 249,585 $ (75,808)
============ =================== ============ ============
Per share data
Net income (loss) per share
Basic $ 0.02 $ 0.02 $ 0.05 $ (0.02)
------------ ------------ ------------ ------------
Diluted $ 0.01 $ 0.02 $ 0.04 $ (0.02)
------------ ------------ ------------ ------------
Weighted average number of common shares
outstanding basic 5,425,588 4,839,703 5,394,872 4,839,703
------------ ------------ ------------ ------------
Weighted average number of common shares
outstanding diluted 6,465,558 4,883,704 6,595,893 4,839,703
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
4
<PAGE>
<TABLE>
<CAPTION>
MicroFrame, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
- ---------------------------------------------------------------------------------------------------------------------------
(unaudited)
Six Months Ended
September 30,
-----------------
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 249,585 $ (75,808)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 314,579 202,469
Provision for bad debts (3,987)
Deferred tax provision 127,902 (7,720)
(Increase) decrease in
Accounts receivable (882,557) (4,321)
Inventory (350,723) (56,287)
Prepaid expenses and other current assets (259,025) (80,703)
Security deposits (3,780) (2,037)
Increase (decrease) in
Accounts payable 336,560 228,413
Accrued payroll and related liabilities 23,301 (78,055)
Deferred income 147,204 (51,242)
Other current liabilities 28,726 (44,670)
----------------- -----------------
Net cash (used in) provided by operating activities (272,215) 30,039
----------------- -----------------
Cash flows from investing activities
Capital expenditures (408,562) (72,769)
Capitalized software (297,884) (89,907)
Other assets (732,600)
----------------- -----------------
Net cash used in investing activities (1,439,046) (162,676)
----------------- -----------------
Cash flows from financing activities
Proceeds of short-term borrowings 600,000
Repayments of debt (30,009) (20,816)
Issuance of common stock 902,254 624
----------------- -----------------
Net cash provided by (used in) financing activities 1,472,245 (20,192)
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (239,016) (152,829)
Cash and cash equivalents - beginning of period 507,726 539,214
----------------- ------------------
Cash and cash equivalents - end of period $ 268,710 $ 386,385
================= ==================
</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
SEPTEMBER 30, 1998
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements:
-------------------------------------------
The condensed consolidated balance sheets as of September 30, 1998 and March 31,
1998, the condensed consolidated statements of operations for the three and six
month periods ended September 30, 1998 and 1997 and the condensed consolidated
statements of cash flows for the six 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 September 30, 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:
September 30, 1998 March 31, 1998
------------------ --------------
Raw materials $1,072,918 $ 1,003,132
Work in process 815,263 525,918
Finished goods 72,893 81,301
-------------- --------------
1,961,074 1,610,351
Less, allowance for obsolescence (185,000) (185,000)
-------------- --------------
Total $1,776,074 $ 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.
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:
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
9/30/98 9/30/97 9/30/98 9/30/97
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted Average # of Shares Outstanding 5,425,588 4,839,703 5,394,872 4,839,703
Incremental Shares for Common Equivalents 1,039,970 44,001 1,201,021
--------- --------- --------- ---------
Diluted Shares Outstanding 6,465,558 4,883,704 6,595,893 4,839,703
</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>
Six months Six Months
ended 9/30/98 ended 9/30/97
------------- -------------
<S> <C> <C>
Net income (loss) $249,585 $ (75,808)
Effect of foreign currency translation 10,241 -
-------- ---------
Comprehensive income $239,344 $ (75,808)
======== =========
</TABLE>
Note 5 - 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 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
7
<PAGE>
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 September 30, 1998 verses Three Months ended September 30,
- -------------------------------------------------------------------------------
1997
- ----
Revenues for the quarter ended September 30, 1998 were $3,213,930 as
compared with revenues of $2,281,727 for the quarter ended September 30, 1997,
or an increase of approximately 41%. The increase was primarily due to increased
shipments of the Company's Sentinel 2000 product line as well as software and
development sales in the Business Oriented Network Management Market. 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 US markets, including shipments under its contracts with PTT
Holland, MCI, AT&T and Lucent.
The Company's cost of goods sold increased from $1,046,052 for the
quarter ended September 30, 1997 to $1,056,431 for the quarter ended September
30, 1998. The Company's cost of goods sold as a percentage of sales decreased
from 46% for the previous comparable fiscal period to 33% 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 generates a higher margin.
Research and development expenses, net of capitalized software
development, increased to $640,140 from $180,796 in the quarter ended September
30, 1997 as a result of the Company's hiring of additional engineering staff and
technology agreements with Solcom Systems, Ltd. ("Solcom"). As a result of this
increase in personnel and the outsourcing of certain research and development
activities to Solcom, research and development expenses as a percentage of
revenues increased from 8% to 20%. Selling, general and administrative expenses
increased approximately 47% from $966,731 for the prior year's comparable
quarter to $1,417,461 for the quarter ended September 30, 1998. The primary
reason for this increase is increases in the number of direct sales people, as
the Company embarks on an aggressive growth plan. The Company hired three
additional salespeople since the corresponding quarter in 1997. The Company
anticipates continued increases in revenues as a result of these increased
selling expenses.
The Company's income from operations increased 13% to $99,898 for the
three months ended September 30, 1998 compared to $88,148 for the same period a
year ago. Due primarily to increased sales, the net income for the period ended
September 30, 1998 increased approximately 13% to $88,441 compared to net income
of $77,993 for the quarter ended September 30, 1997.
8
<PAGE>
First Six Months of Fiscal 1999 Versus First Six Months Fiscal 1998
- -------------------------------------------------------------------
Revenues for the six months ended September 30, 1998 were $6,177,903 as
compared with revenues of $4,018,273 for the comparable period of the previous
fiscal year, or an increase of approximately 54%. 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 six months ended September
30, 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. The Company is continuing to
aggressively pursue customers in the global market place.
The Company's cost of goods sold increased to $2,064,436 for the six
months ended September 30, 1998 compared to $1,787,098 for the six months ended
September 30, 1997 as a result of increased shipment levels. Cost of goods sold
as a percentage of sales decreased from 44% for the previous comparable fiscal
period to 33% 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 by continuing to improve purchasing and materials management systems.
Research and development expenses, net of capitalized software
development, increased from 467,348 in the six months ended September 30, 1997
to $1,053,107 during the six month ended September 30, 1998, an increase of
125%, primarily as a result of the increase in development and engineering staff
under the Company's growth plan and payments to Solcom under certain technology
agreements. Research and development expenses as a percentage of revenues
increased to 17% compared to approximately 12% in the prior year. Selling,
general and administrative expenses increased 42% from $1,853,922 for the prior
year's comparable fiscal period to $2,637,109 for the six months ended September
30, 1998. This increase was primarily the result of added sales personnel.
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.
Due to the factors outlined above, the Company had income before net
interest expense and taxes of $423,251 for the six months ended September 30,
1998 compared to a loss of $90,095 during the six months ended September 30,
1997. The Company expects continued positive effects 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 $249,585 compared to a net loss of $75,808 for the same
period in 1997.
Financial Condition and Capital Resources
- -----------------------------------------
During the first six months of fiscal year 1999, the Company recorded
net income of approximately $250,000. Included in this net income were non-cash
charges of approximately $315,000 for depreciation and amortization and $128,000
of deferred taxes.
The Company's operations used $272,000 of cash, primarily as a result
of an increase in accounts receivable of $883,000 for sales that occurred later
in the quarter and an increase in inventory buildup of $351,000 as the Company
prepares to ship its backlog going into the third quarter. These increases were
offset by increases in cash due to higher accounts payable, accrued payroll and
benefit liabilities and deferred income.
The Company utilized approximately $1.4 million of cash for investing
activities during the six month period. The bulk of this use of cash was for
increased capital spending on plant and equipment and capitalized software
projects
9
<PAGE>
as well as for merger related costs associated with the Company's planned
acquisition of Solcom, which is expected to close early in 1999.
Financing activities provided approximately $1.5 million of cash
primarily from stock option and warrant exercises ($900,000) and amounts
borrowed under the Company's line of credit ($600,000) to finance the Company's
working capital needs and its growth plans. The Company also paid down $30,000
of debt in the six months ended September 30, 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 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 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 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 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.
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
10
<PAGE>
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 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.
11
<PAGE>
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The annual meeting of shareholders of the Company was held on
September 15, 1998. At such meeting the shareholders approved
the following matters:
Proposal 1. Election of the following individuals as directors
of the Company for a term of one year, that constitutes the
entire Board of Directors of the Company:
Stephen M. Deixler, Stephen B. Gray, Michael Radomsky, and
Alexander Stark
Proposal 2. Ratification of the Board of Directors' selection
of PricewaterhouseCoopers LLP as the Company's independent
accountants for the fiscal year ending March 31, 1999
Set forth below are the votes for, withheld, against and
abstaining from each of the proposals listed above:
<TABLE>
<CAPTION>
Proposal For Withheld Against Abstain
-------- --- -------- ------- -------
<S> <C> <C> <C> <C>
1. Stephen M. Deixler 3,453,894 10,960
Stephen B. Gray 3,459,894 4,500
Michael Radomsky 3,460,894 3,960
Alexander Stark 3,453,894 10,960
2. PricewaterhouseCoopers LLP 3,421,479 40,050 3,325
</TABLE>
Item 5. Other Information
-----------------
On September 15, 1997, at the Board of Directors' meeting
following the Annual Meeting of Shareholders, the Company's
current officers were re-elected for a one year term
commencing as of such date. In addition, Stephen M. Deixler
and Alexander Stark were re-elected as members of the
Company's Strategic Steering and Mergers and Acquisitions
Committee, Compensation/Stock Option Committee, Audit
Committee and Nominating Committee for a one year term
commencing as of such date.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits:
27. 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: November 13, 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)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> Mar-31-1999 Mar-31-1999
<PERIOD-START> Jul-01-1998 Apr-01-1998
<PERIOD-END> Sep-30-1998 Sep-30-1998
<CASH> 0 268,710
<SECURITIES> 0 0
<RECEIVABLES> 0 3,553,863
<ALLOWANCES> 0 (122,000)
<INVENTORY> 0 1,776,074
<CURRENT-ASSETS> 0 6,402,406
<PP&E> 0 1,214,007
<DEPRECIATION> 0 (584,260)
<TOTAL-ASSETS> 0 8,448,542
<CURRENT-LIABILITIES> 0 3,281,866
<BONDS> 0 0
0 5,537
0 0
<COMMON> 0 0
<OTHER-SE> 0 5,137,897
<TOTAL-LIABILITY-AND-EQUITY> 0 8,448,542
<SALES> 3,213,930 6,177,903
<TOTAL-REVENUES> 3,213,930 6,177,903
<CGS> 1,056,431 2,064,436
<TOTAL-COSTS> 2,057,601 3,690,216
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (21,311) (30,280)
<INCOME-PRETAX> 81,456 398,176
<INCOME-TAX> (6,985) 148,591
<INCOME-CONTINUING> 88,441 249,585
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 88,441 249,585
<EPS-PRIMARY> 0.02 0.05
<EPS-DILUTED> 0.01 0.04
</TABLE>
