<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                         ----------------------------

                                   FORM 10-K


/X/   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

              FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, OR

/ /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

          FOR THE TRANSITION PERIOD FROM ____________ TO _____________.

                       COMMISSION FILE NUMBER:  000-26952

                         ----------------------------

                             SYNC RESEARCH, INC.

            (Exact name of Registrant as specified in its charter)

                   DELAWARE                              33-0676350
       (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)               Identification No.)

                                  40 PARKER
                               IRVINE, CA 92618
                   (Address of principal executive offices)
      Registrant's telephone number, including area code: (949) 588-2070

                         ----------------------------

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


         Securities registered pursuant to Section 12(g) of the Act:
                   Common Stock, $0.001 par value per share
                               (Title of Class)

                         ----------------------------

     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.  / /

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant based upon the closing sale price of the Registrant's Common
Stock on the Nasdaq National Market on March 15, 1999 was approximately
$12,702,670 as of such date. Shares of Common Stock held by each executive
officer and director and by each person who owns 10% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

     There were 17,580,376 shares of Registrant's Common Stock issued and
outstanding as of March 15, 1999.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Part III incorporates information by reference from the definitive Proxy
Statement for the Registrant's 1999 Annual Meeting of Stockholders scheduled to
be held on June 11, 1999 (the "Proxy Statement").


<PAGE>

                                   PART I

ITEM 1.   BUSINESS

     Except for the historical information contained herein, the matters
discussed in this document are forward-looking statements. The Company wishes to
alert readers that the factors set forth in Item 7, under "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Risk
Factors," including but not limited to fluctuations in quarterly orders, market
conditions in the networking industry and the amount of charges relating to
expense reductions, involve risks and uncertainties and could in the future
affect, and in the past have affected, the Company's results. The Company's
actual results for future periods could differ materially from those expressed
in any forward-looking statements made by or on behalf of the Company.

OVERVIEW

     Sync Research, Inc. ("Sync" or the "Company") develops, manufactures,
markets and supports wide-area network ("WAN") access, internetworking and
management solutions that enable customers to more reliably deploy
business-critical applications over frame relay and other public switched
virtual network ("PSVN") services.

     As a result of the worldwide growth in data bandwidth requirements, the
telecommunications industry has undergone significant reform causing the
transformation of traditional carriers and the birth of a new generation of
geographically and market aligned value-added carriers and service providers,
collectively referred to as "Service Providers." In an effort to develop new
revenue sources and improve competitiveness, many of these Service Providers
provide data services based on frame relay, an efficient, low-latency,
frame-switched WAN protocol. Frame relay has experienced rapid growth as a PSVN
service due to its speed and economy, its deployment flexibility, and its
ability to combine incompatible "protocols," such as International Business
Machines Corporation ("IBM") mainframe Systems Network Architecture ("SNA") and
client/server Transmission Control Protocol/Internet Protocol ("TCP/IP"), onto a
single telecommunications circuit. Frame relay represents a cost-effective,
intelligent, PSVN technology, that provides a smooth migration to asynchronous
transfer mode ("ATM") and other broadband services generally used in the
backbone of many of these Service Providers.

     Sync has developed a portfolio of products that provide end users and
service providers with innovative WAN access and management solutions engineered
to support mission-critical applications over frame relay and other PSVN
services. The Company's FrameNode-TM- line of multi-service frame relay access
devices ("FRADs") and frame relay access routers enables the migration of
embedded SNA leased line networks to frame relay, as well as the convergence of
SNA and client/server branch applications across frame relay networks. Sync's
circuit management solutions represent an emerging product category consisting
of WAN probes and application software that improves the availability and
performance of frame relay and other PSVN services by providing extensive
problem isolation and troubleshooting capabilities and proactive performance and
service-level management. Sync's TyLink-Registered Trademark- line of digital
transmission products including data service units and channel service units
("DSU/CSU") and Integrated Services Digital Network ("ISDN") termination
products, are the basic elements that comprise frame relay and other digital and
switched services.

     Today, most mainframe based data networks use expensive private leased
lines to connect remote sites to central computing facilities or data centers.
Due to favorable carrier pricing and technical suitability, frame relay is a
less expensive, more efficient, direct substitute for such traditional leased
line connections and due to its maturity, is very stable as compared to other
technology based alternatives, including the internet or other IP based
services. As both an SNA internetworking and frame relay access pioneer, the
Company was an early developer of SNA-over-frame relay and SNA and client/server
convergence solutions.


                                       1

<PAGE>

     Sync continues to follow a leveraged sales strategy for its products, 
utilizing resellers, distributors, OEM partners and a number of Regional Bell 
Operating Companies ("RBOCs") and Interexchange Carriers ("IXCs") as delivery 
channels for its products. Current partners include, Pacific Bell Network 
Integration ("PacBell"), Sprint Communications Company ("Sprint"), MCI 
Communications Corporation ("MCI"), Intermedia Communications, Inc. 
("Intermedia Communications"), Electronic Data Systems, Diebold, and Wang 
Global. The Company believes that its partnerships are well-suited to serve 
the needs of middle and upper market customers. The Company utilizes a 
distribution and value-added reseller ("VAR") channel as the primary 
distribution channel for its digital transmission products. Sales through 
this channel have decreased over the last two years due to increased 
competition, price decreases and focus on end-user and large partner 
activities.

     Sync maintains international sales and operations offices in Europe 
(Frankfurt, Germany; Paris, France and London, U.K.) and relationships with 
its channel partners to support its worldwide sales efforts.

INDUSTRY BACKGROUND

RELIANCE ON SNA FOR BUSINESS CRITICAL APPLICATIONS

     Over the past few decades, organizations have predominantly performed 
their business-critical data processing on IBM mainframe systems. These 
transaction-oriented data processing applications have traditionally 
supported such critical functions as branch banking, credit transactions, 
retail point-of-sale transactions and airline reservations. Wide-area 
networks have been built to provide access to these applications from 
geographically-dispersed branch offices in a "hub and spoke" model, in which 
as many as several thousand remote sites are connected to one or two data 
processing centers.

     The critical nature of these business applications requires that 
host-based systems deliver high availability with efficient and predictable 
response times. IBM's SNA was designed and developed specifically to deliver 
these benefits to remote terminals communicating across the current wide-area 
network infrastructures, primarily leased lines. SNA has been the prevalent 
network architecture for corporate wide-area networks since the late 1970s. 
Industry analysts have estimated that there are approximately 50,000 IBM SNA 
networks worldwide.

EMERGENCE OF IP AND CLIENT/SERVER COMPUTING

     In the late 1980s, a new architecture for information processing called 
"client/server" computing emerged, fueled by the growing intelligence in 
desktop computers, expanding capabilities of software applications and ease 
of local interconnection through local area networks ("LANs"). To facilitate 
support, scalability and security, client/server networks are being 
implemented by corporations in topologies that physically and logically 
parallel the traditional leased-line hub and spoke model of the mainframe SNA 
network, with centralized server "farms" mimicking mainframe data centers.

     Sync believes that SNA and client/server architectures, each with 
advantages for certain business applications, will continue to coexist. Thus, 
certain organizations may be required to maintain two separate networks, 
resulting in duplication of WAN and equipment costs, network management and 
support personnel, as well as increased operational complexity.

PARADIGM SHIFT TO PUBLIC SWITCHED VIRTUAL NETWORK SERVICES

     Continuing deregulation and reformation within the worldwide 
telecommunications market has resulted in a dramatic increase in the number 
of traditional and non-traditional carriers and service providers including 
IXCs, Local Exchange Carriers ("LECs"), Competitive Local Exchange Carriers 
("CLECs"), Network Service Providers ("NSPs") and Internetwork Service 
Provider ("ISPs") and other companies that outsource networking and 
telecommunications support and services. Sync refers to these organizations 
collectively as "Service Providers." In order to differentiate their services 
and remain competitive, Service Providers have deployed a number of data 
transport networks based on packet and cell switched 


                                       2

<PAGE>

technologies; specifically frame relay, Internet Protocol ("IP") and ATM. 
Many end user organizations ("End Users") have found these services to be 
cost-effective alternatives to private leased line networks and have migrated 
all or part of their WAN infrastructures, effectively "out-tasking" WAN 
planning, provisioning and management to their Service Provider. Many Service 
Providers have taken the WAN "out-tasking" model to the next step by creating 
adjunct services that take over end-to-end management of the End User's WAN 
and, in some instances, even remote branch LAN. These services often bundle 
telecommunications services with the components necessary to connect customer 
sites to the network.

     The shift from leased lines to PSVN services has created a number of 
challenges for End Users and Service Providers alike. Since a significant 
portion of their WAN infrastructure is now controlled and managed by their 
Service Providers, End Users have diminished visibility and control of 
mission-critical applications that traverse the PSVN. In turn, Service 
Providers have increased responsibility for end user application performance, 
especially in connection with managed network services ("MNS") offerings.

THE SYNC SOLUTION

     Sync is a provider of WAN access, internetworking and management 
products that enable business-critical SNA and client/server applications to 
be safely deployed over frame relay or other PSVN services. Sync's products 
allow organizations to leverage the performance, utility and cost advantages 
of these networks, while maintaining the robustness, reliability and 
responsiveness of SNA and preserving the sizable investment in legacy SNA 
applications, equipment, management automation, diagnostic tools and staff 
training. To reach these customers, Sync has entered into certain 
relationships with network equipment and service providers that serve the SNA 
customer base and focuses its end user sales force on targeting middle market 
mainframe reliant customers.

PRODUCTS

     Sync has continued to focus almost exclusively on the growing frame 
relay marketplace.  The Company is currently assessing its future product 
direction and believes that its next generation product platform may provide 
support for new protocols including ATM and Asyncronous Digital Subscriber 
Line ("ADSL"). The Company's product portfolio targets three distinct frame 
relay market related opportunities. Combined, the products offer a broad 
single vendor solution for deployment and support of mission-critical 
applications over frame relay.

ACCESS INTERNETWORKING SOLUTIONS

     The FrameNode-Registered Trademark- family of FRADs and frame relay 
access routers reduces duplication in networks and recurring 
telecommunications costs by converging SNA, legacy and client/server (IP/IPX) 
branch applications across a frame relay WAN using a single access trunk. 
Sync FrameNodes-Registered Trademark- successfully combine deterministic SNA 
transactions with bursty and bandwidth-demanding client/server transmissions 
through a traffic prioritization and bandwidth allocation capability. Sync's 
FrameNode-Registered Trademark- has won various industry awards over the past 
several years for its measured performance in these areas. In independent 
testing, the FrameNode-Registered Trademark- has outperformed frame 
relay-equipped routers and FRADs from the industry's leading networking 
companies in handling both SNA and client/server (IP/IPX) branch traffic.

     Sync provides a broad range of serial-to-LAN conversion products under 
the ConversionNode-TM- product name. The ConversionNode-TM- enables SNA and 
other legacy serial controllers to interoperate over router-based 
internetworks by providing serial-to-LAN conversion. It supports a wide-array 
of legacy controllers, including SNA, asynchronous BSC3270 and BSC/RJE.

     A growing number of large IBM-centric customers, such as Bear Sterns, 
First Union Corporation ("First Union"), Electronic Data Systems, VISA 
International and Bank of America Corporation ("B of A"), have selected Sync 
and its market partners as their frame relay solution provider. Several 
service providers, including Sprint, have also chosen the 
FrameNode-Registered Trademark- for their MNS offerings.

CIRCUIT MANAGEMENT SOLUTIONS


                                       3

<PAGE>

     Sync's circuit management technology consists of a series of WAN 
monitoring probes and graphical applications. Together, these components 
allow End Users and Service Providers to improve network availability and 
performance and reduce network operating costs by enhancing problem 
isolation, identification and troubleshooting and instrumenting their frame 
relay networks with performance and service-level management capabilities.

DIGITAL TRANSMISSION SOLUTIONS

     Sync's TyLink-Registered Trademark- brand digital transmission products 
support a wide range of digital access applications, including low-speed 
56/64Kbps to high-speed T1/E1 models for leased line connectivity; and data, 
voice and video integration on a single T1 trunk. The 7400 Series WAN 
Champion is a high-capacity chassis system that can support up to 32 T1 
interfaces. Its port density and price/performance make it ideal for 
large-scale T1 termination applications.

     Sync's digital transmission products have been installed by Service 
Providers in the United States, Korea, Canada, Mexico and other markets as 
infrastructure connectivity for leased line, frame relay, cellular and 
internet service offerings.

PRODUCT STRATEGY

     Sync has developed a multifaceted product strategy that the Company 
believes significantly expands its total addressable market by concurrently 
participating in three related market segments that are key to frame relay 
(and ISP) connectivity: frame relay access, frame relay circuit and 
service-level management, and high-speed digital transmission. Beginning in 
1999, Sync plans to introduce significant new product capabilities.  The 
first of these new products will result from the physical integration of its 
frame relay access products, circuit management and digital transmission 
products with alternative backup capabilities, such as ISDN, into one 
combined solution. These products are expected to provide a very cost 
effective solution that enhances high availability for customers.  The first 
of these products is scheduled to be available during the second quarter of 
1999. Going forward, Sync will plan to continue to leverage its technology 
strengths through the development of a product that may include support for 
higher speeds (such as T3+, and the new standards outlined by FRF.14); new 
technology protocols (ATM and ADSL); transmission services (encryption and 
compression) and back-up and redundancy features creating bandwidth on demand 
using, for example, Switched Virtual Circuits (SVCs) and ISDN, etc. This next 
generation of products is expected to be available during the first half of 
2000. However, there can be no assurance that the Company will be able to 
introduce these new products on a timely basis, if at all, or that these 
products will gain market acceptance. See "Management's Discussion and 
Analysis of Financial Condition and Results of Operations-Risk Factors-Rapid 
Technological Change and New Products."

CUSTOMERS AND MARKETS

     Sync's three core WAN technologies: access internetworking, circuit 
management and digital transmission are targeted at two macro markets: 
enterprise middle market end user customers and service providers.

ENTERPRISE END USER CUSTOMERS

     Industry analysts have estimated that there are approximately 50,000 IBM 
SNA networks worldwide. Sync's strategy is to provide a comprehensive product 
solution for safely migrating mission-critical SNA and client/server 
applications to frame relay. The Company believes that advantages to its 
customers include improved network reliability and determinism, improved 
efficiencies in circuit and bandwidth utilization, and reduced capital, 
telecommunications and operating costs. Sync has been successful in winning 
several large end-user customers, however, the competitive environment for 
these large enterprises is significant, especially in light of the recent 
mergers in the telecommunications equipment industry.  Accordingly, Sync's 
focus is at the middle market tier of companies with 25 to 500 branch sites. 
Many of these companies have significant mission critical data networking 
needs, but the Company believes they are currently under served by the larger 
telecommunications equipment companies.


                                       4

<PAGE>

SERVICE PROVIDERS

     The FrameNode-Registered Trademark- is designed to be an optimal CPE 
solution for managed service offerings. In addition to its broad support for 
SNA, legacy, and IP/IPX protocols, it includes extensive end-to-end network 
management capabilities. Sync believes that these capabilities allow for more 
reliable and consistent service to customers, improved efficiency in circuit 
and bandwidth provisioning, and reduced capital and operating costs for 
service providers.

     While enterprise customers view frame relay as a cost-effective vehicle 
for converging remote SNA and client/server applications, Sync believes they 
will not be willing to give up the stable, deterministic, resilient and 
management-rich attributes of their SNA leased line networks. The goal of 
Sync's circuit management technology is to equip customers and service 
providers with the management capabilities necessary to safely migrate 
business-critical SNA and client/server applications to frame relay and other 
PSVN services without compromising on network performance and availability 
requirements.

CUSTOMER BASE

     The Company's products are used in a wide variety of industries 
worldwide. Sync's customer base continues to expand and today includes a 
broad mix of major End Users and Service Providers. The following 
organizations are among the customers that have purchased products directly 
from Sync or through channel partners or other resellers:

<TABLE>
<CAPTION>
 BANKING AND FINANCIAL SERVICES                 INDUSTRIAL
 <S>                                            <C>
 Bank of America Corporation                    Allied Signal, Inc.
 Bank of Boston                                 Caterpillar
 Bear, Stearns & Company, Inc.                  McJunkin Corporation
 Chase Manhattan                                Occidental Petroleum
 Citicorp                                       Corporation
 Destin Bank                                    Piedmont Natural Gas
 First Data Resources                           Rockwell International
 First Union Corporation                        Corporation
 Legg Mason                                     Safety-Kleen Corporation
 U.S. Bancorp                                   Sony Corporation
 Wachovia Corporation                           National Steel
 Wells Fargo & Company                          USX Corporation
<CAPTION>
 GOVERNMENT                                     INSURANCE AND HEALTH CARE
 <S>                                            <C>
 Federal Bureau of Investigation                Kaiser Foundation Health Plan
 Federal Reserve Bank                           Inc.
 State of California                            The Travelers Corporation
                                                Ullico Inc.
                                                UNUM Corporation
                                                Manor Care, Inc.
<CAPTION>
 RETAIL                                         OTHER
 <S>                                            <C>
 Acme Boots                                     Electronics Data Systems Corp.
 Pier 1, Inc.                                   Experian
 SportMart, Inc.                                United Van Lines Ltd.
 Dayton-Hudson Corporation                      Computer Sciences Corporation
 Long's Drugstores                              DaCom
 Hills Department Stores                        Korea Telecom
 Rhodes/Helig Myers
 Visa International
</TABLE>

SALES AND PARTNER CHANNELS


                                       5

<PAGE>

     The Company's sales and channel strategy includes deployment through 
channel partners, distributors and a direct sales force, both in North 
America and overseas. The Company has from time to time entered into channel 
partnerships with selected internetworking companies, as well as carriers. In 
addition to its relationships with channel partners and other resellers, the 
Company continues to maintain a direct sales force to ensure close customer 
contact and facilitate channel field sales engagement.

CHANNEL PARTNERS AND OTHER RESELLERS

     The Company's sales and marketing strategy focuses on establishing 
channel partnerships with selected, leading networking companies and carriers 
that are attempting to better serve the SNA customer base. Sync and its 
channel partners work closely together in various activities, including 
collaborative marketing efforts, joint sales calls, field training and 
support and custom product development. The Company currently maintains OEM, 
marketing and sales arrangements with Service Providers such as Sprint, MCI, 
Ameritech, PacBell, Appitude, Inc., Wang Global, and Intermedia 
Communications. The Company intends to maintain direct sales, marketing and 
systems engineering activities in order to drive demand for Sync products and 
support channel partners.

     IBM:  IBM is the developer of the SNA network architecture. Since 1995, 
IBM has sold Sync's FrameNode-Registered Trademark- product family under the 
name IBM Nways 2218. The agreement between IBM and Sync expired in March 1999 
and is not expected to be renewed. Sales to IBM accounted for 14.1%,16.5% and 
4.9% of the Company's net revenues in 1998, 1997 and 1996, respectively.

     3COM CORPORATION:  3Com offers a broad range of global networking 
solutions including routers, hubs, ISDN equipment and network adapters. 
Concurrently with an equity investment in the Company in April 1994, 3Com and 
Sync entered into a private label and resale relationship, pursuant to which 
Sync developed certain custom products incorporating certain early generation 
Sync technology. Sales to 3Com accounted for 2.6%, 6.5% and 19.2% of the 
Company's net revenues in 1998, 1997 and 1996, respectively. 3Com recently 
announced its intention to discontinue its support for its products purchased 
from Sync. Accordingly, the Company believes that revenue derived from sales 
to 3Com will remain low.

     SERVICE PROVIDERS:  Sync has developed FrameNode-Registered Trademark- 
and Frap CPE resale and bundled managed service relationships with a number 
of service providers, including MCI, Sprint, and Intermedia Communications. 
In a "managed service" program, the carrier combines Sync's networking 
products with the carrier's own wide-area network service offering. The 
carrier installs, deploys, and manages the customer's network, providing a 
single service invoice monthly. This service allows customers to avoid the 
expense of selecting, purchasing, deploying and managing the vendor equipment 
and carrier circuits that comprise its network infrastructure.

     OTHER RESELLERS:  The company sells its products through other 
resellers, in addition to its channel partners, including distributors and 
VARs. The Company plans to develop and expand its reseller channel to 
accommodate, in particular, its line of WAN access, transmission and 
management product lines.

     In general, the Company's resale agreements with its channel partners 
and other resellers (i) have terms ranging from one to five years, subject to 
renewal, (ii) do not restrict the sale of products that compete with those of 
the Company, (iii) provide for discounts based on expected or actual volumes 
of products purchased or resold by the channel partner in a given period, 
(iv) do not require minimum purchases, (v) provide for worldwide distribution 
rights, (vi) prohibit product distribution by the Company through certain 
categories of third parties under certain conditions, (vii) can be terminated 
by the reseller, under certain conditions, with limited notice and with 
little or no penalty, and (viii) provide manufacturing rights and access to 
source code upon the occurrence of specified conditions or defaults.

     The loss of one or more of the Company's channel partners or other 
resellers could have a material adverse effect on the Company's business, 
operating results and financial condition. See "Management's Discussion and 
Analysis of Financial Condition and Results of Operations--Risk 
Factors--Dependence on 


                                       6

<PAGE>

Channel Partners and Other Resellers" and "Intense Competition."

DIRECT SALES

     In addition to its channel partner strategy, Sync maintains a direct 
sales organization to promote the Company's products and to ensure direct 
contact with the Company's current and potential customers. The primary roles 
of the Company's sales force are (i) to assist end user customers in 
addressing complex network problems and (ii) to differentiate the features 
and capabilities of the Company's products from competitive offerings and 
(iii) provide support to channel partners. In addition, the Company believes 
that its investment in direct sales enables the Company to monitor changing 
customer requirements. As of December 31, 1998, the Company had 18 domestic 
field sales and support personnel currently operating out of locations in 14 
states. First Union Bank, a direct sales customer, respresented $4.6 million 
or 18.5% in 1998, $1.5 million or 6.5% in 1997 of the Company's net revenues.

INTERNATIONAL SALES

     Sales to customers outside of the United States accounted for 
approximately $1.7 million, $4.5 million and $4.6 million, or 6.9%, 19.1% and 
12.7% of the Company's net revenues in 1998, 1997 and 1996, respectively. 
However, these percentages may understate sales of the Company's products to 
international end users because certain of the Company's U.S. based channel 
partners market the Company's products abroad. The Company expects that 
international sales may represent an important percentage of net revenues in 
future periods. The near-term outlook on the Company's sales to the Pacific 
Rim, which represented approximately 3.7% of the Company's 1998 net revenues, 
remains uncertain.

     The Company currently expects the frame relay equipment market outside 
of the United States to grow during the next several years. The European and 
Canadian markets represent large growing market opportunities and the primary 
focus for Sync's international business thrust. Although there are 
significant long-term potential opportunities in the Pacific Rim countries, 
sales in this region have been impacted by the continued currency crisis.  

     The Company has designed its products and established its marketing and 
sales channels to address the global market opportunities for frame relay 
access and circuit management products. The Company believes that there is a 
large potential international market for its products and intends to address 
this market in the future increasingly through its channel partners, many of 
which have a well-established international presence and reputation. Sync 
believes its strategy for international expansion will allow the Company to 
participate in these emerging growth markets.

     The Company maintains international sales offices in Frankfurt, Germany, 
Paris, France and London, UK. The Company's sales efforts in the Pacific Rim 
are conducted through its existing relationships with partners and resellers.

     Certain business risks are inherent in international transactions. See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations-Risk Factors-Dependence on and Risks Associated with International 
Sales."

CUSTOMER SERVICE

     The Company installs, maintains and supports products sold directly in 
the United States with the Company's service and support personnel and 
through contracted service providers. The Company's resellers generally 
provide installation, maintenance and support services to their customers, 
with the Company providing backup support. Sync employs systems engineers who 
work closely with the Company's channel partners and direct sales personnel 
to assist End Users with pre- and post-sales support. As a result, the 
Company believes that these systems engineers are able to provide valuable 
input to the product development process based on their experience in the 
field. The Company also supports customers and 


                                       7

<PAGE>

sales personnel by providing telephone support and remote access to customer 
installations through the Company's technical assistance centers in Irvine, 
California and Norton, Massachusetts. Remote access is accomplished either 
through a digital dial-up network connection directly to a customer's 
installation or through a modem connection to the control port of the 
customer's system. This connection allows Company representatives to remotely 
analyze and correct software, installation and configuration problems. The 
Company also offers on-site installation and technical assistance for fixed 
fees. The Company's customers may select among various levels of maintenance 
options. In certain cases the Company subcontracts with one of its 
third-party service providers for the provision of installation and 
maintenance services. Sync provides its direct end user customers with a 
twelve to sixty month warranty, which commences on product shipment.

RESEARCH AND DEVELOPMENT

     The Company's success will depend to a substantial degree upon its 
ability to develop and introduce in a timely fashion enhancements to its 
existing products and new products that meet changing customer requirements 
and emerging industry standards. The Company intends to continue to make 
substantial investments in product and technology development. The Company 
monitors changing customer needs and works closely with channel partners and 
resellers, end user customers and market research organizations to monitor 
changes in the marketplace. The Company intends to support industry standards 
and to continue to support emerging wide-area networking protocols.

     The Company's research and development expenditures aggregated $7.4 
million, $7.2 million and $7.7 million in 1998, 1997 and 1996, respectively. 
At December 31, 1998, 44 full-time employees were engaged in research and 
product development. In 1998, the Company implemented significant expense 
reductions with the goal of enabling the Company to achieve profitability at 
lower revenues. These expense reductions included a reduction in outside 
engineering consulting costs available to support the Company's research and 
development efforts.  The Company believes that it will be able to meet its 
development plans within the cost structure set forth in the recent expense 
reduction program. See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations-Risk Factors-Dependence on Key Personnel" 
and "Results of Operations."

     The Company is focusing its development efforts on creating significant 
new product capabilities.  The first of these new products will result from 
the physical integration of its frame relay access products, circuit 
management and digital transmission products with alternative backup 
capabilities, such as ISDN into one combined solution. This product is 
expected to provide a cost effective solution that enhances high availability 
through bandwidth-on-demand functionality for our customers. The product is 
planned to be available during the second quarter of 1999. Going forward, 
Sync plans to continue to leverage its technology strengths through the 
development of a product that may include support for higher speeds (such as 
T3+, and the new standards outlined by FRF.14); new technology protocols 
(ATM, ADSL, IP); transmission services (encryption and compression) and 
back-up and redundancy features creating bandwidth on demand using SVCs and 
ISDN, etc.  This next generation of products is expected to be available 
during the first half of 2000. However, no assurances can be given that the 
Company will be able to introduce any or all of these products on a timely 
basis, if at all. Also, there can be no assurance that the Company will be 
able to identify, develop, manufacture, market or support new products 
successfully, that such new products will gain market acceptance or that the 
Company will be able to respond effectively to technological changes, 
emerging industry standards, including new PSVN services, or product 
announcements by competitors. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations"-Risk Factors-"Rapid 
Technological Change and New Products" and "Product Errors."

MANUFACTURING

     Sync's operational strategy continues to emphasize outsourcing of 
manufacturing to reduce costs and to provide flexibility in meeting market 
demand. The Company's manufacturing operations consist primarily of materials 
planning and procurement, light assembly, system integration, testing and 
quality assurance. The Company has entered into arrangements with contract 
manufacturers to outsource substantial portions of its procurement, assembly 
and system integration operations.


                                       8

<PAGE>

     The Company designs substantially all of the hardware subassemblies for 
its products. Outside subcontractors are used for subassembly manufacturing. 
The Company installs its proprietary software into the electronically 
erasable programmable read only memory ("EEPROM") of its systems in order to 
configure products to meet customer needs and to maintain quality control and 
system security.

     There can be no assurance that these independent contract manufacturers 
will be able to meet the Company's future requirements for manufactured 
products or that such independent contract manufacturers will not experience 
quality problems in manufacturing the Company's products. The inability of 
the Company's contract manufacturers to provide the Company with adequate 
supplies of high quality products could have a material adverse effect upon 
the Company's business, operating results and financial condition. The loss 
of any of the Company's contract manufacturers could cause a delay in Sync's 
ability to fulfill orders while the Company identifies a replacement 
manufacturer. Such an event could have a material adverse effect on the 
Company's business, operating results and financial condition.

     In addition to outsourcing, the Company attempts to reduce manufacturing 
costs by minimizing single and limited source and custom parts, and designing 
in capability for automated assembly and testing. The manufacturing process 
enables the Company to configure hardware and software in combinations to 
meet a wide variety of individual customer requirements.

     The Company uses a rolling three-month forecast based on anticipated 
product orders to determine its general materials and manufacturing staffing 
requirements. Lead times for materials and components ordered by the Company 
vary significantly, and depend on factors such as the specific supplier, 
contract terms and demand for a component at a given time. Currently, the 
Company acquires materials and completes certain standard subassemblies based 
on the Company's forecast. Upon receipt of firm orders from customers, the 
Company assembles fully-configured systems and subjects them to a number of 
tests before shipment. The Company's manufacturing procedures are designed to 
assure rapid response to customer orders, but may in certain instances create 
a risk of excess or inadequate inventory if orders do not match forecasts. 
Any manufacturing delays, excess manufacturing capacity or inventories, or 
inability to increase manufacturing capacity, if required, could have a 
material adverse effect on the Company's business, operating results and 
financial condition. See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations-Risk Factors-Dependence on Contract 
Manufacturers," and "Dependence on Suppliers."

     Although the Company generally uses standard parts and components for 
its products, certain key components are currently purchased only from single 
or limited sources. At present, single-sourced components include 
programmable integrated circuits, selected other integrated circuits and 
cables, custom-molded plastics and custom-tooled sheet metal and 
limited-sourced components, including flash memories, DRAMs, printed circuit 
boards and selected integrated circuits. The Company generally relies upon 
contract manufacturers to buy component parts that are incorporated into 
board assemblies. The Company buys directly final assembly parts, such as 
plastics and metal covers, cables and other parts used in final 
configurations. The Company generally does not have long-term agreements with 
any of these single or limited sources of supply. Any interruption in the 
supply of any of these components, or the inability of the Company to procure 
these components from alternate sources at acceptable prices and within a 
reasonable time, could have a material adverse effect upon the Company's 
business, operating results and financial condition. From time to time the 
Company has experienced shortages of certain components and has paid 
above-market prices to acquire such components on an accelerated basis or has 
experienced delays in fulfilling orders while waiting to receive the 
necessary components. Such shortages may occur in the future and could have a 
material adverse effect on the Company's business, operating results and 
financial condition.

     The Company's has obtained ISO 9001 certification for all of its 
facilities. The Company's inability to maintain certification of all of its 
facilities could have a material adverse effect on the Company's business, 
operating results and financial condition.


                                       9

<PAGE>

COMPETITION

     The market for communications products is intensely competitive and 
subject to rapid technological change and emerging industry standards. The 
Company's current competitors include internetworking companies such as Cisco 
Systems, Inc. ("Cisco") and Nortel, FRAD providers such as Hypercom Network 
Systems ("Hypercom"), Motorola Information Systems Group ("Motorola ISG"), 
and Cabletron Systems, Inc. ("Cabletron"), and circuit management and digital 
transmission providers such as Visual Networks, Inc. ("Visual Networks"), 
Digital Link Corporation ("Digital Link"), Racal Datacom, Inc., AT&T Paradyne 
("Paradyne") and Adtran, Inc. ("Adtran"), among others. Potential competitors 
include other internetworking and WAN access and transmission companies, 
frame relay switch providers, IBM and the Company's other channel partners. 
Certain of these companies have announced products and intentions to enter 
the frame relay access or circuit management market.

     Many of the Company's current and potential competitors have longer 
operating histories and greater financial, technical, sales, marketing and 
other resources, as well as greater name recognition and a larger customer 
base, than the Company. As a result, they may be able to respond more quickly 
to new or emerging technologies and changes in customer requirements or may 
be able to devote greater resources to the development, promotion, sale and 
support of their products than the Company. Many also have long-standing 
customer relationships with large enterprises that are part of the Company's 
target market, and these relationships may make it more difficult to complete 
sales of the Company's products to these enterprises. Further, certain of the 
Company's channel partners have in the past developed competitive products 
and terminated their relationships with the Company, and such developments 
could occur in the future. As a consequence of all these factors, the Company 
expects increased competition, particularly in the frame relay market. 
Increased competition could result in significant price competition, reduced 
profit margins or loss of market share, any of which could have a material 
adverse effect on the Company's business, operating results and financial 
condition. See "Management's Discussion and Analysis of Financial Condition 
and Results of Operations-Risk Factors-Intense Competition."

     Sync believes that the principal competitive factors in its market are 
expertise and familiarity with SNA networks and protocols, expertise and 
knowledge with high capacity mission critical network issues and solutions, 
product performance, features, functionality and reliability, price, overall 
cost of ownership, timeliness of new product introductions, adoption of 
emerging industry standards, service, support, size and installed base. The 
Company believes that it generally is competitive with respect to most of 
these factors. However, there can be no assurance that the Company will be 
able to compete successfully in the future.

PROPRIETARY RIGHTS

     The Company's future success depends, in part, upon its proprietary 
technology. The Company does not hold any patents and currently relies on a 
combination of contractual rights, trade secrets and copyright laws to 
establish and protect its proprietary rights in its products. There can be no 
assurance that the steps taken by the Company to protect its intellectual 
property will be adequate to prevent misappropriation of its technology or 
that the Company's competitors will not independently develop technologies 
that are substantially equivalent or superior to the Company's technology. In 
the event that protective measures are not successful, the Company's 
business, operating results and financial condition could be materially and 
adversely affected. In addition, the laws of some foreign countries do not 
protect the Company's proprietary rights to the same extent as do the laws of 
the United States. The Company is also subject to the risk of adverse claims 
and litigation alleging infringement of intellectual property rights of 
others. There can be no assurance that third parties will not assert 
infringement claims in the future with respect to the Company's current or 
future products or that any such claims will not require the Company to enter 
into license arrangements or result in litigation, regardless of the merits 
of such claims. No assurance can be given that any necessary licenses will be 
available or that, if available, such licenses can be obtained on 
commercially reasonable terms. Should litigation with respect to any such 
claims commence, such litigation could be extremely expensive and time 
consuming and could have a material adverse effect on the 


                                      10

<PAGE>

Company's business, operating results and financial condition, regardless of 
the outcome of such litigation. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations-Risk Factors-Dependence on 
Proprietary Technology."

EMPLOYEES

     As of December 31, 1998, the Company employed 143 persons, including 44 
in engineering, 38 in sales and marketing, 46 in operations and 15 in finance 
and administration. During 1997 and 1998, the Company initiated cost 
reductions programs that included a reduction in workforce. There can be no 
assurance that the Company will be successful in retaining its key employees. 
See "Management's Discussion and Analysis of Financial Condition and Results 
of Operations-Results of Operations" and "Risk Factors-Dependence on Key 
Personnel."

EXECUTIVE OFFICERS OF THE COMPANY

     The following table sets forth certain information with respect to the 
executive officers of the Company as of March 15, 1999:

<TABLE>
<CAPTION>
   NAME                                 AGE                            POSITION
   ----                                 ---      ----------------------------------------------------
   <S>                                  <C>      <C>
   Richard W. Martin ...............     61      President and Chief Executive Officer

   William K. Guerry ...............     33      Vice President of Finance and Administration, 
                                                 Vice President of Manufacturing, Secretary and Chief
                                                 Financial Officer

   James D. McNally ................     57      Senior Vice President of Worldwide Sales and Vice 
                                                 President of Customer Service

   Richard N. Thunen ...............     52      Vice President of Engineering
</TABLE>

     MR. MARTIN has served as the Company's President and Chief Executive 
Officer since June 1998. From May 1988 to May 1998 he served as President, 
Chief Executive Officer and Director of StereoGraphics Corporation, a 
manufacturer of electronic stereoscopic viewing equipment for computer 
graphics and video. Mr. Martin brings extensive electronics top management 
experience built over a thirty year period that includes companies ranging 
from $6 to $250 million in revenues. Mr. Martin received his B.S.E.E. in 
Electronics from Stanford University.

     MR. GUERRY has served as the Company's Vice President of Finance and 
Administration, Secretary and Chief Financial Officer since June 1997. In 
March 1999, Mr. Guerry assumed the role of Vice President of Manufacturing in 
addition to his other duties.  From January 1987 to June 1997, Mr. Guerry 
held various positions, including Audit Senior Manager, with Ernst & Young 
LLP. Mr. Guerry received his B.S. in Accounting from California State 
Polytechnic University, Pomona. Mr. Guerry is a Certified Public Accountant 
in the State of California and is a member of the California Society of 
Certified Public Accountants.

     MR. MCNALLY has served as the Company's Senior Vice President of 
Worldwide Sales since January 1998. Prior to such time, he was Senior Vice 
President of Channel Sales from June 1993 to October 1997 and Vice President 
of Business Development from November 1988 to June 1993. Mr. McNally received 
his B.S. in Electrical Engineering from California State University, Long 
Beach.

     MR. THUNEN has served as the Company's Vice President of Engineering 
since October 1998. Prior to such time, he served in various technical sales 
and marketing roles for the Company from January 1992. Prior to joining Sync, 
Mr. Thunen serviced as Vice President of Product Planning at Rabbit Software 
and Vice President Strategic Planning at Eagle Computer.  Mr. Thunen received 
his B.S. in Electrical Engineering and Computer Science and PhD in Business 
Administration from University of California at 


                                      11

<PAGE>

Berkeley.

ITEM 2.   PROPERTIES

     The Company leases approximately 50,000 square feet of space for the 
Company's headquarters facility in Irvine, California. The current lease on 
the Irvine facility expires in November 2003.  In addition, the Company's 
Tylink operation leases an industrial building in Norton, Massachusetts. This 
building lease expires in April 1999.  An extension of the Norton lease is 
currently being negotiated. The Company also has sales and support offices in 
12 other states.

ITEM 3.   LEGAL PROCEEDINGS

     On November 5, 1997, an action entitled Dalarne Partners, Ltd. Vs. Sync 
Research, Inc., et al., No. SACV97-877 AHS(Eex) was filed against the Company 
and certain of its directors and officers. The action was filed in the U.S. 
District Court for the Central District of California, Southern Division. The 
action purports to be a class action lawsuit brought on behalf of purchasers 
of the Company's common stock during the period from November 18, 1996 
through March 20, 1997. The complaint asserts claims for violation of the 
Securities Exchange Act of 1934. The complaint seeks to recover damages in an 
unspecified amount. The Company intends to defend this lawsuit vigorously.

     On February 16, 1999, the U.S. District Court issued an order granting 
Sync's motion to dismiss the first amended complaint. The plaintiffs have 
subsequently filed a second amended complaint.

     There are no other material legal proceedings to which the Company is a 
party or to which any of its properties are subject. No material legal 
proceedings were terminated in the year ended December 31, 1998.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.


                                      12


<PAGE>

                                   PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
          MATTERS

     The Company's common stock is listed on the Nasdaq Stock Market and 
trades under the symbol SYNX. The following table presents the high and low 
closing sale prices for the Company's common stock as reported in the Nasdaq 
National Market for the periods indicated.

<TABLE>
<CAPTION>
                                        HIGH           LOW
                                        ----           ---
   <S>                                  <C>            <C>
   1998
     Q1.........................          $3.88          $2.34
     Q2.........................          $4.06          $2.09
     Q3.........................          $3.88          $1.38
     Q4.........................          $1.56          $ .72
   1997
     Q1.........................         $15.75          $3.03
     Q2.........................          $5.06          $2.25
     Q3.........................          $5.81          $3.00
     Q4.........................          $4.75          $3.00
</TABLE>

     The Company had approximately 274 stockholders of record and 3,900 
beneficial shareholders as of March 15, 1999.

     The Company has never paid cash dividends on its capital stock and does 
not intend to pay cash dividends on its capital stock in the foreseeable 
future. The Company's bank line of credit prohibits the Company from paying 
cash dividends without the bank's prior written consent. Any future 
determination to pay cash dividends will be at the discretion of the Board of 
Directors and will be dependent upon the Company's financial condition, 
results of operations, capital requirements and such other factors as the 
Board of Directors deems relevant.

     USE OF PROCEEDS

     In connection with its initial public offering in 1995, the Company 
filed a Registration Statement on Form S-1, SEC File No. 33-96910 (the 
"REGISTRATION STATEMENT"), which was declared effective by the Commission on 
November 8, 1995. Pursuant to the Registration Statement, the Company 
registered and sold 2,585,000 shares of its Common Stock, $0.001 par value 
per share, for its own account. The offering was completed on November 9, 
1995. The aggregate offering price of the registered shares was $51,700,000. 
The managing underwriters of the offering were BancBoston Robertson, Stephens 
(formerly Robertson, Stephens & Company), BT Alex. Brown (formerly Alex. 
Brown & Sons Incorporated) and Dain Rauscher Wessels (formerly Wessels, 
Arnold & Henderson). From November 9, 1995 to December 31, 1998, the Company 
incurred the following expenses in connection with the offering:

<TABLE>
   <S>                                                             <C>
   Underwriting discounts and commissions .....................    $3,619,000
   Other expenses .............................................       912,471
                                                                   ----------
        Total Expenses ........................................    $4,531,471
                                                                   ----------
                                                                   ----------
</TABLE>

     All of such expenses were direct or indirect payments to others.

     The net offering proceeds to the Company after deducting the total 
expenses above were $47,168,529. From November 9, 1995 to December 31, 1998, 
the Company used such net offering proceeds, in direct or indirect payments 
to others, as follows:


                                      13

<PAGE>
<TABLE>
     <S>                                                        <C>
     Construction of plant, building and facilities ........    $   853,660
     Purchase and installment of machinery and equipment ...      3,991,957
     Acquisition of other business(es) .....................      5,338,000
     Working capital .......................................     (2,453,918)
     Operating losses ......................................     38,144,292
                                                                -----------
          Total ............................................    $45,873,991(1)
                                                                -----------
                                                                -----------
</TABLE>
-------------------

(1)  Excludes operating losses, capital expenditures and working capital changes
     of Tylink Corporation ("Tylink") prior to the Company's acquisition of
     Tylink in August 1996.

     In addition, the Company used aggregate proceeds of $716,338 to make 
payments to departing officers. This use of proceeds does not represent a 
material change in the use of proceeds described in the prospectus of the 
Registration Statement.


                                      14

<PAGE>

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA


     The following selected financial data has been derived from, and are 
qualified by reference to, the audited financial statements of the Company 
and reflect the Merger with TyLink in August 1996, which was accounted for 
using the pooling-of-interests method. The data should be read in conjunction 
with the financial statements and notes thereto and Management's Discussion 
and Analysis of Financial Condition and Results of Operations included 
elsewhere in this Report.

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31,
                                                                       --------------------------------------------------------
                                                                         1998        1997        1996        1995        1994
                                                                       --------    --------    --------    --------    --------
                                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                    <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net revenues .......................................................   $ 24,702    $ 23,256    $ 36,346    $ 34,933    $ 23,315
Cost of sales ......................................................     15,850      14,724      19,995      17,584       9,536
                                                                       --------    --------    --------    --------    --------
Gross profit .......................................................      8,852       8,532      16,351      17,349      13,779
Operating expenses:
  Research and development .........................................      7,420       7,195       7,687       5,636       4,543
  Selling and marketing ............................................     11,851      14,318      14,484      11,248       8,087
  General and administrative .......................................      3,048       3,741       5,795       2,871       2,339
  Non-recurring charges ............................................      2,852       1,241          --          --          --
                                                                       --------    --------    --------    --------    --------
  Total operating expenses .........................................     25,171      26,495      27,966      19,755      14,969
                                                                       --------    --------    --------    --------    --------
Operating loss .....................................................    (16,319)    (17,963)    (11,615)     (2,406)     (1,190)
Interest income, net ...............................................        875       1,455       2,184         461          74
                                                                       --------    --------    --------    --------    --------
Loss before income taxes ...........................................    (15,444)    (16,508)     (9,431)     (1,945)     (1,116)
Provision for income taxes .........................................          2        --             2          45         215
                                                                       --------    --------    --------    --------    --------
Net loss ...........................................................   $(15,446)   $(16,508)   $ (9,433)   $ (1,990)   $ (1,331)
                                                                       --------    --------    --------    --------    --------
                                                                       --------    --------    --------    --------    --------
Basic and diluted net loss per share ...............................   $  (0.89)   $  (0.96)   $  (0.61)   $  (0.46)   $  (0.46)
                                                                       --------    --------    --------    --------    --------
                                                                       --------    --------    --------    --------    --------
Shares used in computing net loss per share (1) ....................     17,396      17,171      16,289       6,819       4,275
                                                                       --------    --------    --------    --------    --------
                                                                       --------    --------    --------    --------    --------
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31,
                                                                       --------------------------------------------------------
                                                                         1998        1997        1996        1995        1994
                                                                       --------    --------    --------    --------    --------
<S>                                                                    <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:                                                                         (IN THOUSANDS)
Cash and cash equivalents ..........................................   $ 14,135    $ 21,734    $ 35,874    $ 50,633    $  8,512
Working capital ....................................................     14,337      28,718      44,336      58,260      13,062
Total assets .......................................................     26,791      38,495      55,692      66,672      18,011
Capitalized lease obligations, less current maturities .............         60         111         146         398          64
Mandatorily redeemable preferred stock .............................       --          --          --         5,591       4,428
Total stockholders' equity .........................................     17,571      32,818      48,803      54,862      16,761

Certain prior year amounts have been reclassified to conform with the current year presentation.
</TABLE>
-------------------
(1)  See Note 1 of Notes to Consolidated Financial Statements for an explanation
     of the determination of the number of shares used to compute basic and
     diluted net loss per share.


                                      15

<PAGE>

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

OVERVIEW

     Sync commenced operations in 1981 and funded operations through 1988 
with revenue from communications software consulting and custom product 
development for equipment vendors and large end-users. The Company shipped 
its first commercial WAN product in 1989. In 1991, Sync released its first 
Conversion Node and frame relay access products. Sync follows a leveraged 
sales strategy for its FRAD and circuit management products, utilizing 
resellers, distributors, OEM partners and carriers as delivery channels for 
its products. Current partners include PacBell, Sprint, MCI, Intermedia 
Communications, Electronic Data Systems, Diebold and Wang Global. The Company 
believes that partnerships are well suited to serve the needs of middle and 
upper market customers. The Company has also sold its products through OEM 
relationships with IBM and 3Com among others.  The agreement between IBM and 
Sync expired in March 1999 and is not expected to be renewed. 3Com has 
discontinued its support for Sync's products and accordingly, the Company 
believes that revenue derived from sales to IBM  and 3Com will decline and 
remain low.

     On August 23, 1996, Sync acquired TyLink Corporation, pursuant to a 
merger of a wholly-owned subsidiary of the Company with and into TyLink (the 
"Merger"). In the Merger, the Company exchanged 2,148,168 shares of its 
common stock for all of the outstanding shares of TyLink common and Series A 
preferred stock and reserved 423,155 shares of Sync common stock for issuance 
upon exercise of TyLink options, which were assumed by the Company. In 
addition, Sync acquired all of the issued and outstanding Tylink Series B 
preferred stock for $4 million in cash and 208,677 shares of Sync common 
stock. The Merger has been accounted for as a pooling of interests. 
Accordingly, the accompanying financial statements reflect the combination of 
Sync and TyLink for all periods presented.

     In December 1998 and during 1997, the Company implemented various 
expense reduction programs with the goal of enabling the Company to achieve 
profitability at lower revenue levels. However, there can be no assurance 
that its efforts to implement expense reductions will enable it to become 
profitable at lower revenue levels, if at all. Also, there can be no 
assurance that Sync's products will achieve significant market penetration, 
either through its channel partners and other resellers or its direct sales 
force, or that the Company will successfully introduce new and enhanced 
products or compete effectively in its market.

RISK FACTORS

     The Company desires to take advantage of the "safe harbor" provisions of 
the Private Securities Litigation Reform Act of 1995. Specifically, the 
Company wishes to alert readers that, except for the historical information 
contained herein, the following discussion under "Results of Operations," 
"Inflation," "Year 2000 Compliance" and "Liquidity and Capital Resources" 
constitutes forward-looking statements that are dependent on certain risks 
and uncertainties which may cause actual results to differ materially from 
those expressed in any forward-looking statements made by or on behalf of the 
Company. The following is a description of certain of the major risks and 
uncertainties.

HISTORY OF LOSSES; SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS; UNCERTAIN 
PROFITABILITY

     The Company has experienced operating losses since inception, including 
in recent years, operating losses of $16.3 million in 1998, $18.0 million in 
1997 and $11.6 million in 1996. As of December 31, 1998, the Company had an 
accumulated deficit of approximately $54.4 million. The Company has 
experienced, and may in the future experience, significant fluctuations in 
revenues and operating results from quarter to quarter and from year to year 
due to a combination of factors. Factors that have in the past caused, and 
may in the future cause, the Company's revenues and operating results to vary 
significantly from period to period include: the timing of significant 
orders; the relatively long length of the sales cycles for certain of the 
Company's products; the market conditions in the networking industry; the 
timing of capital expenditures by Sync's target market customers; competition 
and pricing in the industry; the Company's success in developing, introducing 
and shipping new products; new product introductions by the Company's 
competitors; announcements by IBM relating to products, services or pricing 
relevant to the Company; the 

                                      16

<PAGE>

rate of migration of large IBM customers to frame relay; production or 
quality problems; changes in material costs; impact of Year 2000 compliance 
problems on the networking industry and the Company's customers, disruption 
in sources of supply; changes in foreign currency exchange rates; and general 
economic conditions. In addition, revenues and gross margins may fluctuate 
due to the mix of distribution channels employed and the mix of products 
sold. For example, the Company generally realizes a higher gross margin on 
direct sales than on sales through its channel partners and other resellers. 
Accordingly, if channel partners and other resellers continue to account for 
a majority of the Company's net revenues, gross profit as a percentage of net 
revenues may decline.

     The Company's future revenues are difficult to predict. Revenues and 
operating results in any quarter depend on the volume and timing of, and the 
ability to fulfill, orders received within the quarter. Sales of the 
Company's products typically involve a sales cycle of several months or over 
a year from the point of initial customer contact until receipt of the first 
system order, and, in addition, the Company has in the past encountered, and 
may in the future encounter, delays between initial orders and network-wide 
deployment. There can be no assurance that average sales cycles will not 
increase in future periods. Further, due to the Company's focus on its 
channel partner marketing strategy, the Company's revenues in any period are 
highly dependent upon the sales efforts and success of Sync's channel 
partners and other resellers, which are not within the control of the 
Company. There can be no assurance that the Company's channel partners and 
other resellers will give a high priority to the marketing of the Company's 
products as compared to competitive products or alternative networking 
solutions or that Sync's channel partners and other resellers will continue 
to offer the Company's products. A significant portion of the Company's 
expenses are relatively fixed in advance, based in large part on the 
Company's forecasts of future sales. If sales are below expectations in any 
given period, the adverse effect of a shortfall in sales on the Company's 
operating results may be magnified by the Company's inability to adjust 
spending to compensate for such shortfall. The Company has in the past and 
may in the future reduce prices or increase spending to respond to 
competition or to pursue new product or market opportunities. Accordingly, 
there can be no assurance that the Company will be able to attain or sustain 
profitability on a quarterly or an annual basis. In addition, if the 
Company's operating results fall below the expectations of public market 
analysts and investors, the price of the Company's common stock would likely 
be materially and adversely affected.

DEPENDENCE ON THE IBM CUSTOMER BASE

     The Company's frame relay access products are targeted at the large 
installed base of IBM customers utilizing SNA networks. Thus, the Company 
faces the risks associated with a relatively concentrated customer base, 
including the possibility that larger IBM customers may migrate to frame 
relay at a slower-than-expected rate, if at all, and the possibility that IBM 
customers may purchase IBM-sponsored frame relay products other than Sync 
products or other suppliers' products. Since 1995, IBM has sold Sync's 
FrameNode-Registered Trademark- product family under the name IBM Nways 2218. 
The agreement between IBM and Sync expired in March 1999 and is not expected 
to be renewed. Sales to IBM respectively accounted for 14.1%, 16.5% and 4.9% 
of the Company's net revenues in 1998, 1997 and 1996, respectively, and are 
expected to decline in 1999. There can be no assurance that IBM will continue 
to support frame relay, that IBM will not develop or promote SNA-over-frame 
relay products competitive with the Company's products, or that IBM will not 
endorse the products of competitors or networking solutions not offered by 
the Company. Any of these events could have a material adverse effect on the 
Company's business, operating results and financial condition.

UNCERTAIN MARKET ACCEPTANCE OF FRAME RELAY FOR MISSION-CRITICAL APPLICATIONS

     During 1998, sales of frame relay access products, which enable SNA and 
client/server internet-working over frame relay, represented approximately 
49% of the Company's net revenues. The market for SNA-over-frame relay 
products is relatively new and still evolving. The success of the Company and 
its channel partners in generating significant sales of frame relay access 
products will depend in part on their ability to educate end users about the 
benefits of the Company's technology and convince end users to switch their 
mission-critical applications to frame relay. In addition, broad acceptance 
of frame relay services will also depend upon the tariffs for such services, 
which are determined by carriers. If the tariff structure for dedicated 
leased lines becomes more favorable relative to tariffs for a comparable 
network utilizing frame 


                                      17

<PAGE>

relay, the market for frame relay networking products could be adversely 
affected. There can be no assurance that the market will adopt frame relay 
for mission-critical applications to any significant extent. The failure of 
such adoption to occur could have a material adverse effect on the Company's 
business, operating results and financial condition.

UNCERTAIN MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS; PRODUCT CONCENTRATION

     The Company currently derives substantially all of its revenues from its 
frame relay access, circuit management, transmission and other products and 
expects that revenues from these products will continue to account for 
substantially all of its revenues for the foreseeable future. Broad market 
acceptance of, and continuing demand for, these products, is, therefore, 
critical to the Company's future success. Factors that may affect the market 
acceptance of the Company's products include the extent to which frame relay 
is adopted for mission-critical applications, the availability and price of 
competing products and technologies, announcements by IBM relating to 
products, services or pricing relevant to the Company, the success of the 
sales efforts of the Company and its resellers and tariff rates for carrier 
services. Moreover, the Company's operating history in the WAN 
internetworking market and its resources are limited relative to those of 
certain of its current and potential competitors. The Company's future 
performance will also depend in part on the successful development, 
introduction and market acceptance of new and enhanced products. Failure of 
the Company's products to achieve market acceptance could have a material 
adverse effect on the Company's business, operating results and financial 
condition.

DEPENDENCE ON CHANNEL PARTNERS AND OTHER RESELLERS

     The Company's channel partners and other resellers account, and are 
expected to continue to account, for a majority of the Company's net 
revenues, including virtually all of its sales outside of the United States. 
Sales through channel partners and other resellers accounted for 62.5%, 
67.0%, and 85.7% of net revenues of the Company in 1998, 1997 and 1996, 
respectively. Current partners include PacBell, Sprint, MCI, Intermedia 
Communications, Electronic Data Systems, Diebold and Wang Global. The Company 
believes that partnerships are well-suited to serve the needs of middle and 
upper market customers. The Company has also sold its products through OEM 
relationships with IBM and 3Com among others. The agreement between IBM and 
Sync expired in March 1999 and is not expected to be renewed. Sales to IBM 
accounted for 14.1%, 16.5% and 4.9% of the Company's net revenues in 1998, 
1997 and 1996, respectively. Sales to 3Com accounted for 2.6%, 6.5% and 19.2% 
of the Company's net revenues in 1998, 1997 and 1996, respectively. 3Com has 
discontinued its support for Sync's products and accordingly, the Company 
believes that revenue derived from sales to 3Com and IBM will decline and 
remain low.

     The Company's agreements with its channel partners and other resellers 
do not restrict the sale of products that compete with those of the Company. 
Each of the Company's channel partners or other resellers can cease marketing 
the Company's products at the reseller's option, under certain conditions, 
with limited notice and with little or no penalty. In addition, these 
agreements generally provide for discounts based on expected or actual 
volumes of products purchased or resold by the reseller in a given period, do 
not require minimum purchases, prohibit distribution of certain products by 
the Company through certain categories of third parties under certain 
conditions and provide manufacturing rights and access to source code upon 
the occurrence of specified conditions or defaults.

     Certain of the Company's channel partners offer alternative solutions, 
designed by themselves or third parties, for SNA internetworking or have 
pre-existing relationships with current or potential competitors of the 
Company. Certain of the Company's channel partners have in the past developed 
competitive products and terminated their relationships with the Company, and 
such developments could occur in the future. Many of the Company's resellers 
offer competitive products manufactured either by third parties or by 
themselves.

     The Company generally realizes a higher gross margin on direct sales 
than on sales through its channel partners and other resellers. Accordingly, 
as channel partners and other resellers continue to account for a significant 
portion of the Company's net revenues, gross profit as a percentage of net 
revenues 


                                      18

<PAGE>

may decline.

     There can be no assurance that the Company will retain its current 
channel partners or other resellers or that it will be able to recruit 
additional or replacement channel partners. The loss of one or more of the 
Company's channel partners or other resellers could have a material adverse 
effect on the Company's business, operating results and financial condition. 
In addition, there can be no assurance that the Company's channel partners 
and other resellers will give priority to the marketing of the Company's 
products as compared to competitive products or alternative networking 
solutions or that Sync's channel partners and other resellers will continue 
to offer the Company's products. Any reduction or delay in sales of the 
Company's products by its channel partners could have a material adverse 
effect on the Company's business, operating results and financial condition.

RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS

     The market for the Company's products is characterized by rapidly 
changing technology, evolving industry standards and frequent new product 
introductions. The Company's success will depend to a substantial degree upon 
its ability to develop and introduce in a timely fashion enhancements to its 
existing products and new products that meet changing customer requirements 
and emerging industry standards. The development of new, technologically 
advanced products is a complex and uncertain process requiring high levels of 
innovation, as well as the accurate anticipation of technological and market 
trends. There can be no assurance that the Company will be able to identify, 
develop, manufacture, market or support new products successfully, that such 
new products will gain market acceptance or that the Company will be able to 
respond effectively to technological changes, emerging industry standards or 
product announcements by competitors. In addition, the Company has on 
occasion experienced delays in the introduction of product enhancements and 
new products. There can be no assurance that in the future the Company will 
be able to introduce product enhancements or new products on a timely basis. 
Further, from time to time, the Company may announce new products, 
capabilities or technologies that have the potential to replace or shorten 
the life cycle of the Company's existing product offerings. There can be no 
assurance that announcements of product enhancements or new product offerings 
will not cause customers to defer purchasing existing Company products or 
cause resellers to return products to the Company. Failure to introduce new 
products or product enhancements effectively and on a timely basis, customer 
delays in purchasing products in anticipation of new product introductions 
and any inability of the Company to respond effectively to technological 
changes, emerging industry standards or product announcements by competitors 
could have a material adverse effect on the Company's business, operating 
results and financia condition.

PRODUCT ERRORS

     Products as complex as those offered by the Company may contain 
undetected software or hardware errors when first introduced or as new 
versions are released. Such errors have occurred in the past, and there can 
be no assurance that, despite testing by the Company and by current and 
potential customers, errors will not be found in new or enhanced products 
after commencement of commercial shipments. Moreover, there can be no 
assurance that once detected, such errors can be corrected in a timely 
manner, if at all. Software errors may take several months to correct, if 
they can be corrected at all, and hardware errors may take even longer to 
rectify. The occurrence of such software or hardware errors, as well as any 
delay in correcting them, could result in the delay or loss of market 
acceptance of the Company's products, additional warranty expense, diversion 
of engineering and other resources from the Company's product development 
efforts or the loss of credibility with Sync's channel partners and other 
resellers, any of which could have a material adverse effect on the Company's 
business, operating results and financial condition.

INTENSE COMPETITION

     The market for communications products is intensely competitive and 
subject to rapid technological change and emerging industry standards. The 
Company's current competitors include internetworking companies, such as 
Cisco and Nortel; FRAD providers, such as Hypercom, Motorola ISG and 
Cabletron; and circuit management and digital transmission providers such as 
Visual Networks, Digital Link, Racal, AT&T Paradyne and Adtran, among others. 
Potential competitors include other internetworking and WAN 


                                      19

<PAGE>

access and transmission companies, frame relay switch providers, IBM and the 
Company's other channel partners. Certain of these companies have recently 
announced products and intentions to enter the frame relay access or circuit 
management market. Many of the Company's current and potential competitors 
have longer operating histories and greater financial, technical, sales, 
marketing and other resources, as well as greater name recognition and a 
larger customer base, than does the Company. As a result, they may be able to 
respond more quickly to new or emerging technologies and changes in customer 
requirements or may be able to devote greater resources to the development, 
promotion, sale and support of their products than the Company. Many also 
have long-standing customer relationships with large enterprises that are 
part of the Company's target market, and these relationships may make it more 
difficult to complete sales of the Company's products to these enterprises. 
Further, certain of the Company's channel partners have in the past developed 
competitive products and terminated their relationships with the Company, and 
such developments could occur in the future. As a consequence of all these 
factors, the Company expects increased competition. Increased competition 
could result in significant price competition, reduced profit margins or loss 
of market share, any of which could have a material adverse effect on the 
Company's business, operating results and financial condition. There can be 
no assurance that the Company wil be able to compete successfully in the 
future.

DEPENDENCE ON CONTRACT MANUFACTURERS

     The Company's manufacturing operations consist primarily of materials 
planning and procurement, light assembly, system integration, testing and 
quality assurance. The Company entered into arrangements with contract 
manufacturers to outsource substantial portions of its procurement, assembly 
and system integration operations. There can be no assurance that these 
independent contract manufacturers will be able to meet the Company's future 
requirements for manufactured products or that such independent contract 
manufacturers will not experience quality problems in manufacturing the 
Company's products. The inability of the Company's contract manufacturers to 
provide the Company with adequate supplies of high quality products could 
have a material adverse effect upon the Company's business, operating results 
and financial condition. The loss of any of the Company's contract 
manufacturers could cause a delay in Sync's ability to fulfill orders while 
the Company identifies a replacement manufacturer. Such an event could have a 
material adverse effect on the Company's business, operating results and 
financial condition.

     The Company's manufacturing procedures may in certain instances create a 
risk of excess or inadequate inventory if orders do not match forecasts. Any 
manufacturing delays, excess manufacturing capacity or inventories or 
inability to increase manufacturing capacity, if required, could have a 
material adverse effect on the Company's business, operating results and 
financial condition.

DEPENDENCE ON SUPPLIERS

     Certain key components used in the manufacture of the Company's products 
are currently purchased only from single or limited sources. At present, 
single-sourced components include programmable integrated circuits, selected 
other integrated circuits and cables, custom-molded plastics and 
custom-tooled sheet metal, and limited-sourced components include flash 
memories, DRAMs, printed circuit boards and selected integrated circuits. The 
Company generally relies upon contract manufacturers to buy component parts 
that are incorporated into board assemblies. The Company buys directly final 
assembly parts, such as plastics and metal covers, cables and other parts 
used in final configurations. The Company generally does not have long-term 
agreements with any of these single or limited sources of supply. Any loss in 
a supplier, increase in required lead times, increase in price of component 
parts, interruption in the supply of any of these components, or the 
inability of the Company to procure these components from alternate sources 
at acceptable prices and within a reasonable time, could  have a material 
adverse effect upon the Company's business, operating results and financial 
condition. If orders do not match forecasts, the Company may have excess or 
inadequate inventory of certain materials and components, and suppliers may 
demand longer lead times, higher prices or termination of contracts. From 
time to time the Company has experienced shortages of certain components and 
has paid above-market prices to acquire such components on an accelerated 
basis or has experienced delays in fulfilling orders while waiting to obtain 
the necessary components. Such shortages may occur in the future and could 
have a material adverse effect on the Company's business, operating results 
and financial condition.


                                      20

<PAGE>

DEPENDENCE ON AND RISKS ASSOCIATED WITH INTERNATIONAL SALES

     Sales to customers outside of the United States accounted for 
approximately 6.9%, 19.1% and 12.7%  of the Company's net revenues in 1998, 
1997 and 1996, respectively. However, these percentages may understate sales 
of the Company's products to international end users because certain of the 
Company's U.S-based channel partners market the Company's products abroad. 
The Company expects that international sales may represent an important 
percentage of net revenues in future periods. The near-term outlook on the 
Company's sales to the Pacific Rim, which represented approximately 3.7% of 
the Company's net revenues in 1998 and approximately 14.2% of the Company's 
net revenues in 1997, remains uncertain.

     Historically, the Company's international sales have been conducted 
primarily through independent country-specific distributors. The Company 
intends to continue to market its products in foreign countries in the future 
through its channel partners. Failure of these resellers to market the 
Company's products internationally or the loss of any of these resellers 
could have a material adverse effect on the Company's business, operating 
results and financial condition. In addition, the Company's ability to 
increase sales of its products  to international end users may be limited if 
the carrier services, such as frame relay, or protocols supported by the 
Company's products are not widely adopted internationally. A number of 
additional risks are inherent in international transactions. The Company's 
international sales currently are U.S. dollar-denominated. As a result, an 
increase in the value of the U.S. dollar relative to foreign currencies, as 
has occurred recently in several Asian markets, could make the Company's 
products less competitive in international markets. International sales may 
also be limited or disrupted by the imposition of governmental controls, 
export license requirements, restrictions on the export of critical 
technology, currency exchange fluctuations, political instability, trade 
restrictions and changes in tariffs. In addition, sales in Europe and certain 
other parts of the world typically are adversely affected in the third 
quarter of each year as many customers and end users reduce their business 
activities during the summer months. These international factors could have a 
material adverse effect on future sales of the Company's products to 
international end users and, consequently, the Company's business, operating 
results and financial condition.

DEPENDENCE ON PROPRIETARY TECHNOLOGY

     The Company's future success depends, in part, upon its proprietary 
technology. The Company does not hold any patents and currently relies on a 
combination of contractual rights, trade secrets and copyright laws to 
establish and protect its proprietary rights in its products. There can be no 
assurance that the steps taken by the Company to protect its intellectual 
property will be adequate to prevent misappropriation of its technology or 
that the Company's competitors will not independently develop technologies 
that are substantially equivalent or superior to the Company's technology. In 
the event that protective measures are not successful, the Company's 
business, operating results and financial condition could be materially and 
adversely affected. In addition, the laws of some foreign countries do not 
protect the Company's proprietary rights to the same extent as do the laws of 
the United States. The Company is also subject  to the risk of adverse claims 
and litigation alleging infringement of intellectual property rights of 
others. There can be no assurance that third parties will not assert 
infringement claims in the future with respect to the Company's current or 
future products or that any such claims will not require the Company to enter 
into license arrangements or result in litigation, regardless of the merits 
of such claims. No assurance can be given that any necessary licenses  will 
be available or that, if available, such licenses can be obtained on 
commercially reasonable terms. Should litigation with respect to any such 
claims commence, such litigation could be extremely expensive and 
time-consuming and could have a material adverse effect on the Company's 
business, operating results and financial condition regardless of the outcome 
of such litigation.

TARIFF AND REGULATORY MATTERS

     Rates for public telecommunications services, including features and 
capacity of such services, are governed by tariffs determined by carriers and 
subject to regulatory approval. Future changes in these tariffs could have a 
material effect on the Company's business. For example, should tariffs for 
frame relay services increase in the future relative to tariffs for dedicated 
leased lines, the cost-effectiveness of the Company's 


                                      21

<PAGE>

products could be reduced, which could have a material adverse effect on the 
Company's business, operating results and financial condition. In addition, 
the Company's products must meet industry standards and receive certification 
for connection to certain public telecommunications networks prior to their 
sale. In the United States, the Company's products must comply with various 
regulations defined by the Federal Communications Commission and Underwriters 
Laboratories. Internationally, the Company's products must comply with 
standards established by telecommunications authorities in various countries 
as well as with recommendations of the Consultative Committee on 
International Telegraph and Telephony. In addition, carriers require that 
equipment connected to their networks comply with their own standards, which 
in part reflect their currently installed equipment. Some public carriers 
have installed equipment that does not fully comply with current industry 
standards, and this noncompliance must be addressed in the design of the 
Company's products. Any future inability to obtain on a timely basis or 
retain domestic or foreign regulatory approvals or certifications or to 
comply with existing or evolving industry standards could have a material 
adverse effect on the Company's business, operating results and financial 
condition.

DEPENDENCE ON KEY PERSONNEL

     The Company's success depends, to a significant degree, upon the 
continued contributions of its key management, sales, marketing, research and 
development and manufacturing personnel. The Company believes its future 
success will also depend in large part upon its ability to attract and retain 
highly skilled engineering, managerial, sales and marketing personnel, and 
development engineers. Competition for such personnel is intense, and there 
can be no assurance that the Company will be successful in attracting and 
retaining such personnel. During 1998, the Company implemented significant 
expense reductions, including reductions in force, with the goal of enabling 
the Company to achieve profitability at lower revenues.  During 1998, the 
Company also experienced significant turnover in the composition of its 
executive officers.  Two of the current four executive officers, including 
the President and Chief Executive Officer, have been officers of the Company 
for less than a year.  The loss of the services of any of the Company's key 
personnel or the failure to attract or retain qualified personnel in the 
future could have a material adverse effect on the Company's business, 
operating results or financial condition.

GENERAL ECONOMIC CONDITIONS

     Demand for the Company's products depends in large part on the overall 
demand for communications and networking products, which has in the past and 
may in the future fluctuate significantly based on numerous factors, 
including capital spending levels and general economic conditions. There can 
be no assurance that the Company will not experience a decline in demand for 
its products due to general economic conditions. Any such decline could have 
a material adverse effect on the Company's business, operating results and 
financial condition.

VOLATILITY OF STOCK PRICE

     Factors such as announcements of technological innovations or the 
introduction of new products by the Company or its competitors, as well as 
market conditions in the technology sector, may have a significant effect on 
the market price of the Company's common stock. Further, the stock market has 
experienced volatility which has particularly affected the market prices of 
equity securities of many high technology companies and which often has been 
unrelated to the operating performance of such companies. These market 
fluctuations may have an adverse effect on the price of the Company's common 
stock.

NASDAQ STOCK LISTING

     The Company's common stock is listed and traded on the Nasdaq National 
Market. On January 4, 1999, the Company received a letter from Nasdaq 
notifying the Company that it has failed to maintain a closing bid price of 
greater than $1.00 in accordance with the Nasdaq listing requirements. In 
accordance with the notification, the Company has 90 days from the date of 
the letter to cure such deficiency by having a minimum closing bid price of 
its common stock equal to or greater than $1.00  per share for ten 
consecutive trading days. As of March 15, 1999, the Company has not been able 
to cure this deficiency. The Company's management is currently considering 
alternative strategies for meeting the minimum listing requirements 
including, repurchasing additional shares of stock under its stock repurchase 
program, restructuring the 


                                      22

<PAGE>

capital structure of the Company or raising additional capital. There can be 
no assurance that the Company will be successful in meeting the minimum bid 
listing requirements or that in the future it will not meet this or other 
listing requirements. Any such inability could have a material adverse effect 
the liquidity of the Company's common stock and on the Company's business, 
operating results and financial condition.

ANTI-TAKEOVER PROVISIONS

The company is subject to the provisions of section 203 of the Delaware 
General Corporation law, an anti-takeover law. In addition, certain 
provisions of the Company's charter documents, including provisions 
eliminating cumulative voting, eliminating the ability of stockholders to 
call meetings or to take actions by written consent and limiting the ability 
of stockholders to raise matters at a meeting of stockholders without giving 
advance notice, may have the effect of delaying or preventing a change in 
control or management of the Company, which could have an adverse effect on 
the market price of the Company's common stock. Certain of the Company's 
stock option and purchase plans and agreements provide for assumption of such 
plans, or, alternatively, immediate vesting upon a change of control or 
similar event. In addition, the Company has entered into severance agreements 
with its officers, pursuant to which they are entitled to defined severance 
payments if they are actually or constructively terminated within specified 
time periods following a change of control of the Company. The Board of 
Directors has authority to issue up to 2,000,000 shares of preferred stock 
and to fix the rights, preferences, privileges and restrictions, including 
voting rights, of these shares without any further vote or action by the 
stockholders. The rights of the holders of the common stock will be subject 
to, and may be adversely affected by, the rights of the holders of any 
preferred stock that may be issued in the future. The issuance of preferred 
stock, while providing desirable flexibility in connection with possible 
acquisitions and other corporate purposes, could have the effect of making it 
more difficult for a third party to acquire a majority of the outstanding 
voting stock of the Company, thereby delaying, deferring or preventing a 
change in control of the Company. Furthermore, such preferred stock may have 
other rights, including economic rights senior to the common stock, and as a 
result, the issuance of such preferred stock could have a material adverse 
effect on the market value of the common stock. The Company has no prsent 
plan to issue shares of preferred stock.

RESULTS OF OPERATIONS

     COMPARISON OF 1998 AND 1997 RESULTS

     NET REVENUES.  The Company derives its revenues primarily from sales of 
advanced wide-area networking products, which are recognized upon shipment. 
The Company generally does not have any significant remaining obligations 
upon shipment of its products. Product returns and sales allowances are 
provided for at the date of sale. Service revenues from customer maintenance 
fees for ongoing customer support and product updates are recognized ratably 
over the term of the maintenance period, which is typically 12 months.

     Net revenues in 1998 were $24.7 million, an increase from net revenues 
of $23.3 million in 1997. Net revenues by product group for the years ended 
December 31, 1998 and 1997 were as follows ($ in thousands):

<TABLE>
<CAPTION>
                                             1998         %        1997         %
                                           --------    ------    --------    ------
   <S>                                     <C>         <C>       <C>         <C>
   Frame relay access products ........    $12,145      49.2%    $10,011      43.0%
   Circuit management products ........      5,344      21.6       4,847      20.8
   Transmission products ..............      2,041       8.3       4,394      18.9
   Other ..............................      5,172      20.9       4,004      17.3
                                           -------      -----    -------      -----
                                           $24,702     100.0%    $23,256     100.0%
                                           -------     ------    -------     ------
                                           -------     ------    -------     ------
</TABLE>

     The increase in revenues of frame relay access and circuit management 
products and other, consisting primarily of service, was due to several large 
orders placed and fulfilled during 1998. The reduction in transmission 
products reflects a reduction in sales of transmission products to the 
Pacific Rim caused by the continued currency and financial instability in the 
region.


                                      23

<PAGE>

     The percentage of net revenues represented by sales through channel 
partners and other resellers declined to 62.5% in 1998 from 67.0% in 1997. 
Sales to IBM accounted for 14.1% and 16.5% of the Company's net revenues in 
1998 and 1997. The agreement between IBM and Sync expired in March 1999 and 
is not expected to be renewed. Sales to IBM are expected to decline in 1999. 
The Company expects that average selling prices will continue to decline and 
that sales through channel partners and other resellers will continue to 
account for a majority of net revenues; however, the mix of sales among 
channel partners and other resellers may change from period to period.

     International sales accounted for 6.9% of net revenues in 1998, as 
compared to 19.1% of net revenues in 1997. The Company expects that 
international sales will continue to represent an important percentage of net 
revenues in future periods. While Asian sales remained weak in 1998 due to 
economic conditions in that region, European sales continued to grow slowly. 
The near-term outlook on the Company's sales to the Pacific Rim, which 
represented 3.7% and 14.2% of the Company's 1998 and 1997 net revenues, 
respectively, remains uncertain.

     GROSS PROFIT.  Cost of sales primarily consists of purchased materials 
used in the assembly of the Company's products, fees paid to third party 
subcontractors for installation and maintenance services, and compensation 
paid to employees in the Company's manufacturing and service organizations.

     Gross profit increased slightly to $8.9 million for 1998 compared to 
$8.5 million in 1997. Gross profit as a percentage of net revenues decreased 
to 35.8% for the year ended December 31, 1998 from 36.7% for the year ended 
December 31, 1997, due primarily to increased discounts to IBM in 1998, as 
well as a decrease in average selling prices.

     OPERATING EXPENSES.  Research and development expenses primarily consist 
of compensation paid to personnel, including consultants, engaged in research 
and development activities, amounts paid for outside development services, 
costs of materials utilized in the development of hardware products, 
including product prototypes, and the depreciation and amortization of 
equipment and tools utilized in the research and development process. 
Research and development expenses increased slightly to $7.4 million for the 
year ended December 31, 1998, from $7.2 million for the year ended December 
31, 1997.

     Selling and marketing expenses consist primarily of base and incentive 
compensation paid to sales and marketing personnel, travel and related 
expenses, and costs associated with promotional and trade show activities. 
Selling and marketing expenses decreased to $11.9 million for the year ended 
December 31, 1998 from $14.3 million for the year ended December 31, 1997. 
The decreased expenses resulted primarily from sales and marketing consultant 
and headcount reductions.

     General and administrative expenses consist primarily of compensation 
paid to corporate and administrative personnel, payments to consultants and 
professional service providers, and public company related costs. General and 
administrative expenses decreased to $3.0 million for the year ended December 
31, 1998, as compared to $3.7 million for the year ended December 31, 1997. 
The decrease in general and administrative expenses was primarily due to the 
Company's expense reduction programs.

     In the first and fourth quarters of fiscal 1997, the Company implemented 
various expense reduction programs to improve its results of operations. In 
connection with these programs, the Company recorded a non-recurring charge 
of $1.2 million, consisting of severance and related headcount reduction 
costs and lease termination costs related to redundant sales office 
facilities.

     During the fourth quarter of fiscal 1998, the Company implemented 
additional expense reduction programs to reduce its overall cost structure 
and, as a result, recognized a $2.9 million non-recurring charge consisting 
of severance and related headcount reduction costs, idle and excess facility 
charges and write-offs of assets no longer in use due to the reduction 
efforts. The non-recurring charges taken in 1998 and 1997 were as follows (in 
thousands):

                                      24

<PAGE>
<TABLE>
<CAPTION>
                                             ACCRUAL                              ACCRUAL
     DESCRIPTION                         AT 12/31/97    CHARGE    ACTIVITY    AT 12/31/98
     -----------                         -----------    ------    --------    -----------
     <S>                                 <C>            <C>       <C>         <C>
     Severance and related expenses ...      $354       $1,210    $  (710)       $  854
     Idle and excess facility charges
        and write-off of assets........         9        1,547       (446)        1,110
     Other non-recurring charges ......         9           95        (92)           12
                                             ----       ------    -------        ------
     Total ............................      $372       $2,852    $(1,248)       $1,976
                                             ----       ------    -------        ------
                                             ----       ------    -------        ------
</TABLE>

     In 1998, the Company completed its 1997 expense reduction program 
activities. The Company expects all 1998 expense reduction program activities 
will be substantially completed during fiscal 1999. The Company will continue 
to evaluate and may adjust its organization and cost structure.

     The Company recorded deferred compensation of $644,000 during 1995 for 
the difference between the option exercise price or restricted stock price 
and the deemed fair value of the Company's common stock for options granted 
and restricted stock sold in 1995. The deferred compensation is being 
amortized to operating expense and cost of sales over the related 48 month 
vesting period of the shares and will, therefore, continue to have an adverse 
effect on the Company's results of operations. Included in operating expenses 
and cost of sales for the year ended December 31, 1998 were $27,000 of such 
expenses, as compared to $79,000 for the year ended December 31, 1997.

     Net interest income was $0.9 million for the year ended December 31, 
1998, as compared to $1.5  million in the year ended December 31, 1997. The 
decrease in interest income was primarily due to the Company's lower cash 
balances resulting from the use of cash to fund the Company's operating 
activities.

     INCOME TAXES.  The provision for income tax in 1998 represented minimum 
state taxes. There were no provisions for income taxes in 1997.

     COMPARISON OF 1997 AND 1996 RESULTS

     NET REVENUES.  Net revenues in 1997 were $23.3 million, a decrease from 
the net revenues of $36.3 million in 1996. The lower net revenues in 1997 
reflected decreased sales volumes in all of the Company's major product lines 
and lower average selling prices partially offset by an increase in service 
revenues. Net revenues by product group for the years ended December 31, 1997 
and 1996 were as follows ($ in thousands):

<TABLE>
<CAPTION>
                                             1997         %        1996         %
                                           --------    ------    --------    ------
   <S>                                     <C>         <C>       <C>         <C>
   Frame relay access products .........   $10,011      43.0%    $14,214      39.1%
   Circuit management products .........     4,847      20.8       7,036      19.4
   Transmission products ...............     4,394      18.9       6,348      17.5
   Other ...............................     4,004      17.3       8,748      24.0
                                           -------     ------    -------     ------
                                           $23,256     100.0%    $36,346     100.0%
                                           -------     ------    -------     ------
                                           -------     ------    -------     ------
</TABLE>

     The shift in revenues to frame relay access and circuit management 
products from other products was consistent with the Company's expected 
change in product mix from its older product offerings.

     The decrease in net revenues from sales of frame relay access products 
during 1997 as compared to 1996 was, in part, due to the loss of Racal and 
NET as channel partners. Racal and NET, which aggregated to more than 10% of 
the Company's 1996 revenues, decreased to less than 1% of 1997 revenues, as 
they developed competing products and ceased purchasing frame relay products 
from the Company. Also contributing to this change was a reduction in sales 
to 3Com, primarily older legacy 


                                      25


<PAGE>

products, which represented $1.0 and $5.0 million of the Company's frame 
relay access product revenues in 1997 and 1996, respectively.

     The percentage of net revenues represented by sales through channel 
partners and other resellers declined to 67.0% in 1997 from 85.7% in 1996. 
The Company expects that average selling prices will continue to decline and 
that sales through channel partners and other resellers will continue to 
account for a majority of net revenues; however, the mix of sales among 
channel partners and other resellers may change from period to period.

     International sales accounted for 19.1% of net revenues in 1997, as 
compared to 12.7% of net revenues in 1996. Sales to the Pacific Rim 
represented 14.2% of the Company's 1997 net revenues.

     GROSS PROFIT.  Gross profit decreased to $8.5 million for 1997 from 
$16.4 million in 1996 due primarily to lower sales volumes. Gross profit as a 
percentage of net revenues decreased to 36.7% for the year ended December 31, 
1997 from 45.0% for the year ended December 31, 1996, due primarily to lower 
sales volumes which resulted in lower absorption of manufacturing costs, a 
significant portion of which are primarily fixed in nature, increased 
expenditures to support service activities, increased sales to IBM at higher 
discounts than encountered in other channels and lower average selling prices.

     OPERATING EXPENSES.  Research and development expenses decreased to $7.2 
million for the year ended December 31, 1997, from $7.7 million for the year 
ended December 31, 1996. The decreased expenses in 1997 were primarily due to 
the Company's cost reduction programs implemented in March 1997 and September 
1997.

     Selling and marketing expenses decreased to $14.3 million for the year 
ended December 31, 1997 from $14.5 million for the year ended December 31, 
1996. The decreased expenses resulted primarily from sales and marketing 
headcount reductions as part of the Company's 1997 cost reduction programs.

     General and administrative expenditures decreased to $3.7 million for 
the year ended December 31, 1997, as compared to $5.8 million for the year 
ended December 31, 1996. The decrease in general and administrative expenses 
was primarily due to the Company's 1997 cost reduction programs and reflected 
$1.3 million in expenditures incurred in connection with the Merger of Sync 
and TyLink in 1996 for which no similar cost was incurred in 1997.

     In March 1997 and September 1997, the Company implemented various cost 
reduction programs in order to improve its results of operations. The 
expenses associated with these programs aggregated approximately $1.2 million 
and consisted primarily of severance and related headcount reduction 
activities and to a lesser extent lease termination costs related to 
redundant facilities.

     Included in operating expenses and cost of sales for the year ended 
December 31, 1997 were $79,000 of deferred compensation expenses, as compared 
to $265,000 for the year ended December 31, 1996.

     Net interest income was $1.5 million for the year ended December 31, 
1997, as compared to $2.2 million in the year ended December 31, 1996. The 
decrease in interest income was primarily due to the Company's lower cash 
balances resulting from the utilization of cash to fund the Company's 
operating activities.

     INCOME TAXES.  There was no provision for income tax in 1997. The 
provision for income taxes in 1996 represented minimum state taxes.

INFLATION

     The effects of inflation have not historically had, and are not expected 
to have, a material effect on the Company's operating results or financial 
condition.


                                      26

<PAGE>

YEAR 2000 COMPLIANCE

     Many currently installed computer and telecommunications systems and 
software products were not designed to consider the impact of moving into the 
21st century. As a result, errors or system failures could result if these 
systems and applications are not corrected or replaced prior to the year 
2000. The Company continues to evaluate the impact of the "Year 2000" issue 
upon its products, support systems and overall business.

     The Company has defined Year 2000 compliance using the British Standards 
Institute (BSI) definition. The BSI DISC PD2000-1 definition appropriately 
provides that Year 2000 compliance shall mean that neither product 
performance nor functionality is affected by dates prior to, during and after 
the year 2000. The Company has either internally or in collaboration with 
certain of its suppliers and customers evaluated, tested and verified the 
Year 2000 compliance of all of its current product offerings. The Company 
believes that several of its discontinued conversion and frame relay products 
are not Year 2000 compliant and the Company currently does not plan to update 
these products. However, the Company offers upgrade programs to its customers 
of most of these non-compliant discontinued products. Certain of the 
Company's products rely on date information from other devices resident in 
the networks in which they operate. Thus, any Year 2000 problems within these 
third party networking products could cause the Company's products not to 
work accurately or cause disruption in their operation.

     The Company relies on a number of computer systems and applications to 
operate and monitor all major aspects of its business. The Company has 
evaluated all of its business critical systems internal information and 
non-information systems and most of its non-critical systems through 
inquiries with the manufacturers of such systems and testing or the 
completion of other verification procedures. Substantially all of the 
Company's critical systems have been verified to meet the Company's Year 2000 
requirements and the Company's non-critical systems are expected to be made 
fully compliant by December 31, 1999.The Company believes that several 
manufacturers of the Company's systems have already updated their products to 
comply with the Year 2000 issue or will make updates available by mid-1999, 
or relatively low cost alternative solutions may be available. However, there 
can be no assurance that any such updates will be completed on a timely 
basis, if at all, or at a reasonable cost, or that such updates will work as 
anticipated in the year 2000.

     The Company relies on third party suppliers for the management and 
control of fabrication, assembly and testing of substantially all of the 
Company's products. The Company is currently in the process of making 
inquiries of all of its significant vendors and service providers upon which 
it relies. Such evaluation is expected to be completed by June 30, 1999 and 
the Company intends to establish contingency plans to provide for alternative 
sources as necessary.

     The Company has not incurred substantial costs to date to address the 
Year 2000 issue and is unable to estimate the additional cost, if any, that 
may arise from actions taken by the Company, if any, to address the Year 2000 
issue or from the interaction of the Company's products with other companies' 
networking devices and systems.  In addition, the Company is unable to assess 
the potential risks and exposures associated with changes in generally 
accepted definitions of Year 2000 compliance that may impact the compliance 
of its products. Any failure by the Company to make its products Year 2000 
compliant could result in a decrease in sales of the Company's products, 
diversion of development resources, damage to the Company's reputation, 
increased service and warranty costs and/or possible claims against the 
Company by customers as a result of Year 2000 problems caused by the 
Company's products, any of which could have a material adverse effect on the 
Company, its business, operating results and financial condition.


                                      27

<PAGE>

     Many of the Company's customers and prospective customers are expected 
to devote a substantial portion of their information systems budgets to the 
Year 2000 problem over the next several years, and, as a result, spending may 
be diverted from wide area networking solutions. In addition, the Company's 
customers, which consists primarily of large enterprises operating business 
critical applications over the wide area networks that are supported by the 
Company's products, may be less willing to purchase wide area networking 
products or otherwise implement new network solutions during the second half 
of 1999 in anticipation of the Year 2000. The Company relies on a large 
variety of business enterprises such as customers, suppliers, creditors, 
financial organizations, and domestic and international governmental 
entities, for the accurate exchange of data. Any disruption in the computer 
systems of any of these third parties could materially and adversely affect 
the Company. Due to the Company's focus on the wide area networking market, 
which is vulnerable to technological issues involving the Year 2000, 
substantially all of the Company's revenues may be at risk. Despite the 
Company's efforts to address the Year 2000 impact on its products, internal 
systems and business operations, the Year 2000 issue may result in a material 
disruption of its business or have a material adverse effect on the Company's 
business, financial condition or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 1998, the Company's principal sources of liquidity 
consisted of $14.1 million of cash and cash equivalents. In March 1999, the 
Company received a commitment for a new $3 million secured bank line of 
credit which is expected to expire in April 2000. There were no borrowings 
outstanding as of December 31, 1998.

     During 1998, cash used in operating activities was $6.5 million, 
compared to $12.4 million for fiscal 1997. Use of cash during 1998 resulted 
primarily from the Company's net loss of $15.4 million partially offset by a 
net decrease in operating assets and liabilities of $6.5 million. These 
changes reflected the higher operating loss, higher levels of payables and 
decreased levels of receivables and inventory. Capital expenditures during 
fiscal 1998 were $1.2 million, compared to $1.3 million for 1997. At December 
31, 1998, the Company had no material commitments for capital expenditures.

     As of December 31, 1998, the Company's net working capital was $14.3 
million, of which $14.1 million was invested in cash and cash equivalents, 
$2.4 million was invested in accounts receivable, and $6.1 million was 
invested in inventory. In December 1998, the Company initiated an expense 
reduction program. The Company believes that its available cash and cash 
equivalents will be sufficient to meet its working capital requirements at 
least through 1999.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISKS ASSOCIATED WITH FOREIGN EXCHANGE

     In 1998, approximately 6.9% of the Company's net revenues were derived 
from sales to international customers, primarily in the Pacific Rim and 
Europe.  As a result, the Company is exposed to market risk from changes in 
foreign exchange rates and international economic conditions, which could 
affect its results of operations and financial condition.  In order to reduce 
the risk from fluctuation in foreign exchange rates, the Company's product 
sales are denominated in U.S. dollars.  The Company has not entered into any 
currency hedging activities.

INTEREST RATE RISKS

     The Company invests its excess cash in high quality government and 
corporate debt instruments. However, the Company may be exposed to 
fluctuation in rates on these investments. Increases or decreases in interest 
rates generally translate into increases or decreases in the fair value of 
these investments.  Such changes to these investments have historically not 
been material due to the short-term nature of the Company's investment. In 
addition, the credit worthiness of the issuer, the relative 


                                      28

<PAGE>

values of alternative investments, the liquidity of the instruments and other 
general market conditions may affect the fair value of interest rate 
sensitive instruments. In order to reduce the risk from fluctuation in rates, 
the Company invests in money market funds and short-term debt instruments of 
U.S. corporations with strong credit ratings and the federal government with 
contractual maturities of less than six months.

     At December 31, 1998, investments were as folows ($s in millions):

<TABLE>
<CAPTION>
                                                                                     AVERAGE
                                                                      AVERAGE        INTEREST      FAIR
                                                       BALANCE        MATURITY         RATE        VALUE
                                                       -------        --------       --------      -----
<S>                                                    <C>            <C>            <C>           <C>
Short-term debt instruments and money market funds      $14.1         2 months          5%         $14.1
</TABLE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Item 14(a) for an index to the financial statements and 
supplementary financial information that are attached hereto.


                                      29

<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Sync Research, Inc.

     We have audited the accompanying consolidated balance sheets of Sync 
Research, Inc. as of December 31, 1998 and 1997, and the related consolidated 
statements of operations, mandatorily redeemable preferred stock and common 
stockholders' equity, and cash flows for each of the three years in the 
period ended December 31, 1998. Our audits also included the financial 
statement schedule listed in the index at item 14(a). These financial 
statements and schedule are the responsibility of the Company's management. 
Our responsibility is to express an opinion on these financial statements and 
schedule based on our audits.

     We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

     In our opinion, based on our audits, the consolidated financial 
statements referred to above present fairly, in all material respects, the 
consolidated financial position of Sync Research, Inc. at December 31, 1998 
and 1997, and the consolidated results of its operations and its cash flows 
for each of the three years in the period ended December 31, 1998, in 
conformity with generally accepted accounting principles. Also, in our 
opinion, the related financial statement schedule, when considered in 
relation to the basic financial statements taken as a whole, presents fairly 
in all material respects the information set forth therein.

                                                               Ernst & Young LLP

Orange County, California
January 25, 1999


                                      30

<PAGE>

                             SYNC RESEARCH, INC.
                         CONSOLIDATED BALANCE SHEETS
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                    ASSETS
<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                            --------------------
                                                                             1998         1997
                                                                            -------     --------
<S>                                                                         <C>         <C>
Current assets:
  Cash and cash equivalents ............................................    $14,135     $ 21,734

  Accounts and other receivables, less allowance for doubtful accounts 
    of $214 in 1998 and $393 in 1997 ...................................      2,443        4,657
  Inventories ..........................................................      6,111        7,371
  Prepaid expenses and other current assets ............................        808          522
                                                                            -------     --------
    Total current assets ...............................................     23,497       34,284
Furniture, fixtures and equipment, net .................................      3,247        4,167
Other assets ...........................................................         47           44
                                                                            -------     --------
Total assets ...........................................................    $26,791     $ 38,495
                                                                            -------     --------
                                                                            -------     --------

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable .....................................................    $ 3,138     $  2,172
  Accrued compensation and related costs ...............................        956          949
  Accrued severance and restructuring costs ............................      1,976          372
  Deferred revenue .....................................................      2,063        1,432
  Other accrued liabilities ............................................        975          591
  Current maturities of capitalized lease obligations ..................         52           50
                                                                            -------     --------
    Total current liabilities ..........................................      9,160        5,566
Capitalized lease obligations, less current maturities .................         60          111
Commitments and contingencies (Note 7)
Stockholders' equity:
  Preferred stock, $.001 par value:
    Authorized shares-2,000
    Issued and outstanding shares-none .................................         --           --
  Common stock, $.001 par value:
    Authorized shares-50,000
    Issued and outstanding shares 17,458 in 1998 and 17,288 in 1997 ....         17           17
  Additional paid-in capital ...........................................     71,958       71,786
  Deferred compensation ................................................         (7)         (34)
  Accumulated deficit ..................................................    (54,397)     (38,951)
                                                                            -------     --------
    Total stockholders' equity .........................................     17,571       32,818
                                                                            -------     --------
Total liabilities and stockholders' equity .............................    $26,791     $ 38,495
                                                                            -------     --------
                                                                            -------     --------
</TABLE>

                           See accompanying notes.


                                      31

<PAGE>

                             SYNC RESEARCH, INC.
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                                 --------------------------------
                                                   1998        1997        1996
                                                 --------    --------    --------
<S>                                              <C>         <C>         <C>
Net revenues .................................   $ 24,702    $ 23,256    $ 36,346
Cost of sales ................................     15,850      14,724      19,995
                                                 --------    --------    --------
Gross profit .................................      8,852       8,532      16,351
Operating expenses:
  Research and development ...................      7,420       7,195       7,687
  Selling and marketing ......................     11,851      14,318      14,484
  General and administrative .................      3,048       3,741       5,795
  Non-recurring charges ......................      2,852       1,241          --
                                                 --------    --------    --------

    Total operating expenses .................     25,171      26,495      27,966
                                                 --------    --------    --------

Operating loss ...............................    (16,319)    (17,963)    (11,615)
Interest income, net .........................        875       1,455       2,184
                                                 --------    --------    --------
Loss before income taxes .....................    (15,444)    (16,508)     (9,431)
Provision for income taxes ...................          2          --           2
                                                 --------    --------    --------
Net loss .....................................   $(15,446)   $(16,508)   $ (9,433)
                                                 --------    --------    --------
                                                 --------    --------    --------

Basic and diluted net loss per share .........   $  (0.89)   $  (0.96)   $  (0.61)
                                                 --------    --------    --------
                                                 --------    --------    --------

Shares used in computing net loss per share ..     17,396      17,171      16,289
                                                 --------    --------    --------
                                                 --------    --------    --------
</TABLE>

                           See accompanying notes.


                                      32

<PAGE>

                             SYNC RESEARCH, INC.
  CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON
                             STOCKHOLDERS' EQUITY
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                               MANDATORILY
                                                REDEEMABLE
                                                 SERIES B
                                             PREFERRED STOCK     COMMON STOCK                    ADDITIONAL
                                             ---------------     ------------       DEFERRED      PAID-IN    ACCUMULATED
                                             SHARES    AMOUNT   SHARES   AMOUNT   COMPENSATION     CAPITAL     DEFICIT      TOTAL
                                             ------   -------   ------   ------   ------------     -------     -------      -----
<S>                                          <C>      <C>       <C>      <C>      <C>            <C>         <C>           <C>
Balance at December 31, 1995 ...........      2,541   $ 5,591   15,833   $   16       $(421)      $68,504    $(13,237)     $ 54,862
Exercise of warrants and common stock
  options ..............................         --        --      892        1          --           686          --           687
Adjustment of 1995 cost of stock                                                 
  issuance .............................         --        --       --       --          --           (19)         --           (19)
Accretion of cumulative dividend and                                             
  redemption value of mandatorily                                                
  redeemable preferred stock ...........         --       486       --       --          --            --        (486)         (486)
Repurchase of mandatorily redeemable                                             
  preferred stock ......................     (2,541)   (6,077)     209       --          --         2,077          --         2,077
Issuance of stock under employee                                                 
  stock purchase plan ..................         --        --       12       --          --           137          --           137
Amortization of deferred compensation ..         --        --       --       --         265            --          --           265
Effect of pooling of interests .........         --        --       --       --          --            --         713           713
Net loss ...............................         --        --       --       --          --            --      (9,433)       (9,433)
                                             ------    ------   ------   ------       -----       -------    --------      --------
Balance at December 31, 1996 ...........         --        --   16,946       17        (156)       71,385     (22,443)       48,803
Exercise of warrants and common stock                                            
  options ..............................         --        --      338        1          --           187          --           188
Repurchase of restricted stock .........         --        --      (37)      --          --            (7)         --            (7)
Issuance of stock under employee                                                 
  stock purchase plan ..................         --        --       41       --          --           263          --           263
Amortization of deferred compensation ..         --        --       --       --          79            --          --            79
Cancellation of options granted to                                               
  employees ............................         --        --       --       (1)         43           (42)         --            --
Net loss ...............................         --        --       --       --          --            --     (16,508)      (16,508)
                                             ------    ------   ------   ------       -----       -------    --------      --------
Balance at December 31, 1997 ...........         --        --   17,288       17         (34)       71,786     (38,951)       32,818
Exercise of warrants and common stock                                            
  options ..............................         --        --      136       --          --            56          --            56
Repurchase of common stock .............         --        --      (20)      --          --           (17)         --           (17)
Issuance of stock under employee                                                 
  stock purchase plan ..................         --        --       54       --          --           133          --           133
Amortization of deferred compensation ..         --        --       --       --          27            --          --            27
Net loss ...............................         --        --       --       --          --            --     (15,446)      (15,446)
                                             ------    ------   ------   ------       -----       -------    --------      --------
Balance at December 31, 1998 ...........         --   $    --   17,458    $  17       $  (7)      $71,958    $(54,397)     $ 17,571
                                             ------    ------   ------   ------       -----       -------    --------      --------
                                             ------    ------   ------   ------       -----       -------    --------      --------
</TABLE>

                           See accompanying notes.

                                      33

<PAGE>

                             SYNC RESEARCH, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED DECEMBER 31,
                                                                                --------------------------------
                                                                                  1998        1997        1996
                                                                                --------    --------    --------
<S>                                                                             <C>         <C>         <C>
OPERATING ACTIVITIES
  Net loss ..................................................................   $(15,446)   $(16,508)   $ (9,433)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization ...........................................      1,798       1,718         777
    Asset write-offs in connection with non-recurring charge.................        336          --          --
    Provision for losses on accounts receivable .............................        298         223         420
    Deferred compensation expense ...........................................         27          79         265
  Changes in operating assets and liabilities:
    Accounts and other receivables ..........................................      1,916       2,707         409
    Inventories .............................................................      1,260        (232)     (1,529)
    Prepaid expenses and other current assets ...............................       (286)        (43)        (66)
    Accounts payable ........................................................        966      (1,812)       (872)
    Accrued compensation and related costs ..................................          7         (25)        335
    Accrued severance and restructuring .....................................      1,604         372          --
    Deferred revenue ........................................................        631       1,006         412
    Other accrued liabilities ...............................................        384          73         103
    Other ...................................................................         (3)          3        (115)
                                                                                --------    --------    --------
  Net cash used in operating activities .....................................     (6,508)    (12,439)     (9,294)
INVESTING ACTIVITIES
    Purchases of furniture, fixtures and equipment ..........................     (1,214)     (1,315)     (3,107)
    Proceeds on loan to officer .............................................         --          --         315
                                                                                --------    --------    --------
  Net cash used in investing activities .....................................     (1,214)     (1,315)     (2,792)
FINANCING ACTIVITIES
    Net borrowings (payments) under credit agreements .......................         --        (802)        515
    Payments on capitalized lease obligations ...............................        (49)        (28)        (43)
    Repurchase of common stock ..............................................        (17)         (7)        (19)
    Proceeds from common stock options and warrants exercised ...............         56         188         687
    Proceeds from employee stock purchase plan ..............................        133         263         137
    Repurchase of mandatorily redeemable preferred stock ....................         --          --      (4,000)
                                                                                    --------    --------    --------
  Net cash provided by (used in) financing activities .......................        123        (386)     (2,723)
                                                                                --------    --------    --------
  Net decrease in cash and cash equivalents .................................     (7,599)    (14,140)    (14,809)
  Effect of pooling of interests ............................................         --          --          50
  Cash and cash equivalents at beginning of year ............................     21,734      35,874      50,633
                                                                                --------    --------    --------
  Cash and cash equivalents at end of year ..................................   $ 14,135    $ 21,734    $ 35,874
                                                                                --------    --------    --------
                                                                                --------    --------    --------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    Interest paid ...........................................................   $     41    $     30    $    105
                                                                                --------    --------    --------
                                                                                --------    --------    --------
    Income taxes paid .......................................................   $     15    $     11    $      2
                                                                                --------    --------    --------
                                                                                --------    --------    --------
</TABLE>

                           See accompanying notes.

                                      34

<PAGE>

                             SYNC RESEARCH, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     COMPANY BACKGROUND

Sync Research, Inc. was incorporated in the State of California on September 
8, 1981 and was reincorporated in Delaware on September 12, 1995. Sync 
Research, Inc.'s principal activity consists of the development, manufacture 
and global sale of network communication software and hardware products.

     BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the accounts 
of Sync Research, Inc. and its subsidiaries (the Company). All significant 
intercompany transactions and accounts have been eliminated. As described 
more fully in Note 2, on August 23, 1996, TyLink Corporation (TyLink) merged 
with and into Sync Research, Inc. (Sync) in a transaction (the Merger) 
accounted for as a pooling of interests; accordingly, the consolidated 
financial statements reflect the combined financial position and results of 
operations of Sync and TyLink for all periods presented.

     ACCOUNTING PERIODS

     TyLink's results of operations and cash flows for its fiscal year ended 
March 29, 1996 have been combined in the accompanying consolidated financial 
statements for the year ended December 31, 1995. Accordingly, TyLink's 
results of operations and cash flows for the three months ended March 29, 
1996 have been included in the consolidated financial statements in both the 
years ended December 31, 1995 and 1996. During the three months ended March 
29, 1996, TyLink's revenues, net loss and cash flows were $3,075,000, 
$713,000 and $50,000, respectively. The duplicative effect of such loss and 
cash activity has been reflected as an adjustment to retained earnings and 
cash flows in the consolidated financial statements during the year ended 
December 31, 1996.

     RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform with the 
current year presentation.

     USE OF ESTIMATES

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the amounts reported in the accompanying financial 
statements. Actual results could differ from those estimates.

     CASH AND CASH EQUIVALENTS

     The Company invests its excess cash in money market funds and short-term 
debt instruments of U.S. corporations with strong credit ratings. The Company 
has established guidelines with respect to the diversifications and 
maturities that maintain safety and liquidity. The Company considers all 
highly liquid investments with an original maturity of three months or less 
and money market funds to be cash equivalents.

     INVENTORIES

     Inventories, consisting primarily of computer hardware and components, 
are stated at the lower of cost (first-in, first-out basis) or market as 
follows (in thousands):

                                      35

<PAGE>

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                 ---------------------
                                                  1998           1997
                                                 ------         ------
          <S>                                    <C>            <C>
          Raw materials ......................   $2,983         $3,636
          Work in process ....................      752            862
          Finished goods .....................    2,376          2,873
                                                 ------         ------
                                                 $6,111         $7,371
                                                 ------         ------
                                                 ------         ------
</TABLE>

     REVENUE RECOGNITION

     The Company derives its revenues primarily from sales of wide-area 
networking hardware and software products, which are recognized upon 
shipment. The Company generally does not have any significant remaining 
obligations upon shipment of its products. Product returns and sales 
allowances are provided for at the date of sale. Service revenues from 
customer maintenance fees for ongoing customer support and product updates, 
and installation or other assistance are recognized ratably over the term of 
the maintenance period, which is typically 12 months or as the work is 
performed.

     In October 1997, the AICPA issued Statement of Position (SOP) No. 97-2, 
SOFTWARE REVENUE RECOGNITION, which changed the requirements for revenue 
recognition effective for transactions beginning January 1, 1998. The 
implementation of the SOP did not have a material impact on the Company's 
financial statements.

     CAPITALIZED SOFTWARE

     Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE 
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires 
capitalization of certain software development costs subsequent to the 
establishment of technological feasibility. Based on the Company's product 
development process, technological feasibility is established upon completion 
of a working model. Costs incurred between completion of the working model 
and the point at which the product is ready for initial shipment have 
historically not been significant. The Company also capitalizes costs related 
to the purchase or license of software developed by third parties which are 
used in certain of its products. Such costs are amortized over the applicable 
license period or estimated useful life of the product. As of December 31, 
1998, $455,000 of purchased software has been capitalized as software in 
computers, software and equipment. There was no accumulated amortization as 
of December 31, 1998 as the related product was not released.

     FURNITURE, FIXTURES AND EQUIPMENT

     Depreciation and amortization are provided on the straight-line method 
over the following estimated useful lives:

<TABLE>
<CAPTION>
     Equipment acquired under capitalized leases      Term of lease (ranging from 3 to 5 years)
     <S>                                              <C>
     Furniture and fixtures                           5 to 7 years
     Computers, software and equipment                3 to 7 years
     Leasehold improvements                           Term of lease
</TABLE>

     LONG-LIVED ASSETS

     In accordance with Statement of Financial Accounting Standards No. 121, 
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS 
TO BE DISPOSED OF (SFAS No. 121), the Company records impairment losses on 
long-lived assets used in operations when events and circumstances indicate 
that the assets might be impaired and the undiscounted cash flows estimated 
to be generated by those assets are less than the carrying amounts of those 
assets.


                                      36

<PAGE>

     RESEARCH AND DEVELOPMENT

     Research and development costs are expensed as incurred. Continuous 
research and development is necessary for the Company to maintain its 
competitive position.

     WARRANTY

     Costs related to after-sale service and repair are accrued as warranty 
expense in the year of sale and are included in accrued liabilities.

     INCOME TAXES

     Deferred taxes are provided for items recognized in different periods 
for financial and tax reporting purposes in accordance with Statement of 
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.

     NON-RECURRING CHARGES

     In the first and fourth quarters of fiscal 1997, the Company implemented 
various expense reduction programs to improve its results of operations. In 
connection with these programs, the Company recorded a non-recurring charge 
of $1.2 million, consisting of severance and related headcount reduction 
costs and lease termination costs related to redundant sales office 
facilities.

     During the fourth quarter of fiscal 1998, the Company implemented 
additional expense reduction programs to reduce its overall cost structure 
and, as a result, recognized a $2.9 million non-recurring charge consisting 
of severance and related headcount reduction costs, idle and excess facility 
charges and write-offs of assets no longer in use due to the reduction 
efforts. The non-recurring charges taken in 1998 and 1997 were as follows (in 
thousands):

<TABLE>
<CAPTION>
                                                ACCRUAL                              ACCRUAL
     DESCRIPTION                            AT 12/31/97    CHARGE    ACTIVITY    AT 12/31/98
     -----------                            -----------    ------    --------    -----------
     <S>                                    <C>            <C>       <C>         <C>
     Severance and related expenses .....          $354    $1,210    $  (710)         $  854
     Idle and excess facility charges
          and write-off of assets........             9     1,547       (446)          1,110
     Other non-recurring charges ........             9        95        (92)             12
                                                   ----    ------    -------          ------
     Total ..............................          $372    $2,852    $(1,248)         $1,976
                                                   ----    ------    -------          ------
                                                   ----    ------    -------          ------
</TABLE>

     In 1998, the Company completed its 1997 expense reduction program 
activities. The Company expects all 1998 expense reduction program activities 
will be substantially completed during fiscal 1999. The Company will continue 
to evaluate and may adjust its organization and cost structure.

     STOCK BASED COMPENSATION

     The Company has elected to follow Accounting Principles Board Opinion 
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related Interpretations 
in accounting for its employee stock options.

     PER SHARE INFORMATION


                                      37

<PAGE>

     Net loss per common share is computed in accordance with Financial 
Accounting Standards Board Statement No. 128, EARNINGS PER SHARE, using the 
weighted average number of common shares and common share equivalents 
outstanding during the periods presented. Common share equivalents result 
from the dilutive effect, if any, of outstanding options and warrants to 
purchase common stock. The weighted average number of common shares 
outstanding for all periods also reflects the issuance of .157 shares of the 
Company's common stock for each share of TyLink Series A preferred stock and 
common stock. Net loss per share reflects the accretion of dividends and 
liquidation value related to TyLink mandatorily redeemable preferred stock. 
Such accretion aggregated $486,000 in 1996. The following table sets forth 
the computation of basic and diluted net loss per share (in thousands):

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED DECEMBER 31,
                                                                                      ------------------------
NUMERATOR:                                                                          1998        1997        1996
                                                                                    ----        ----        ----
<S>                                                                               <C>         <C>         <C>
Net loss ......................................................................   $(15,446)   $(16,508)   $(9,433)
Accretion of cumulative dividend and redemption value of mandatorily 
  redeemable preferred stock ..................................................         --          --       (486)
                                                                                  --------    --------    -------
Net loss used for basic and diluted loss per share-loss attributable to 
  common stockholders .........................................................   $(15,446)   $(16,508)   $(9,919)
                                                                                  --------    --------    -------
                                                                                  --------    --------    -------

DENOMINATOR:
Denominator for basic and diluted loss per share-weighted average common 
  shares outstanding ..........................................................     17,396      17,171     16,289
                                                                                  --------    --------    -------
                                                                                  --------    --------    -------

Basic and diluted net loss per share ..........................................   $  (0.89)   $  (0.96)   $ (0.61)
                                                                                  --------    --------    -------
                                                                                  --------    --------    -------
</TABLE>

     NEW ACCOUNTING PRONOUNCEMENTS

     Effective for the year ended December 31, 1998, the Company implemented 
Financial Accounting Standards Board Statement of Financial Accounting 
Standards No. 130, REPORTING COMPREHENSIVE INCOME (Statement No. 130), which 
establishes standards for reporting and displaying comprehensive income and 
its components with the same prominence as other financial statement 
information. The implementation of this standard did not have a material 
effect on the Company's consolidated financial statements.

     Effective for the year ended December 31, 1998, the Company implemented 
Financial Accounting Standards Board Statement of Financial Accounting 
Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED 
INFORMATION (Statement No. 131), which establishes standards for the way that 
public business enterprises report information about operating segments in 
annual financial statements and requires that those enterprises report 
selected information about operating segments in interim financial reports. 
It also establishes standards for related disclosures about products and 
services, geographic areas, and major customers. The Company operates in one 
business segment. Accordingly, the adoption of Statement No. 131 did not have 
a material effect on the Company's consolidated financial statements.

2. MERGER

     On August 23, 1996, Sync, SR Acquisition Corp, a wholly-owned subsidiary 
of Sync and TyLink Corporation entered into an Agreement and Plan of 
Reorganization (the Agreement). Pursuant to the Agreement all outstanding 
shares of TyLink's Series A redeemable preferred stock and common stock were 
exchanged for 2,148,168 shares of Sync common stock and Sync assumed options 
outstanding under a TyLink plan aggregating 423,155 shares of Sync common 
stock. In addition, Sync purchased all of the 


                                      38


<PAGE>

outstanding TyLink Series B mandatorily redeemable preferred stock for $4 
million cash plus a sufficient number of shares of Sync common stock that 
together have aggregate value equal to the liquidation value of the TyLink 
Series B mandatorily redeemable preferred stock.

     The Merger has been accounted for under the pooling-of-interests method 
of accounting. Accordingly, the historical financial statements for periods 
prior to the consummation of the combination have been restated as though the 
companies had been combined.

3. FURNITURE, FIXTURES AND EQUIPMENT

Furniture, fixtures and equipment are recorded at cost and consist of the 
following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         -------------------
                                                           1998       1997
                                                         --------   --------
          <S>                                            <C>        <C>
          Equipment under capital leases .............   $   275    $   275
          Furniture and fixtures .....................       848        795
          Computers, software and equipment ..........     7,462      6,326
          Leasehold improvements .....................     1,109      1,084
                                                         -------    -------
                                                           9,694      8,480
          Accumulated depreciation and amortization ..    (6,447)    (4,313)
                                                         -------    -------
                                                         $ 3,247    $ 4,167
                                                         -------    -------
                                                         -------    -------
</TABLE>

4. CONCENTRATION OF BUSINESS AND CREDIT RISK

     The Company operates in a market which is subject to rapid technological 
advancement and competition. The introduction of technologically advanced 
products by competitors could have a substantial impact on the future 
operations of the Company.

     A substantial portion of the Company's sales are concentrated with a few 
communications, networking, and telecommunications companies and large 
enterprise end-user organizations. The Company is dependent upon certain 
suppliers of key components and contract manufacturers. Sales to two 
customers represented 18.5% and 14.1% of the Company's total sales in 1998. 
Sales to one customer represented 16.5% and 19% of total sales in 1997 and 
1996, respectively

     Accounts receivable represent the Company's only significant financial 
instrument with potential credit risk. The Company makes periodic evaluations 
of the credit worthiness of its customers and generally does not require 
collateral. To date, the Company has not experienced any material write-offs 
or collection problems. At December 31, 1998, 15 major customers represented 
68.8% of total accounts receivable.

     Sales to foreign customers, primarily in Europe and the Pacific Rim, 
aggregated $1.7 million or 6.9% and $4.5 million or 19.1%, and $4.6 million 
or 12.7%, of net sales in 1998, 1997 and 1996, respectively.

5. INCOME TAXES

     A reconciliation of the provision for taxes based upon income at the 
federal statutory rate compared to the Company's effective tax rate follows 
(in thousands):


                                      39

<PAGE>
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                  ------------------------------
                                                                    1998       1997       1996
                                                                  --------   --------   --------
          <S>                                                     <C>        <C>        <C>
          Statutory federal benefit for income taxes ..........   $(5,251)   $(5,613)   $(3,206)
          Incentive stock option compensation .................        --       (142)    (3,162)
          State tax, net of federal benefit ...................         2         --          2
          Tax effect of losses without current benefit ........     5,278      5,722      5,882
          Other, net ..........................................       (27)        33        486
                                                                  -------    -------    -------
                                                                  $     2    $    --    $     2
                                                                  -------    -------    -------
                                                                  -------    -------    -------
</TABLE>

Significant components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                  ------------------------------
                                                                    1998       1997       1996
                                                                  --------   --------   --------
          <S>                                                     <C>        <C>        <C>
          Current:
              Federal ..........................................     $--        $--        $--
              State ............................................       2         --          2
                                                                     ---        ---        ---
          Total current ........................................     $ 2        $--        $ 2
                                                                     ---        ---        ---
                                                                     ---        ---        ---
</TABLE>

     The Company has approximately $50 million of federal net operating loss 
carryforwards, including acquired net operating losses of Tylink Corporation, 
at December 31, 1998, which will begin to expire in 2006. Approximately $11 
million of this loss carryforward is attributable to deductions from the 
exercise of non-statutory stock options. A valuation allowance has been 
established for the entire deferred tax asset related to these net operating 
losses. When realized, the federal and state tax benefits related to the 
reversal of this valuation allowance will be applied to reduce income tax 
expense, except for the portion of the net operating losses that relates to 
the deductions for the exercise of non-qualified stock options which will be 
directly credited to additional paid-in capital.

     Deferred income taxes reflect the net tax effects of temporary 
differences between the carrying amounts of assets and liabilities for 
financial reporting purposes and the amounts used for income tax purposes. 
Significant components of the Company's deferred taxes are as follows (in 
thousands):


                                      40

<PAGE>
<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                      ---------------------------
                                                        1998               1997
                                                      --------           --------
<S>                                                   <C>                <C>
Deferred tax assets:
   Allowance for doubtful accounts.................   $     92           $    158
   Depreciation....................................        425                 72
   Warranty reserve................................        107                101
   Accrued commission..............................         80                102
   Accrued severance and restructuring
     costs.....................................            846                149
   Net operating loss carryforwards................     19,138             14,073
   Deferred revenue................................        884                605
   Inventory reserves..............................        490                474
   Accrued vacation................................        232                189
   Other...........................................        291                 38
                                                      --------           --------
Total deferred tax assets                               22,585             15,961
Deferred tax liabilities:
   Operating leases................................        (55)               (35)
   Other...........................................        (12)                 -
                                                      --------           --------
Total deferred tax liabilities.....................        (67)               (35)
                                                      --------           --------
Total net deferred tax assets......................     22,518             15,926
Valuation allowance for deferred tax assets........    (22,518)           (15,926)
                                                      --------           --------
Net deferred tax assets............................   $      -           $      -
                                                      --------           --------
                                                      --------           --------
</TABLE>

     The Tax Reform Act of 1986 contains provisions which could substantially 
limit the availability of the net operating loss carryforwards if there is a 
greater than 50% change in ownership during a three year period. As a result 
of the initial public offering and the Merger with Tylink Corporation, the 
Company and TyLink experienced an ownership change of more than 50%, 
resulting in a limitation on the utilization of their net operating loss 
carryforwards. The limitation is based on the value of the companies on the 
date that the effective change in ownership occurred. Management cannot 
determine whether the limitation on the net operating losses will have a 
material adverse effect on the Company's ability to fully utilize its net 
operating loss carryforwards in the future. The ultimate realization of the 
loss carryforwards is dependent on the future profitability of the Company.

6. EMPLOYEE BENEFIT PLANS

     The Company sponsors a plan (the Plan) pursuant to Section 401(k) of the 
Internal Revenue Code (the Code), whereby substantially all eligible 
employees may contribute a percentage of their compensation, subject to a 
maximum allowed under the Code. The Company may contribute to the Plan, as 
determined by the Board of Directors. For the years ended December 31, 1998, 
1997 and 1996, matching contributions made and expensed by the Company 
aggregated $149,000, $164,000 and $57,000, respectively.

     The Company has various stock option plans that provide for the granting 
of incentive or non-statutory stock options to certain key employees, 
non-employee members of the Board of Directors, consultants and independent 
contractors. Options are granted at a price equal to 100% of the fair market 
value of the Company's common stock at the date of grant. Options typically 
vest at a rate of 25% of the shares on the first anniversary of the vesting 
commencement date and 1/48th of the shares at the end of each month and 
expire not later than 10 years from the date of grant. The number of shares 
reserved and available for grant under these plans aggregated 7,741,003 and 
2,191,854 shares, respectively, at December 31, 1998.


                                      41

<PAGE>

     The Company has elected to follow APB Opinion No. 25, ACCOUNTING FOR 
STOCK ISSUED TO EMPLOYEES and related Interpretations in accounting for its 
plans. Accordingly, no compensation expense has been recognized for its stock 
option awards and its stock purchase plan because the exercise price of the 
Company's stock options equals the market price of the underlying stock on 
the date of grant. FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED 
COMPENSATION, requires pro forma information regarding net income (loss) and 
net earnings (loss) per share using compensation that would have been 
incurred if the Company had accounted for its employee stock options under 
the fair value method of that Statement. The fair value of options granted 
after the initial public offering have been estimated at the date of grant 
using a Black-Scholes option pricing model using the following assumptions:

<TABLE>
<CAPTION>
                                                      1998       1997       1996
                                                    -------    -------    -------
     <S>                                            <C>        <C>        <C>
     Risk free interest rate ...................       6.0%       6.0%       6.5%
     Stock volatility factor ...................       1.14       1.30       1.00
     Weighted average expected option life .....    6 years    6 years    6 years
     Expected dividend yield ...................         0%         0%         0%
</TABLE>

     For purposes of pro forma disclosures, the estimated fair value of the 
options is amortized to expense over the options' vesting period. The 
Company's compensation expense used in determining the pro forma information 
may not be indicative of such expense in future periods as the amounts are 
only based upon the grants subsequent to 1994. Pro forma information is as 
follows (in thousands, except for per share information):

<TABLE>
<CAPTION>
                                            1998          1997          1996
                                          --------      --------      --------
     <S>                                  <C>           <C>           <C>
     Pro forma net loss .............     $(20,391)     $(21,505)     $(16,814)
     Pro forma net loss per share ...     $  (1.17)     $  (1.25)     $  (1.03)
</TABLE>

     A summary of the Company's stock option activity, and related 
information for the years ended December 31 follows:

<TABLE>
<CAPTION>
                                            1998                             1997                             1996
                               -------------------------------   -------------------------------   -------------------------------
                                              WEIGHTED-AVERAGE                 WEIGHTED-AVERAGE                 WEIGHTED-AVERAGE
                                 OPTIONS       EXERCISE PRICE      OPTIONS      EXERCISE PRICE       OPTIONS      EXERCISE PRICE
                                 -------       --------------      -------      --------------       -------      --------------
<S>                            <C>            <C>                <C>           <C>                 <C>          <C>
Outstanding--beginning of
  year .....................    4,217,251           $3.52         3,359,042         $10.68         2,663,327         $ 1.61
Granted ....................    3,179,075            1.73         4,438,484           5.47         1,918,273          17.41
Exercised ..................     (135,910)           0.40          (338,402)          0.34          (892,207)          0.77
Forfeited ..................   (3,885,074)           3.62        (3,241,873)         13.65          (330,351)          6.25
                               ----------                        ----------                        ---------
Outstanding--end of year....    3,375,342           $1.81         4,217,251         $ 3.52         3,359,042         $10.68
                               ----------           -----        ----------         ------         ---------         ------
                               ----------           -----        ----------         ------         ---------         ------
Exercisable at end of
  year .....................    1,458,358           $1.81           870,292         $ 2.23           621,904         $ 1.61
                               ----------           -----        ----------         ------         ---------         ------
                               ----------           -----        ----------         ------         ---------         ------
Weighted-average fair
  value of options granted
  during the year ..........                        $1.10                           $ 3.82                           $13.61
                                                    -----                           ------                           ------
                                                    -----                           ------                           ------
</TABLE>

     In April 1997 substantially all of the Company's outstanding options 
were canceled and repriced with new options having an exercise price of $3.94 
per share, the fair market value as of the date of the repricing. The vesting 
of the repriced options was suspended for a period of six months from the 
date of the repricing. A total of 2,056,460 shares were repriced.

     In October 1998, a majority of the Company's outstanding options were 
canceled and repriced with new options having an exercise price of $1.13 per 
share, the fair market value as of the date of the repricing. 


                                      42

<PAGE>

The exerciseability of the repriced options was suspended for a period of six 
months from the date of the repricing. A total of 2,090,575 shares were 
repriced.

     The weighted average remaining contractual life of options as of December
31, 1998 were as follows:

<TABLE>
<CAPTION>
                                                OUTSTANDING                                   EXERCISABLE
                             -------------------------------------------------     --------------------------------
                                                 WEIGHTED AVERAGE     WEIGHTED
                                 NUMBER OF           REMAINING         AVERAGE
                                  SHARES        CONTRACTUAL  LIFE     EXERCISE        SHARES       WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES        OUTSTANDING           (years)           PRICE      EXERCISABLE      EXERCISE PRICE
------------------------     --------------     -----------------     --------     -----------     ----------------
<S>                          <C>                <C>                   <C>          <C>             <C>
$0.04 to $0.20 ............       437,723             6.84              $ 0.16        408,840            $ 0.16
$0.33 to $1.00 ............        47,877             8.89                0.43         40,194              0.44
$1.13 to $4.88 ............     2,850,742             8.86                1.86        981,637              2.12
Greater than $5.00 ........        39,000             7.27               18.10         27,687             18.09
</TABLE>

     The Company has recorded deferred compensation expense of $644,000 for 
the difference between the option exercise price or restricted stock purchase 
price and the deemed fair value of the Company's common stock for options 
granted and restricted stock sold in 1995. This amount is being amortized 
over the vesting period of the individual options, generally four years. 
Deferred compensation expense recognized in 1998, 1997 and 1996 totaled 
$27,000, $79,000 and $265,000, respectively.

     In August 1995, the Company's Board of Directors approved the Company's 
1995 Employee Stock Purchase Plan (the Purchase Plan), under which 200,000 
shares of Common Stock has been reserved for issuance. Under the Purchase 
Plan, the Company's employees meeting certain eligibility requirements, may 
elect on a semiannual basis to purchase Common Stock through payroll 
deductions, which may not exceed 5% of each employee's compensation (subject 
to certain limitations). The stock price will be equal to the lower of 85% of 
the fair market value of the Company's common stock at the beginning or end 
of each semiannual offering period. During 1998 and 1997, approximately 
54,000 and 41,000 common shares, respectively, were purchased under the 
Purchase Plan.

7. COMMITMENTS AND CONTINGENCIES

     On November 5, 1997, an action entitled Dalarne Partners, Ltd. Vs. Sync 
Research, Inc., et al., No. SACV97-877 AHS(Eex) was filed against the Company 
and certain of its directors and officers. The action was filed in the U.S. 
District Court for the Central District of California, Southern Division. The 
action purported to be a class action lawsuit brought on behalf of purchasers 
of the Company's common stock during the period from November 18, 1996 
through March 20, 1997. The complaint asserted claims for violation of the 
Securities Exchange Act of 1934. On February 16, 1999, the U.S. District 
Court issued an order granting Sync's motion to dismiss the first amended 
complaint. The plaintiffs have subsequently filed a second amended complaint. 
There are no other material legal proceedings to which the Company is a party 
or to which any of its properties are subject. No material legal proceedings 
were terminated in the year ended December 31, 1998.

     The Company leases its office facilities and certain equipment under 
noncancelable operating leases expiring through 2003. The Company also has 
various leased equipment under capital leases that are included in furniture, 
fixtures and equipment in the accompanying balance sheets. The accumulated 
depreciation and amortization of these leased assets was $192,000 and 
$121,000 at December 31, 1998 and 1997, respectively. Depreciation and 
amortization of leased equipment under capital leases are included in 
depreciation expense.

                                      43

<PAGE>

     Future minimum annual rentals under lease arrangements at December 31, 1998
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                CAPITAL       OPERATING
                                                                LEASES           LEASES
                                                                -------       ---------
     <S>                                                        <C>           <C>
     1999 ...............................................         $ 62          $  487
     2000 ...............................................           55             432
     2001 ...............................................           10             432
     2002 ...............................................           --             432
     2003 ...............................................           --             396
                                                                  ----          ------
       Total minimum future lease payments ..............         $127          $2,179
                                                                  ----          ------
                                                                  ----          ------

     Amounts representing interest (9% to 15%) ..........          (15)
                                                                  ---- 
     Present value of net minimum lease payments ........          112
     Less current portion of capital lease obligations...          (52)
                                                                  ---- 
     Long-term portion of capital lease obligations .....         $ 60
                                                                  ---- 
                                                                  ---- 
</TABLE>

     Rent expense for 1998, 1997 and 1996 was $634,000, $744,000 and 
$659,000, respectively.

     In connection with certain agreements with several of its customers, the 
Company has indemnified these customers against losses arising from specific 
events, including product/service performance failures and third-party 
intellectual property rights. Management believes that any costs incurred 
under these indemnification arrangements will not have a material adverse 
impact on the Company's financial position or results of operations.

8. MANDATORILY REDEEMABLE SERIES B PREFERRED STOCK

     On January 23, 1995, TyLink issued 2,540,820 shares of Mandatorily 
Redeemable Series B Preferred Stock for proceeds of $1.49135 per share. In 
connection with the financing, TyLink also issued 400,366 shares of common 
stock for proceeds of $2.40 per share. In connection with the Merger, the 
Company purchased all of the outstanding mandatorily redeemable preferred 
stock for $4 million cash and 208,677 shares of common stock.

9. CREDIT AGREEMENT

     In March 1999, the Company received a commitment for a new $3,000,000 
credit agreement with a bank.  Outstanding borrowings under this credit 
agreement will be secured by substantially all of the Company's assets and 
are subject to an interest rate equal to the Bank's prime rate plus one half 
percent on amounts outstanding. The agreement is expected to expire in April 
2000. There were no borrowings outstanding as of December 31, 1998.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     Not applicable.


                                      44

<PAGE>

                                   PART III

     Certain information required by Part III is omitted from this report 
because the Company will file a definitive proxy statement within 120 days 
after the end of its fiscal year pursuant to Regulation 14A (the "Proxy 
Statement") for its Annual Meeting of Stockholders to be held June 11, 1999, 
and the information included therein is incorporated herein by reference to 
the extent detailed below.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information as to the Company's executive officers is set forth in "Item 
1-Business-Executive Officers of the Company" in this Annual Report on Form 
10-K. Information as to the Company's directors is incorporated by reference 
from the information under the caption "Election of Directors-Nominees" in 
the Company's Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION

     Incorporated by reference from the information under the caption 
"Executive Compensation and Related Information" in the Company's Proxy 
Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated by reference from the information under the caption "Common 
Stock Ownership of Certain Beneficial Owners and Management" in the Company's 
Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated by reference from the information under the caption 
"Certain Relationships and Related Transactions" in the Company's Proxy 
Statement.


                                      45

<PAGE>

                                   PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
                                                                                              PAGE IN
                                                                                              ANNUAL REPORT
                                                                                              ON FORM 10-K
                                                                                              -------------
<S>                                                                                           <C>
(a)  The following documents are filed as part of this Annual
      Report on Form 10-K:
      (1)  Report of Ernst & Young LLP, Independent Auditors ...............................       30
           Consolidated Balance Sheets at December 31, 1998 and 1997 .......................       31
           Consolidated Statements of Operations for the Years Ended December 31, 1998, 
           1997 and 1996 ...................................................................       32
           Consolidated Statements of Mandatorily Redeemable Preferred Stock 
           and Common Stockholders' Equity ................................................        33
           Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 
           1997 and 1996 ...................................................................       34
           Notes to Consolidated Financial Statements ......................................       35
      (2)  Financial Statement Schedule
           Schedule II-Valuation and Qualifying Accounts for the Years Ended December 31, 
           1998, 1997 and 1996 .............................................................       50
           Schedules not listed above have been omitted because the information required to 
           be set forth therein is not applicable or is shown in the financial statements 
           or notes thereto.
      (3)  Exhibits (numbered in accordance with Item 601 of Regulation S-K)
</TABLE>

<TABLE>
<CAPTION>
EXHIBIT        DESCRIPTION
NUMBER
-------        -----------
<C>            <S>
2.1(3)         Agreement and Plan of Reorganization dated June 27, 1996 between the Company and TyLink Corporation.
3.1(2)         Amended and Restated Certificate of Incorporation of Registrant.
3.3(9)         Bylaws of Registrant.
9.1(1)         Amended and Restated Shareholders' Agreement dated April 25, 1994.
10.1(1)        Form of Indemnification Agreement.
10.2(9)        Amended and Restated 1991 Stock Plan (amended as of June 12, 1998) and form of Option Agreement.
10.3(4)        Amended 1995 Employee Stock Purchase Plan (amended as of September 27, 1996) and form of Subscription Agreement.
10.4(9)        Amended and Restated 1995 Directors' Option Plan (amended as of June 12, 1998) and form of Option Agreement.
10.5(1)        Amended and Restated Investors' Rights Agreement among the Registrant and certain security holders of the 
               Company, dated as of April 25, 1994.
10.6(1)        Consulting Agreement between the Company and Gregorio Reyes dated January 1995.
10.7(1)        Series C Preferred Stock Purchase Agreement dated April 25, 1994.
10.8(1)        401(k) Plan.
10.12(1)(6)    OEM Purchase Development and Marketing Agreement between 3Com Corporation and the Company dated April 25, 1994.
10.15(1)       Loan and Security Agreement between the Compnay and Silicon Valley Bank dated September 18, 1991, and amendments 
               dated October 20, 1992 and August 31, 1995 thereto.
10.15a(1)      Amendment to Loan and Security Agreement between the Company and Silicon Valley Bank dated October 5, 1995.
10.15b(7)      Amendments to Loan and Security Agreement between the Company and Silicon Valley Bank dated June 10, 1997, 
               October 6, 1996 and July 3, 1996.
</TABLE>


                                      46

<PAGE>
<TABLE>
<C>            <S>
10.15c(11)     Amendment to Loan and Security Agreement between the Company and Silicon Valley Bank dated December 3, 1997.
10.17(1)       Letter Agreement dated July 9, 1995 between the Company and Ronald J. Scioscia.
10.18(2)       Letter Agreement dated March 5, 1996 between Roger Dorf and the Company.
10.19(3)       Real estate lease dated May 30, 1996 between the Company and The Northwestern Mutual Life Insurance Company.
10.20(5)       Assumed TyLink Corporation 1994 Equity Incentive Plan.
10.22(4)       Employment Agreement between the Company and Richard Swee, dated August 23, 1996.
10.23(4)       Form of Noncompetition Agreement between the Company and Richard Swee, dated August 23, 1996.
10.24(4)       Form of Severance Agreement between the Company and each of John Rademaker and Roger Dorf, dated September 30, 1996.
10.25(4)       Form of Severance Agreement between the Company and other Company executive officers.
10.26(4)       Real Estate Lease between TyLink and Thomas J. Flatley d/b/a The Flatley Company, dated May 14, 1991.
10.27(10)      Amended and Restated 1996 Non-Executive Stock Option Plan (amended as of August 21, 1998)
10.28(8)       Letter Agreement dated June 6, 1997 between William K. Guerry and the Company.
10.29(11)      Letter Agreement dated August 14, 1997 between Salvatore Alini and the Company.
10.30(11)      Form of Severance Agreement between the Company and Gregorio Reyes, dated October 24, 1997.
10.31(11)      Form of Settlement Agreement and Mutual Release dated October 27, 1997 between Roger A. Dorf and the Company.
10.32(11)      Form of Settlement Agreement and Mutual Release dated October 27, 1997 between Dominic J. Genovese and the Company.
10.33(11)      Form of Settlement Agreement and Mutual Release dated November 16, 1997 between Otto Berlin and the Company.
10.34(10)      Settlement Agreement and Mutual Release with John Rademaker dated September 28, 1998
10.35          Settlement Agreement and Mutual Release with Salvatore Alini dated September 30, 1998
10.36          Settlement Agreement and Mutual Release with Karen Ratta dated December 28, 1998.
10.37          Management Agreement between the Company and Richard W. Martin, dated November 6, 1998.
21             Subsidiaries of the Company.
23.1           Consent of Ernst & Young LLP, Independent Auditors.
24.1           Power of Attorney.
27.1           Financial Data Schedule
</TABLE>

-------------------
(1)  Incorporated by reference from exhibits filed in response to Item 16(a),
     "Exhibits," of the Company's Registration Statement on Form S-1, as amended
     (File No. 33-06910), which became effective on November 9, 1995.

(2)  Incorporated by reference from exhibits filed in response to Item 14,
     "Exhibits," of the Company's Annual Report on Form 10-K for the fiscal year
     ended December 31, 1995.

(3)  Incorporated by reference from exhibits filed in response to Item 6,
     "Exhibits," of the Company's Quarterly Report on Form 10-Q for the fiscal
     quarter ended June 30, 1996, filed August 12, 1996.

(4)  Incorporated by reference from exhibits filed in response to Item 6,
     "Exhibits," of the Company's Quarterly Report on Form 10-Q for the fiscal
     quarter ended September 30, 1996, filed November 14, 1996.

(5)  Incorporated by reference from Company's Registration Statement on Form S-8
     (No. 333-12315), filed on September 19, 1996.

(6)  Confidential treatment has been granted with respect to certain portions of
     this Exhibit by the Securities and Exchange Commission by order dated
     November 9, 1995.


                                      47

<PAGE>

(7)  Incorporated by reference from exhibits filed in response to Item 6,
     "Exhibits," of the Company's Quarterly Report on Form 10-Q for the fiscal
     quarter ended June 30, 1997, filed August 14, 1997.

(8)  Incorporated by reference from exhibits filed in response to Item 6,
     "Exhibits," of the Company's Quarterly Report on Form 10-Q for the fiscal
     quarter ended September 30, 1997, filed November 14, 1997.

(9)  Incorporated by reference from exhibits filed in response to Item 6,
     "Exhibits," of the Company's Quarterly Report on Form 10-Q for the fiscal
     quarter ended June 30, 1998, filed August 14, 1998.

(10) Incorporated by reference from exhibits filed in response to Item 6,
     "Exhibits," of the Company's Quarterly Report on Form 10-Q for the fiscal
     quarter ended September 30, 1998, filed November 16, 1998.

(11) Incorporated by reference from exhibits filed in response to Item 14,
     "Exhibits," of the Company's Annual Report on Form 10-K for the fiscal year
     ended December 31, 1998.


(b)  Reports on Form 8-K

     None.


                                      48

<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.

                                    SYNC RESEARCH, INC.

                                     By:       /s/ William K. Guerry
                                            ----------------------------
                                                 William K. Guerry
                                           VICE PRESIDENT OF FINANCE AND
                                         ADMINISTRATION, SECRETARY AND CHIEF
                                                 FINANCIAL OFFICER

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature 
appears below constitutes and appoints Richard W. Martin and William K. 
Guerry, jointly and severally, his attorneys-in-fact, each with the power of 
substitution, for him in any and all capacities, to sign any amendments to 
this Report on Form 10-K, and to file the same, with exhibits thereto and 
other documents in connection therewith with the Securities and Exchange 
Commission, hereby ratifying and confirming all that each of said 
attorneys-in-fact, or his substitute or substitutes may do or cause to be 
done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, 
this Registration Statement has been signed by the following persons on 
behalf of the registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
         SIGNATURE                              TITLE                               DATE
         ---------                              -----                               ----
<S>                            <C>                                             <C>
   /s/  Richard W. Martin      President and Chief Executive Officer           March 26, 1999
   --------------------------  
      Richard W. Martin

   /s/  William K. Guerry      Vice President of Finance and Administration,   March 26, 1999
   --------------------------  Secretary and Chief Financial Officer
      William K. Guerry        

   /s/  Gregorio Reyes         Chairman of the Board                           March 26, 1999
   --------------------------  
      Gregorio Reyes

   /s/  Charles A. Haggerty    Director                                        March 26, 1999
   --------------------------  
      Charles A. Haggerty

   /s/  William J. Schroeder   Director                                        March 26, 1999
   --------------------------  
      William J. Schroeder
</TABLE>


                                      49

<PAGE>

                             SYNC RESEARCH, INC.
                SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
                 YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                  BALANCE AT                        DEDUCTIONS/
                                 BEGINNING OF                       RECOVERIES                             BALANCE AT
DESCRIPTION                         PERIOD       ADDITIONS        AND WRITE-OFFS      ADJUSTMENTS(1)      END OF PERIOD
-----------                      ------------    -----------      --------------      -----------         -------------
<S>                              <C>             <C>              <C>                 <C>                 <C>
1998
  Allowance for doubtful
    accounts receivable .....      $393,118       $  297,927      $  (477,182)           $     --           $213,863
  Inventory reserves ........       603,252          446,504         (506,470)                 --            543,286

1997
  Allowance for doubtful
    accounts receivable .....      $348,276       $  223,109      $  (178,267)           $     --           $393,118
  Inventory reserves ........       658,463          449,207         (504,418)                 --            603,252

1996
  Allowance for doubtful
    accounts receivable .....      $243,128       $  354,870      $  (314,722)           $ 65,000           $348,276
  Inventory reserves ........       833,204        1,029,392       (1,190,929)            (13,204)           658,463
</TABLE>

-------------------
(1)  Amounts represent the reversal of the net activity of the valuation and
     qualifying accounts for the three months ended March 29, 1996 of TyLink
     Corporation that have been included in both 1996 and 1995.


                                      50

<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER    DESCRIPTION
  -------   -----------
  <C>       <S>
   10.35    Settlement Agreement and Mutual Release with Salvatore Alini dated September 30, 1998.

   10.36    Settlement Agreement and Mutual Release with Karen Ratta dated December 28, 1998.

   10.37    Management Agreement between the Company and Richard W. Martin, dated November 6, 1998.

   21       Subsidiaries of the Company

   23.1     Consent of Ernst & Young, LLP, Independent Auditors

   24.1     Power of Attorney (see page 49)

   27.1     Financial Data Schedule
</TABLE>


                                      51

<PAGE>

                                                                  1476-10K-1998







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