SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

                                (Amendment No. 1)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

[_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998

                         Commission File Number: 0-13576

                           ENCORE COMPUTER CORPORATION
               (Exact name of registrant as specified in charter)

            DELAWARE                                            04-2789167
  (State or other jurisdiction                               (I.R.S. Employer
of incorporation or organization)                         Identification Number)

                                 7786 WILES ROAD
                          CORAL SPRINGS, FLORIDA 33067
                    (Address of principal executive offices)

                                 (954) 757-0166
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:

            TITLE OF CLASS                  NAME OF EXCHANGE ON WHICH REGISTERED
            --------------                  ------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE            THE NASDAQ STOCK MARKET

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[_]

At July 9, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $1,317,401.

At July 9, 1999, 64,501,907 shares of the registrant's common stock were
outstanding.

This Amendment No. 1 has been filed by the Company for the purpose of amending
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 to provide information required by Part III of Form 10-K.

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    The first sentence of the sixth paragraph under "THE GORES TRANSACTION" is
amended and Item 7 is restated in its entirety, as follows:

OVERVIEW

Encore was founded in May 1983. In 1989, Encore acquired substantially all of
the assets of the Computer Systems Division of Gould. Since 1989, the Japan
Energy Group has been the principal source of financing for the Company by
either directly providing or guaranteeing the Company's loans. Since late 1996
however, the credit agreements did not provide committed financing to the
Company and all financing was solely at the discretion of Gould. From 1989
through November 1997, the Company borrowed a total of $418 million from the
Japan Energy Group.

THE SUN TRANSACTION

On November 24, 1997, the Company sold substantially all the assets associated
with its storage products business to Sun Microsystems, Inc. ("Sun"). The Asset
Purchase Agreement under which the transaction took place contemplated that Sun
would pay $185 million for the storage products business, of which $150 million
would be paid in cash at the closing and $35 million would be paid on July 1,
1998, subject to Sun's right to make offsets against the second payment. In
fact, because of certain closing adjustments, Sun paid Encore $151,168,227 at
the closing.

Shortly before July 1, 1998, Sun asserted claims against Encore totaling
$9,692,000. Because of that, on July 1, 1998, Sun paid only $25,308,000 of the
$35,000,000 which was due on that date. Since then, Encore and Sun have been
attempting to resolve Sun's claims.

On November 24, 1997 Gould held (i) notes, secured by all of Encore's assets,
under which Encore owed Gould $93.55 million for money Encore had borrowed from
Gould plus unpaid interest, and (ii) convertible preferred stock of Encore with
a liquidation preference totaling $411 million, which Encore had issued to Gould
between 1991 and 1996 in exchange for cancellation of indebtedness for money
Encore had borrowed from Gould and interest on those borrowings. In addition,
Gould held approximately 48.44% of Encore's common stock, which Gould had
obtained as part of the consideration for the sale of its Computer Systems
Division to Encore in 1989 or through conversion of convertible preferred stock.

In connection with the sale of Encore's storage products business to Sun, Encore
and Gould agreed that Encore would redeem all the convertible preferred stock
which Gould held for $60 million, of which $25 million was to be paid at the
closing of the Sun transaction, and the balance was to be satisfied with the
second payment due from Sun. In addition, Gould agreed that if it received the
entire $35 million by July 31, 1998, Gould would waive its right to receive
additional shares of preferred stock with a liquidation preference of
approximately $43 million which were due to it as past-due dividends on the
convertible preferred stock which was being redeemed. Finally, Gould agreed that
if Encore were liquidated before November 24, 1999, Gould would waive any right
it had as a holder of Encore's common stock with regard to the first $30 million
of liquidating distributions made to Encore's common stockholders.

In connection with the transaction between Encore and Sun, Gould also entered
into an agreement with Sun under which Gould guaranteed most of Encore's
obligations under the Asset Purchase Agreement between Encore and Sun, agreed to
provide whatever funds were necessary to ensure that Encore would not become
insolvent within one year after the closing of its transaction with Sun, and
indemnified Sun against any losses Sun might incur if the sale of Encore's
storage products business to Sun were challenged in an insolvency proceeding
relating to Encore commenced within two years after the closing.

Because Sun withheld $9,692,000 of the payment due on July 1, 1998, Encore
remained obligated to Gould in that amount and had to either pay that amount to
Gould out of its own funds by July 31, 1998 or issue to Gould the over-due
dividend shares of convertible preferred stock, which had a liquidation
preference of $42,678,400. However, in order to give Encore more time to attempt
to resolve Sun's claims, Gould agreed that if Encore issued those dividend
shares to it, Gould would give Encore the option to re-purchase the

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dividend shares on or before July 31, 1999 for an amount equal to the balance of
the $9,692,000 which remained unpaid plus interest at 8.5% per annum from August
1, 1998. At December 31, 1998, the amount Encore would have had to pay to
re-purchase the dividend shares would have been the full $9,692,000 plus
interest of $343,070.

THE GORES TRANSACTION

When the Company completed the sale of its storage products business, the Board
of Directors decided that, at least until the Board's January 1998 meeting, the
Company should (a) explore the possibility of attempting to develop and market
clustering software related to Windows NT(R) and (b) explore the feasibility of
the Company's continuing, and attempting to expand, its real-time computer
systems business. In January 1998, the Board of Directors (i) decided the
Company should discontinue its efforts to develop clustering software relating
to Windows NT and (ii) authorized the Company to retain an investment banker to
try to find a purchaser for the real-time computer systems business.

On March 2, 1998, the Company signed a non-binding letter of intent to sell its
real-time computer systems business to Gores Technology Group for approximately
$5.5 million, based on an estimated December 31, 1997 balance sheet for that
business. On June 4, 1998, the Company and Gores entered into a definitive
agreement for the Company to sell the real-time business to Gores for $3 million
in cash. The reduction in price from that contemplated in the letter of intent
reflected operating results during the first quarter of 1998 and differences
between the estimated December 31, 1997 balance sheet and the actual balance
sheet at March 29, 1998.

At the same time the Company entered into the agreement to sell its real-time
computer systems business to Gores, the Company entered into a management
agreement under which Gores took over management of the real-time computer
systems business, retaining any positive cash flow and bearing any negative cash
flow, but receiving a management fee of $100,000 per month, which was to be
refunded to Encore upon closing of the sale of the real-time computer systems
business to Gores. Encore provided a $2 million line of credit to Gores to fund
its operation of the real-time computer systems business until the closing. As
of December 31, 1998, the amount of positive or negative cash flow generated
under the management agreement had not been agreed upon. On December 31, 1998
the Company and Gores entered into a reconciliation agreement (the
"Reconciliation Agreement"), whereby the parties agreed to resolve any
differences as quickly as possible. It has been agreed that any positive cash
flow generated internationally would be used by Gores to offset domestic
borrowing of $1,850,000 and that all international cash balances at December 31,
1998 would be transferred by Gores to the Company as soon as practicable.

The sale of the real-time computer systems business to Gores was approved by the
Company's stockholders on September 11, 1998, and the transaction was completed
on January 6, 1999. At the closing of the sale, the Company received $2,750,000
(with the additional $250,000 set off against the purchase price to resolve an
alleged breach of indemnity claim) and the parties agreed to resolve, shortly
after the closing, disputed items relating to the sale, including the amounts
due to Encore in accordance with the Reconciliation Agreement. As of March 31,
1999, these items had not yet been resolved.

It had been contemplated that after the real-time computer systems business was
sold to Gores, Encore would be liquidated. However, because of a provision of
the agreements relating to Encore's sale of its storage products business to
Sun, Encore's stockholders could not vote on the liquidation of Encore at the
meeting on September 11, 1998 at which they approved the sale of the real-time
computer systems business. The Company's Board of Directors expects to
reconsider when the Company should be liquidated when various disputed items are
determined, including the additional amount, if any, which Sun will pay with
regard to its purchase of the storage products business, the additional amount,
if any, Gores will pay to the Company with regard to the sale of the real-time
business, and whether the Company will have any liability in suits by
stockholders of the Company with regard to the Sun transaction and related
redemption of convertible preferred stock from Gould.

The Board of Directors terminated the employment of the Company's President on
September 30, 1998 and the employment of the Company's Chief Executive Officer
on November 24, 1998, in view of the fact that the Company no longer had any
active business. The Company's staff was reduced to its General Counsel (who
took the position of President), its Chief Financial Officer, its Vice President
of Human Resources (who continued to be involved in employee compensation
matters arising out of the sales of the storage products and the real-time
computer systems businesses) and a few clerical and administrative employees.
The Company also moved its offices to substantially smaller space which it
occupied under a short-term lease. Those offices will be closed on or about June
30, 1999, and the Company's further activities will be conducted in space
provided by Gould in Eastlake, Ohio.

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<PAGE>

The assets of the Company available for distribution to shareholders on
liquidation of Encore would be (i) the Company's assets, less its liabilities,
at December 31, 1998, after giving effect to the sale of the real-time computer
systems business to Gores, plus or minus (ii) any sum by which the amount
received from Gores is greater or less than the carrying value on the Company's
December 31, 1998 balance sheet, plus or minus (iii) any amount by which
severance and other costs related to the sale of the Company's businesses are
less or greater than the accruals for them on the December 31, 1998 balance
sheet, plus or minus (iv) any amounts by which the costs of liquidation and
costs related to contingent liabilities, including pending litigation, are less
or greater than the reserves reflected on the December 31, 1998 balance sheet,
minus (v) expenses incurred after December 31, 1998 which have not been
contemplated in the accruals, such as employee costs for the Company's limited
staff. The amount, if any, of the assets available for distribution on
liquidation of Encore will be available to common stockholders will depend on
whether Encore is able to re-purchase the convertible preferred stock held by
Gould.

LIQUIDATION

It had been contemplated that after the real-time computer systems business was
sold to Gores, Encore would be liquidated. However, because of a provision of
the agreements relating to Encore's sale of its storage products business to
Sun, Encore's stockholders could not vote on the liquidation of Encore at the
meeting on September 11, 1998 at which they approved the sale of the real-time
computer systems business. The Company's Board of Directors expects to
reconsider when the Company should be liquidated when various disputed items are
determined, including the additional amount, if any, which Sun will pay with
regard to its purchase of the storage products business, the additional amount
Gores will pay to the Company and whether the Company will have any liability in
suits by stockholders of the Company with regard to the Sun transaction and
related redemption of convertible preferred stock from Gould.

The accompanying consolidated financial statements have been prepared assuming
that the Company will liquidate. As of December 31, 1998, the Company has a net
capital deficiency and a working capital deficiency. If the Company does not
favorably resolve the set-off by Sun and the corresponding obligation to Gould
in the principal amount of $9,692,000, the Company will not be able to satisfy
its obligations. However, the ultimate resolution of these matters is not
presently determinable.

COMPARISON OF 1998 AND 1997

Net sales for 1998 were $20,435,000 compared to net sales for 1997 of
$29,486,000, a decrease of $9,051,000 or 31%. 1998 equipment sales decreased 42%
to $8,263,000 when compared to $14,163,000 in 1997. 1998 equipment sales were
entirely derived from real-time products while 1997 equipment sales included
$4,764,000 in storage product revenue. Therefore, 1998 real-time equipment sales
decreased by $1,136,000 or 12% from $9,399,000 in 1997. The decrease in
real-time equipment sales is primarily due to a lack of new product development
and reliance by the Company on modifications to existing products nearing the
end of their life-cycles. Real-time equipment sales as a percentage of total net
sales were 40% in 1998. In 1997 real-time equipment sales were 38% of reported
net sales less storage product equipment sales. International equipment sales
decreased 64% to $1,933,000 in 1998. In 1997 international storage product sales
were $440,000 while there were no international storage product sales in 1998.

Service revenues for 1998 were $12,172,000, a decrease of $3,151,000 or 21% from
service revenues of $15,323,000 in 1997. Continued declining service revenues
reflect the effect on the service business of: (i) the Company's prolonged
decline in equipment sales, (ii) the price competitiveness of the marketplace
and (iii) the completion of long running government programs and subsequent
deinstallation of systems. Service revenues as a percentage of net sales for
1998 and 1997 were 60% and 52%, respectively. International and domestic
real-time service sales were $7,102,000 and $5,070,000, respectively, for 1998,
down 24% and 15%, respectively, from 1997 international real-time service sales
of $9,357,000 and domestic real-time service sales of $5,966,000.

During 1998 one of the Company's customers accounted for approximately 16% of
its sales. During 1997, the Company had not been dependent upon any one customer
for a material part of its business with no single customer accounting for more
than 10% of its sales. However, sales to various U.S. government agencies
represented approximately 40% and 21% of net sales in 1998 and 1997,
respectively. For the real-time business, the respective percentages were 100%
and 84% of total government sales in 1998 and 1997.

Total cost of sales decreased in 1998 to $12,738,000 from $37,332,000 in 1997.
Cost of storage product net sales were $18,708,000 in 1997 compared to $0 in
1998. The decline in real-time net cost of sales in 1998 was $5,886,000 or 32%
from $18,624,000 in 1997. Cost of real-time equipment sales decreased from
$8,668,000 in 1997 to $4,492,000 in 1998, or 48%. Reduced equipment cost of
sales are

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attributed to the significant reduction in capacity variances as a result of
consolidating manufacturing in Ft. Lauderdale from the Company's Melbourne,
Florida manufacturing facility which was highly underutilized and sold to Sun in
November 1997, as well as lower product volumes. Real-time product gross margins
increased to 46% of product sales from 8% in 1997 as a result of these reduced
costs.

Cost of service sales decreased from $15,921,000 in 1997 to $8,246,000 in 1998.
In 1997, the Company invested $5,965,000 in various programs and infrastructure
to support the storage product. Real-time service cost of sales decreased
$1,710,000 or 17% from $9,956,000 in 1997. This decrease is a result of lower
service sales. Real-time gross margins decreased to 32% in 1998 when compared to
35% in 1997.

Research and development expenses in 1998 were $1,213,000 compared to
$23,953,000 in 1997. This decrease is a direct result of Sun hiring or
contracting 68% of the total existing research and development personnel at
November 24, 1997, the Board of Directors' decision not to pursue development of
clustering technology in the Windows NT environment and the subsequent
consolidation of technical resources into a shared organization responsible for
manufacturing support as well as pre/post sales support. Research and
development expenses as a percentage of net sales decreased from 81% in 1997 to
6% in 1998.

Sales, general and administrative expenses in 1998 were $8,489,000 compared to
$27,044,000 in 1997. Sun hired 65 storage product sales and marketing personnel
or 45% of the Company's existing sales and marketing employees at November 24,
1997. Subsequently, the Company downsized the real-time sales and marketing and
administrative functions to levels more in line with future sales expectations.
As a result, SG&A expenses as a percentage of net sales decreased from 92% in
1997 to 42% in 1998.

In the fourth quarter of 1997, in conjunction with the sale of the storage
products business to Sun (the "Sun Transaction") and subsequent reorganization,
the Company recorded a termination charge of $17,685,000 related to: (i)
severance and benefit pay of $6,323,000 as a result of a 542 person reduction in
workforce, including severance for employees contracted by Sun, as the Company
agreed to pay the difference between the completion bonus offered to contractors
by Sun at the end of their contract and the amount of severance they were
entitled to had they been terminated by the Company, (ii) $4,722,000 of
retention payments pursuant to agreements between the Company and each of
approximately 49 employees, (iii) $1,000,000 of incentive bonuses to certain key
employees, (iv) $3,390,000 relating to the termination of European facility and
automobile leases, and $350,000 relating to a domestic equipment lease, (v) an
estimated $500,000 for leasehold improvements to be made at the Company's Fort
Lauderdale facility which is leased from Sun, (vi) $1,150,000 in estimated legal
and other fees associated with the Sun Transaction, and (vii) $250,000 accrued
for legal fees in connection with the shareholders suit. (See Item 3 Legal
Proceedings). Termination charges relating to the Sun Transaction amounting to
$1,656,000 were reversed in the fourth quarter of 1998, as original estimates
were revised.

In the first quarter of 1998, the Company recorded a termination charge of
$743,500 related to severance and benefit pay as a result of a 13 person
reduction in workforce associated with the Board of Directors' decision not to
pursue the NT opportunity.

In December 1998, in conjunction with the sale of the real-time business to
Gores (the "Gores Transaction") and anticipated liquidation, subject to
shareholder approval, the Company recorded a charge for estimated liquidation
costs of $5,531,000 related to: (i) severance and benefit pay of $1,211,000 as a
result of a 7 person reduction in workforce, (ii) $300,000 of retention payments
pursuant to agreements between the Company and each of approximately 16
employees, (iii) $1,824,000 in estimated costs for professional services related
to the Company's winddown, (iv) $500,000 of estimated international taxes which
may be required to be paid to remit cash in Europe to the United States, (v)
$481,000 in accrued interest through July 31, 1999 on the $9,692,000 due to
Gould, (vi) $516,000 of additional accounts receivable reserves and additional
accrued expenses, and (vii) $699,000 of miscellaneous costs related to shutdown
of various facilities including real estate and other taxes.

Interest expense decreased to $374,000 in 1998 from $6,218,000 in 1997 as a
result of the Company's payment to Gould in conjunction with the Sun
Transaction. The 1998 interest expense relates to interest payable to Gould
based on the $9,692,000 owed to Gould as a result of Sun's set-off in the second
payment.

Provision for income taxes decreased $2,216,000 in 1998 from 1997 as a result of
the reversal of an overestimate of the alternative minimum tax to be paid in
connection with the 1997 profit from the Sun Transaction, offset by taxes
payable by foreign subsidiaries.

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COMPARISON OF 1997 AND 1996

Net sales for 1997 were $29,486,000 compared to net sales for 1996 of
$47,627,000. 1997 equipment sales decreased 49% to $14,163,000 when compared to
$27,600,000 in 1996. Service revenues for 1997 and 1996 were $15,323,000 and
$20,027,000, respectively. 1997 real-time equipment sales were $9,399,000
compared to $20,997,000 in 1996. 1997 storage product sales were $4,764,000
compared to $6,603,000 in 1996. Real-time service revenues were $15,323,000 in
1997, compared to $20,027,000 in 1996. No service revenues were derived from the
storage product business. The Company's operating loss for 1997 was $76,528,000
compared to operating losses of $67,218,000 for 1996. The 1997 gain resulting
from the Sun Transaction was $119,890,000.

Equipment sales as a percentage of total net sales in 1997 and 1996 were 48% and
58%, respectively. For real-time equipment sales, the respective percentages
were 32% and 44% of total net sales in 1997 and 1996. For storage product sales
the respective percentages were 16% and 14% in 1997 and 1996. The decrease in
equipment sales in 1997 is primarily due to; (i) the inability of the Company to
penetrate the storage marketplace through its direct and distributor sales
channels, (ii) concerns of potential customers over the financial viability of
the Company and (iii) certain of the Company's traditional real-time products
having reached the end of their product life cycle. Additionally, management
believes the announcement of the Asset Purchase Agreement with Sun on July 17,
1997, adversely affected storage product sales for the balance of 1997.
International equipment sales decreased 67% to $5,297,000 in 1997 as
international storage product sales declined 92% to $440,000 and international
real-time product sales decreased 55% to $4,857,000 when compared to 1996.
Domestic equipment sales decreased 23% to $8,866,000 compared to 1996 with
storage product sales increasing 233% to $4,324,000, while real-time product
sales decreased 56% to $4,542,000.

Continued declining service revenues reflect the effect on the service business
of: (i) the Company's prolonged decline in equipment sales, (ii) the price
competitiveness of the marketplace, (iii) the completion of long running
government programs and subsequent deinstallation of systems and (iv) longer
warranty periods for equipment sales required to compete in the storage
marketplace. International service sales decreased 24% to $9,357,000 in 1997,
while domestic service sales decreased 23% to $5,966,000 compared to 1996.
International and domestic real-time service sales were $9,357,000 and
$5,966,000, respectively, for 1997, down 24% and 23%, respectively, from 1996
international real-time service sales of $12,277,000 and domestic real-time
service sales of $7,750,000.

International net sales decreased 48% (38% for real-time) in 1997 when compared
to 1996. Domestic net sales decreased 23% (42% for real-time) in 1997, when
compared to 1996. International sales in 1997 and 1996 were $14,654,000 and
$28,327,000, or 50% and 59%, respectively, of total net sales. International
real-time net sales in 1997 and 1996 were $14,214,000 and $23,024,000, or 57%
and 56%, respectively, of total real-time net sales.

During the years ended December 31, 1997 and December 31, 1996, no single
customer accounted for more than 10% of the Company's annual sales. However,
sales to various U.S. government agencies have represented approximately 21% and
22% of net sales in 1997 and 1996, respectively. For the real-time business, the
respective percentages were 84% and 86% of total government sales in 1997 and
1996. The Company recognized that reductions in levels of U.S. government agency
spending on computers and computer related services could adversely affect its
traditional sources of revenue.

Total cost of sales decreased in 1997 to $37,332,000 ($18,624,000 for real-time
and $18,708,000 for storage product), from $53,608,000 ($32,349,000 for
real-time and $21,259,000 for storage product) in 1996. This decrease was due
generally to lower sales volumes and lower spending resulting from the
restructuring of manufacturing and customer service operations during the
period. Since the beginning of 1995, combined manufacturing and customer service
headcount had been reduced by approximately 88%, certain customer service field
operations had been closed or scaled down, and manufacturing operations had been
consolidated in Melbourne, Florida.

Cost of equipment sales exceeded sales by $7,248,000 and $8,186,000, or (51%)
and (30%) of net sales, respectively, in 1997 and 1996. However, gross margins
on real-time equipment sales were $671,000 and $491,000, or 7% and 2% for 1997
and 1996, respectively. Negative gross margins were generated by the storage
product business of $7,949,000 and $8,677,000 in 1997 and 1996, respectively. In
1997, equipment cost of sales included $684,000 of valuation reserves for
real-time products. 1996 cost of sales included $9,932,000 (28% of equipment
sales) in additional valuation reserves on storage product inventory.

The Company's ISO 9002 certified manufacturing operation was sold to Sun as part
of the Sun Transaction. Pursuant to the "At Will Shared Services Agreement"
dated November 24, 1997, Sun agreed, among other things, to provide
manufacturing support to Encore

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through February 28, 1998, while the Company was integrating its manufacturing
operation into their Fort Lauderdale facility. At that time the Company
established a real-time technical operations function responsible for research
and development, manufacturing/integration, as well as pre and post sales
support. This organization consists of 28 of the most highly experienced
real-time technical personnel available.

Equipment gross margins were negatively impacted in 1997 and 1996 due to the
discounting of storage products in order to penetrate the marketplace and
establish reference accounts. Warranty costs related to the storage product
business were also higher than anticipated due to engineering changes on current
installations and spare parts inventory. Factory variances related to lower
production volumes and underutilization of manufacturing capacity also lowered
gross margin in both years.

In 1997, cost of service sales exceeded sales by $598,000, compared to gross
margins on service sales in 1996 of $2,205,000. For 1997 and 1996, service
margins were reduced for investments in various programs and infrastructure
necessary to support the storage product line. The Company invested $5,965,000
(39% of service sales) and $5,979,000 (30% of service sales) in support of the
storage product line during 1997 and 1996, respectively. Sun purchased all fixed
assets and spares inventory related to the storage product and hired all storage
product service personnel.

All service sales are derived from installed real-time products and the cost
structure within the service department is highly variable due to the
utilization of service partners. Therefore, as revenues decline, costs decline
as well. Moreover, management continues to reduce fixed costs on an ongoing
basis. Gross margins on real-time service sales were $5,367,000 (35%) and
$8,184,000 (41%) in 1997 and 1996, respectively.

Research and development expenses in 1997 were $23,953,000 compared to
$30,260,000 in 1996. The decrease in 1997 expenses is primarily the result of
lower labor costs and lower spending on non-recurring engineering associated
with prototype boards. Sun either hired or contracted 147 or 68% of total
research and development personnel. Research and development expenses as a
percentage of net sales increased to 81% in 1997, compared to 64% in 1996.

Subsequent to the Sun Transaction, the Company also established a separate
research and development organization to focus on opportunities in the Microsoft
NT environment. However, in January 1998, the Board of Directors voted not to
pursue the NT opportunity.

Sales, general and administrative ("SG&A") expenses in 1997 were $27,044,000
compared to $30,977,000 in 1996. The decrease in 1997 expenses was due to
reduced headcount, lower commissions and lower advertising and promotion
expenses related to the storage products business. SG&A expenses include
non-cash compensation charges of $589,000 in 1996 in connection with the
extension of the expiration date of certain individual stock option grants. As a
percentage of net sales, SG&A expenses were 92% and 65% in 1997, and 1996.

In 1997, Sun hired 65 storage product sales and marketing personnel or 45% of
the Company's total sales and marketing employees. Subsequently, the Company
downsized the real-time sales and marketing organization to 30 employees.

In the fourth quarter of 1997, in conjunction with the Sun Transaction and
subsequent reorganization, the Company recorded a termination charge of
$17,685,000 related to: (i) severance and benefit pay of $6,323,000 as a result
of a 542 person reduction in workforce, including severance for employees
contracted by Sun, as the Company agreed to pay the difference between the
completion bonus offered to contractors by Sun at the end of their contract and
the amount of severance they were entitled to had they been terminated by the
Company, (ii) $4,722,000 of retention payments pursuant to agreements between
the Company and each of approximately 49 employees, (iii) $1,000,000 of
incentive bonuses to certain key employees, (iv) $3,390,000 relating to the
termination of European facility and automobile leases, and $350,000 relating to
a domestic equipment lease, (v) an estimated $500,000 for leasehold improvements
to be made at the Company's Fort Lauderdale facility which is leased from Sun,
(vi) $1,150,000 in estimated legal and other fees associated with the Sun
Transaction, and (vii) $250,000 accrued for legal fees in connection with the
shareholders suit. (See Item 3 Legal Proceedings). Termination charges relating
to the Sun Transaction amounting to $1,656,000 were reversed in the fourth
quarter of 1998, as original estimates were revised.

Interest expense increased in 1997 to $6,218,000 from $3,520,000 in 1996,
primarily due to higher debt levels. Since 1996, Encore has completed a series
of refinancing agreements with the Japan Energy Group resulting in conversions
of $180,000,000 of debt to preferred

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stock. Other expense, net, was higher in 1997 than in 1996 due principally to
higher foreign exchange losses and losses on the sale of certain fixed assets.

Income taxes provided in 1997 relate to $503,000 of taxes payable by foreign
subsidiaries as well as $1,400,000 in estimated alternative minimum tax
resulting from the gain on the Sun Transaction. (see Note G of the Notes to
Consolidated Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES

For the years ended December 31, 1998 and 1997, the Company reported net income
of $16,658,000 and $34,164,000, respectively. Included in net income in 1998 and
1997 were gains on the sale of assets to Sun amounting to $25,308,000 and
$119,890,000, respectively. In 1998, net cash used in operating activities was
$12,959,000 compared to $66,730,000 in 1997. Net income, adjusted for non cash
items, the loss on the Gores Transaction and the gain on the Sun Transaction was
$118,000 in 1998, as the Company recorded estimated liquidation costs of
$5,531,000, depreciation and amortization of $887,000 and the gain on the Sun
Transaction of $25,308,000. Net income adjusted for non cash items in 1997
resulted in a loss of $58,812,000. Working deficit was decreased in 1998
primarily as a result of the payment of $25,308,000 to Gould. As of December 31,
1998, total capital deficiency was $2,988,000 versus $19,646,000 as of December
31, 1997.

Net cash provided by investing activities resulted primarily from the receipt of
proceeds from the sale of the storage product business to Sun of $25,308,000 and
$151,168,000 in 1998 and 1997, respectively.

Net cash used in financing activities in 1998 and 1997 was $25,308,000 and
$57,954,000, respectively, resulting principally from a retirement of
$25,000,000 of preferred stock during 1997 and net repayments of loan agreements
of $25,308,000 in 1998 versus $52,659,000 in 1997.

On March 19, 1997, the Company and Gould agreed to cancel $40,000,000 of
indebtedness owed to Gould under their loan agreement (the "Credit Agreement")
in exchange for the issuance to Gould of 400,000 shares of the Company's Series
I Convertible Preferred Stock ("Series I") with a liquidation preference of
$40,000,000. In addition to the exchange of indebtedness for shares of Series I,
the Company and Gould also agreed to amend the Credit Agreement to (i) reduce
the maximum amount which could be borrowed by the Company from $80,000,000 to
$50,000,000 and (ii) provide that any borrowings in excess of $41,915,869 (the
principal amount outstanding on March 19, 1997 after giving effect to the
exchange of indebtedness for shares of Series I) may be made only at the
discretion of Gould. In a letter to the Company dated July 17, 1997, Gould
confirmed that it was not obligated to provide any additional financing to the
Company but that so long as Gould was convinced that the sale of the storage
product business to Sun would take place, it was likely that Gould would
continue to provide financing to the Company but only to the extent absolutely
necessary to enable the transaction to be consummated. On November 24, 1997 (the
"Closing"), the Company paid to Gould $93,551,000 in principal and accrued
interest owed at that date.

Restricted cash of $1,298,000 and $14,083,000 at December 31, 1998 and December
31, 1997, respectively was held in an escrow account pursuant to an escrow
agreement dated November 24, 1997 between the Company and Sun. The escrow
arrangement was established to ensure that certain of the Company's liabilities
at the closing date of the Sun Transaction, would be paid when due. As the
Company pays these liabilities, escrow funds are released to the Company. These
funds were invested in a U.S. Bank money market fund and were made available to
the Company pursuant to the terms of the agreement. At March 31, 1999, no cash
remained in escrow. The majority of cash and cash equivalents at December 31,
1998 consists of cash available to the Company from the payments from the Sun
Transaction and cash at various international subsidiaries.

On January 6, 1999, upon the closing of the Gores Transaction, the Company
received the purchase price of $3 million in cash less $250,000 which was agreed
to be set-off against the purchase price in order to resolve an alleged breach
of an indemnity claim.

At December 31, 1998, the Company had total assets of $16,753,000, including
restricted cash of $1,298,000, and cash and cash equivalents of $9,290,000, and
had liabilities of $19,741,000, including $3,612,000 of estimated severance
costs and other costs related to the sale of the Company's storage products
business, $4,609,000 in estimated liquidation costs and the $9,692,000 principal
amount payable to Gould. The assets of the Company available for distribution to
shareholders on liquidation of Encore would be (i) the Company's assets, less
its liabilities, at December 31, 1998, after giving effect to the sale of the
real-time computer systems business to

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<PAGE>

Gores, plus or minus (ii) any sum by which the amount received from Gores is
greater or less than the carrying value on the Company's December 31, 1998
balance sheet, plus or minus (iii) any amount by which severance and other costs
related to the sale of the Company's businesses are less or greater than the
accruals for them on the December 31, 1998 balance sheet, plus or minus (iv) any
amounts by which the costs of liquidation and costs related to contingent
liabilities, including pending litigation, are less or greater than the reserves
reflected on the December 31, 1998 balance sheet, minus (v) expenses incurred
after December 31, 1998 which have not been contemplated in the accruals, such
as employee costs for the Company's limited staff. The amount, if any, of the
assets available for distribution on liquidation of Encore will be available to
common stockholders will depend on whether Encore is able to re-purchase the
convertible preferred stock held by Gould.

The accompanying consolidated financial statements have been prepared assuming
that the Company will liquidate. As of December 31, 1998, the Company has a net
capital deficiency and a working capital deficit. If Sun does not pay the
$9,692,000 due to Gould, the Company will be obligated to pay the difference to
Gould, in addition to interest on the $9,692,000, and may not be able to satisfy
its obligations. Management intends to make all efforts to collect the
$9,692,000 payment in its entirety. However, the ultimate resolution of these
matters are not presently determinable.

YEAR 2000

The Company has determined that year 2000 issues will have no impact on the
Company's future financial statements in light of the Sun Transaction and the
Gores Transaction. The Company is currently in the process of winding down the
business and has only administrative support functions. These functions will be
accounted for on a small PC system which we will insure is year 2000 compliant.

CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS

The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations and beliefs concerning future events. The Company
cautions that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, estimates relating to
the accrual for liquidation costs. These statements by their nature involve
substantial risks and uncertainties and actual events or results may differ as a
result of these and other factors. (See Exhibit 99 incorporated herein by
reference to the Company's Form 10-Q for the period ended June 30, 1996.)

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<PAGE>

                                   SIGNATURES

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

                                                     ENCORE COMPUTER CORPORATION

Dated: July 15, 1999                                 By: /s/ MICHAEL C. VEYSEY
                                                         -----------------------
                                                         Michael C. Veysey,
                                                         President

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