<PAGE>
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

<TABLE>
<S>        <C>
/X/        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
           1934
                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, OR

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

        FOR THE TRANSITION PERIOD FROM            TO                  .

                         COMMISSION FILE NUMBER:
                            ------------------------

                              SYNC RESEARCH, INC.

             (Exact name of Registrant as specified in its charter)

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

                                   40 PARKER
                                IRVINE, CA 92618

                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (714) 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 14, 1997 was approximately $104,813,759 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 17,027,168 shares of Registrant's Common Stock issued and
outstanding as of March 14, 1997.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Part III incorporates information by reference from the definitive Proxy
Statement for the Registrant's 1997 Annual Meeting of Stockholders scheduled to
be held on June 13, 1997 (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," and "--Recent Results," 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 switched virtual network services such as
frame relay. Central to this mission is Sync's line of frame relay access device
("FRAD") products which enable the migration of embedded International Business
Machines Corporation ("IBM") Systems Network Architecture ("SNA") leased line
networks to frame relay, as well as the convergence of SNA and client/server
applications across frame relay networks. The Company's circuit management
products enhance network availability through proactive monitoring of service
levels in switched virtual network infrastructures such as frame relay.

    Industry analysts have estimated that there are approximately 50,000 IBM SNA
networks worldwide. Today, most of these 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 has
emerged as a less expensive, more efficient, direct substitute for such
traditional leased line connections. The market for frame relay services and
equipment has been projected by industry analysts to exceed $5 billion in 1998.
It is estimated that more than half of all data traffic on frame relay networks
by the year 2000 will be attributable to SNA network customers migrating to
frame relay. 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. The Company believes it is a leading provider of frame
relay access and circuit management solutions, and the Company's FRAD products
have been selected by a number of carriers for inclusion in their managed
network service offerings for IBM customers.

    In August 1996, Sync acquired TyLink Corporation ("TyLink"), based in
Norton, Massachusetts. With the addition of TyLink, Sync has enhanced its
product portfolio with an extensive line of digital transmission and circuit
management products for customer premise and service provider applications.
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
next-generation digital and switched services. Sync's new circuit management
products represent an emerging category of management probes and application
software, which enable proactive performance and service level management of
frame relay and other switched virtual network services. The acquisition of
TyLink was accomplished through a merger of a wholly-owned subsidiary of the
Company with and into TyLink. 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.

                                       2
<PAGE>
    Sync expanded the breadth and capability of its FrameNode-TM- family of
award winning FRADs in 1996. The new FrameNode 3600 mid-range platform is the
first Sync platform to integrate DSU/CSU, ISDN and circuit management technology
from TyLink, and is designed and priced for small to medium-sized branches. Sync
also made significant advancements in 1996 in its support for client/server
internetworking. The FrameNode's IP and IPX routing implementations have been
specifically optimized for frame relay WANs, utilizing the inherent routing
capabilities of switched virtual networks.

    The Company believes that Sync is well-positioned to become a leader in
frame relay access and circuit management solutions, both for customers moving
business-critical applications to frame relay switched services and for service
providers targeting the movement of such customers from leased lines.

    Sync continues to follow a leveraged sales strategy, utilizing IBM and a
number of Regional Bell Operating Companies ("RBOCs") and Interexchange Carriers
("IXCs") as delivery channels for its products. Current RBOC and IXC
"partnerships" include Ameritech ("Ameritech"), Pacific Bell Network Integration
("PacBell"), Sprint Communications Company ("Sprint") and MCI Communications
Corporation ("MCI"). IBM is expected to serve as a substantial global channel to
Fortune 500 customers, many of which are moving their private SNA leased line
networks to frame relay. The Company believes that carrier partnerships,
especially those deploying managed service offerings, are well-suited to serve
the needs of middle market customers.

    The Company expects the international frame relay market to grow
substantially in 1997. In response to this opportunity, Sync has established
international sales and operations offices in Europe (Frankfurt, Germany and
Manchester, U.K.) and the Pacific Rim (Hong Kong), with sales affiliate offices
in 18 countries. IBM is expected to play an important role in the international
market for frame relay due to its international customer base. Sync has also
entered into a relationship with Northern Telecom ("NorTel"), and is expecting
to benefit from Nortel's base of installed private packet networks.

    The TyLink acquisition brought to Sync a value-added reseller ("VAR")
channel, which includes a catalog reseller, BlackBox Corporation ("BlackBox").
The Company plans to develop this channel in 1997 to support the broader line of
Sync products, including FRADs and circuit management products.

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 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"). As a result of their ease
of support, scalability and security, client/server networks are being
implemented by corporations in

                                       3
<PAGE>
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.

AVAILABILITY OF ENHANCED CARRIER SERVICES

    As a result of the growth of computing networks, there has been a worldwide
growth in demand for data bandwidth. At the same time, worldwide
telecommunications reform has encouraged traditional carriers to launch
innovative data services to develop new sources of revenue and differentiate
themselves from the competition. Frame relay, an efficient, low-latency,
frame-switched WAN protocol, is enjoying rapid growth as a carrier-offered
service as a result of its speed and economy, its deployment flexibility, and
its ability to combine incompatible "protocols," such as mainframe SNA and
client/server TCP/IP, onto a single telephone circuit. Frame relay represents an
emerging class of cost-effective, intelligent, switched, virtual network
technologies, and provides a smooth migration to asynchronous transfer mode
("ATM") and other broadband switching services.

    Frame relay allows dual SNA and client/server leased line networks to be
consolidated onto a single circuit, thereby reducing connectivity costs and
network operational complexity. However, many organizations in the past have
been reluctant to migrate their business-critical SNA applications from existing
leased lines to frame relay due to concerns about stability, performance and
manageability. In addition, previously available frame relay access products
have typically overlaid LAN architectures, such as TCP/IP, onto frame relay,
resulting in increased complexity and unacceptable network delays, which
increase costs in SNA environments. As a result, the large installed base of
SNA-centric customers is increasingly demanding products that cost-effectively
provide the benefits of frame relay and other new carrier services, without
jeopardizing mission-critical, transaction-oriented applications.

THE SYNC SOLUTION

    Sync is a leading provider of WAN access, internetworking and management
products, which enable business-critical SNA and client/server applications to
migrate to frame relay and other switched virtual networks. 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 established relationships with key network equipment
and service providers, each of which is committed to expanding its presence in
the SNA customer base.

PRODUCTS

    Sync markets WAN access, internetworking and management solutions, which are
designed for the rapidly growing global frame relay market. Sync's FrameNode
family of FRADs is an established frame relay branch internetworking platform. A
growing number of large IBM-centric customers, such as First Union Corporation
and Bank of America Corporation, have selected Sync and its market partners as
their frame relay access solution provider. The FrameNode has also been chosen
by service providers deploying SNA managed service offerings. Sync's TyLink
family of digital transmission products has been selected 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. In the emerging circuit management market, Sync believes it has the
largest single network installation to date, with 1,600 of its Frame Relay
Access Probes ("FRAP") installed at a large banking customer.

                                       4
<PAGE>
    The following is a summary of Sync's product portfolio:

    BRANCH INTERNETWORKING SOLUTIONS

    The FrameNode family of FRADs reduces duplication in networks and recurring
telecommunications costs by converging SNA, legacy and client/server branch
applications across a frame relay WAN using a single access trunk. Sync
FrameNodes successfully combine deterministic SNA transactions with bursty and
bandwidth-demanding client/server transmissions through a traffic prioritization
and bandwidth allocation capability. Sync's FrameNode 4200 recently won an award
for its measured performance in these areas. In independent testing, the
FrameNode has outperformed frame relay-equipped routers and FRADs from the
industry's leading networking companies in handling mixed SNA and client/server
(TCP/IP) branch traffic. The mid-range FrameNode 3600 Series was commercially
introduced in January 1997, joining the high-end 4200 Series platform and
broadening Sync's FRAD product line. The FrameNode 3600 Series is the first Sync
platform to integrate DSU/CSU, ISDN and circuit management technology from
Sync's new TyLink subsidiary, and is expected to help improve the Company's
competitive position.

    CIRCUIT MANAGEMENT SOLUTIONS

    Sync offers a series of standards-based multiservice digital access "probes"
and associated graphical management applications, which provide
vendor-independent WAN circuit management, network performance monitoring and
restoral/augmentation solutions for frame relay networks. The recently-announced
TyLink Frame Relay Access Probe-TM- and its associated TyView Plus-TM- and
TyView Performance Monitor-TM- management applications are Sync's first such
products.

    DIGITAL TRANSMISSION SOLUTIONS

    Sync's TyLink-TM- brand of high-performance 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; multi-port,
voice and video on a single T1 trunk; ISDN Primary Rate Interface and Basic Rate
Interface termination equipment; and a high-performance High-speed Digital
Subscriber Line ("HDSL") product supporting broadband xDSL connectivity over
standard, twisted pair carrier infrastructure. The TyLink 7400 Series WAN
Champion is a high-capacity chassis system which can support up to 32 T1
interfaces. Its port density and price are targeted at major corporations and
internet service providers for large-scale T1 termination applications.

    SNA-TO-LAN CONVERSIONNODE

    Sync was a pioneer in serial-to-LAN conversion technology and introduced its
first SDLC-to-LLC2 converter in 1991. Today, Sync provides a broad range of
serial-to-LAN conversion products under the ConversionNode-TM- product name,
with successful installations on networks incorporating routers from all major
router companies. The ConversionNode 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. Sync markets the ConversionNode
primarily through the Company's strategic partnership with 3Com Corporation
("3Com"), which markets the product under the 3Com LinkBuilder-TM- name.

    PRODUCT STRATEGY

    Through the acquisition of TyLink, Sync plans to combine technology from
each of the two companies to produce a new series of products with extensive
integrated capabilities. In addition, Sync is working with a number of
technology partners to develop a broader set of capabilities for branch
internetworking, including voice and ATM.

                                       5
<PAGE>
CUSTOMERS AND MARKETS

    The blending of digital transmission, circuit management and frame relay
access products into robust, comprehensive, managed WAN solutions enables Sync
customers to migrate their leased line networks to next-generation switched
virtual networks such as frame relay. Moreover, Sync's WAN access and management
solutions are used by a growing list of carriers and internet service providers
as elements of their service infrastructure.

    IBM ENTERPRISE CUSTOMER

    Industry analysts have estimated that there are approximately 50,000 IBM SNA
networks worldwide. Sync provides many of the elements necessary for migrating
these mission-critical SNA networks to frame relay and integrating remote
client/server applications, including DSU/CSU, ISDN dial backup, multiprotocol
FRAD, and SNMP-based circuit and systems management. Customer cost-of-ownership
advantages include improved network reliability and determinism, improved
efficiencies in circuit and bandwidth utilization, and reduced capital,
telecommunications and operating costs.

    CARRIER AND MANAGED SERVICE PROVIDERS

    The FrameNode is designed to be a leading remote customer premise solution
for carrier managed service offerings. It includes complete end-to-end frame
relay network management, including control, alerting, diagnosis, performance
monitoring and capacity planning capabilities. These functions are useful in
managing SNA customers networks and are not necessarily available from carriers'
switching and circuit infrastructures. 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.

    The ability to provide innovative circuit management technology was a key
motivator behind the TyLink acquisition. While IBM-based enterprises view frame
relay as a potential vehicle for cost-effectively 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 new circuit management technology is to
enable customers with business-critical SNA and client/ server applications to
migrate to frame relay and other switched virtual network services without
compromising on network performance and availability requirements.

                                       6
<PAGE>
    CURRENT CUSTOMER BASE

    The Company's products are used in a wide variety of industries worldwide.
With the TyLink acquisition, Sync's customer base has expanded to include a
broad mix of major end users, carriers and data 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 South Corporation                                    Allied Signal, Inc.
Bear, Stearns & Company, Inc.                             The Broken Hill Proprietary Company Ltd.
Chemical Banking Corporation                              Caterpillar
First Bank Systems, Inc.                                  Occidental Petroleum Corporation
Harris Trust and Savings Bank                             Rockwell International Corporation
Mellon Bank Corporation                                   Safety-Kleen Corporation
U.S. Bancorp                                              Sony Corporation
Wachiovia Corporation                                     National Steel
Wells Fargo & Company                                     USX Corporation
First Union Corporation
Bank of America Corporation
</TABLE>

<TABLE>
<CAPTION>
GOVERNMENT                                                INSURANCE AND HEALTH CARE
--------------------------------------------------------  --------------------------------------------------------
<S>                                                       <C>
Federal Bureau of Investigation                           Kaiser Foundation Health Plan Inc.
Federal Reserve Bank                                      The St. Paul Companies, Inc.
Georgia Power Company                                     The Travelers Corporation
State of California                                       Ullico Inc.
U.S. Navy                                                 UNUM Corporation
State of Minnesota                                        Manor Care, Inc.
</TABLE>

<TABLE>
<CAPTION>
RETAIL                                                    OTHER
--------------------------------------------------------  --------------------------------------------------------
<S>                                                       <C>
Acme Boots                                                Electronics Data Systems Corp.
Pier 1, Inc.                                              United Van Lines Ltd.
SportMart, Inc.                                           Computer Sciences Corporation
Dayton-Hudson Corporation                                 DaCom
Long's Drugstores                                         Korea Telecom
Hills Department Stores
Visa-Pacific Rim
</TABLE>

SALES AND PARTNER CHANNELS

    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 established 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 expand their presence in the SNA customer base. Sync has
implemented a variety of programs to assist its channel partners in enhancing
their ability to participate in this market. 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's channel partners use Sync's products and expertise in
SNA-

                                       7
<PAGE>
based networks to provide SNA-centric networking solutions to their end user
customers. The Company currently maintains OEM, marketing and sales arrangements
with networking companies such as IBM and 3Com, as well as carriers such as
Sprint, MCI, Ameritech, PacBell and CompuServe. The Company intends to leverage
its expertise in SNA-based networks to develop additional channel partnerships
and other marketing relationships, while maintaining direct sales, marketing and
systems engineering activities in order to respond directly to end user needs
and support the sales efforts of the Company's channel partners.

    IBM:  IBM is the leading supplier of mainframe systems and the developer of
the SNA network architecture. In 1994, IBM announced support for frame relay,
and IBM's current SNA and WAN products incorporate a frame relay interface and a
wide array of frame relay switching and termination functions. In August 1995,
the Company entered into a cooperative marketing agreement with IBM. In March
1996, Sync and IBM announced a new private label resale relationship in which
IBM is offering Sync's FrameNode product family under the name IBM Nways 2218.
In January 1997, the Company announced that IBM was awarded a transaction to
provide Sync-manufactured frame relay access devices for Bank of America's
Versateller network upgrade project. Over 3,000 IBM Nways 2218 units are
expected to be installed in Versateller locations throughout California in
conjunction with this project.

    3Com Corporation:  3Com offers a broad range of global data networking
solutions, which include 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 ConversionNode technology
and agreed to sell these products to 3Com on an exclusive basis. Sales to 3Com
accounted for 19.2% and 17.9% of the Company's net revenues in 1996 and 1995,
respectively. The Company believes that revenue derived from sales to 3Com will
likely decline as competitive products impact the conversion product business.

    Carriers/Service Providers:  Sync has reseller arrangements with MCI
Strategic Alliance, Nynex, CompuServe, and NorTel, and is part of the SNA
managed service for MCI, Sprint, Ameritech and PacBell. In a "managed service"
program, the carrier combines Sync's networking products with its own wide-area
network service offering in a package to its customer. 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 acquired
through the TyLink merger.

    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.

    During 1996, sales to Network Equipment Technology, Inc. ("NET") and
Racal-Datacom, Inc. ("Racal") accounted for 6.6% and 4.4% of the Company's net
revenues, respectively. During 1996, both NET and Racal developed product and
product strategies, which place them in competition with the Company. Moreover,
the product lines acquired in the TyLink merger compete with certain Racal
products. Thus, Sync expects product revenues from these channels to decline
over the next year, with continuing service revenue being generated from
installed customers.

                                       8
<PAGE>
    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
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 provide support to channel partners, (ii) to
assist end user customers in addressing complex network problems and (iii) to
differentiate the features and capabilities of the Company's products from
competitive offerings. In addition, the Company believes that its investment in
direct sales helps to enable the Company to monitor changing customer
requirements. Also, such direct customer contact often generates additional
sales revenues. As of December 31, 1996, the Company had 40 field sales and
support personnel currently operating out of locations in 17 states.

    INTERNATIONAL SALES

    The Company currently expects the frame relay equipment market outside of
the United States to grow significantly in the next several years, with Europe,
Asia Pacific and Canada representing the largest market opportunities. Sync
believes its strategy for international expansion will allow the Company to
participate in these emerging growth markets. In addition, the growth in the
international frame relay market requires Sync to develop a worldwide presence
in order to support Sync's global carrier, OEM and resale partners.

    The Company has designed its products and established its marketing and
sales channels to address the global market opportunities for digital
transmission and frame relay access and circuit management products.
Historically, the Company's international sales have been conducted primarily
through independent country-specific distributors. These distributors generally
are responsible for importation, system installation, technical support and
follow-on services to customers in their respective territories. 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 whom have a well-established international presence
and reputation.

    The Company expanded its international sales presence in 1996. It
established a European, Middle East and Africa office, headquartered in
Frankfurt, Germany. In addition to expansion in Europe, Sync also opened Sync
Research, Asia-Pacific, headquartered in Hong Kong. The Company has contracted
with Pacific Advantage Ltd. ("Pacific Advantage") to manage the operations and
assist in market development and support for its global and local sales
partners, which include IBM and regional distributors and resellers in the
Asia-Pacific region. Sync's relationship with Pacific Advantage leverages that
company's field sales and marketing organization in Hong Kong, Thailand, China
and India.

    Sales to customers outside of the United States accounted for approximately
$4.6 million, $3.7 million and $1.5 million, or 12.7%, 10.7% and 6.3% of the
Company's net revenues in 1996, 1995 and 1994, 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. 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."

                                       9
<PAGE>
CUSTOMER SERVICE

    The Company installs, maintains and supports products sold directly in the
United States with the Company's service and support personnel. 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,
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 sales personnel by providing telephone support and remote
access to customer installations through the Company's technical assistance
centers in Irvine, California and Boston, 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 maintenance services. Sync provides its
direct end user customers with a twelve to sixty month warranty, which commences
on product shipment. Warranty terms for channel partners and other resellers are
negotiated on a case-by-case basis.

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. Sync intends to make substantial investments in product and
technology development. The Company monitors changing customer needs and works
closely with its switching, backbone and carrier 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 is focusing its development efforts on expanding the
functionality of each of its product lines: frame relay access, digital
transmission and circuit management, to support emerging carrier services and
additional industry standards. Efforts to integrate digital transmission and
circuit management technology from the TyLink subsidiary into the Company's
frame relay access products are continuing. The Company also plans to develop
higher capacity platforms and to expand the Company's network management
capabilities. The Company has a variety of new products being tested and
developed. 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. Moreover, 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Risk Factors--Rapid Technological Change and New
Products," "--Product Errors" and "Business--Products."

    The Company's research and development expenditures totalled $7.6 million,
$5.6 million and $4.5 million in 1996, 1995 and 1994, respectively. At December
31, 1996, 74 full-time employees were engaged in research and product
development. On March 20, 1997, the Company announced that it expects to
implement significant expense reductions with the goal of enabling the Company
to achieve profitability at lower revenues. These expense reductions are
expected to include a reduction in force, including a reduction in the number of
employees engaged in research development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Recent Results" and
"--Risk Factors--Dependence on Key Personnel."

                                       10
<PAGE>
MANUFACTURING

    Sync's operational strategy increasingly emphasizes 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, test and quality
assurance. The Company subcontracts most component kitting and printed circuit
board assembly to companies that specialize in those services. The Company
entered into an arrangement with a contract manufacturer in 1995 to outsource
substantial portions of its procurement, assembly and system integration
operations. The Company has recently contracted with a second supplier to
diversify purchasing commitments while maintaining the outsource strategy.

    Sync's manufacturing operations consist primarily of materials planning and
procurement, light assembly, system integration, test and quality assurance. The
Company designs all of the hardware subassemblies for its products. Outside
subcontractors are used for part of this process. 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. In addition, the Company intends to
implement processes at contract manufacturers that emphasize the use of
automated testing equipment and burn-in procedures, as well as comprehensive
inspection and statistical process control testing.

    The Company uses a rolling six-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.

    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

                                       11
<PAGE>
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 increased manufacturing capacity in 1996 through expansion of
its relationships with contract manufacturers and internal manufacturing
resources. 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."

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 Bay Networks, Inc. ("Bay Networks"); FRAD providers such as
Hypercom Network Systems ("Hypercom"), Motorola Information Systems Group
("Motorola ISG"), and Netlink, Inc. ("Netlink"), which was recently acquired by
Cabletron Systems, Inc. ("Cabletron"), and circuit management providers such as
Visual Networks, Inc. ("Visual Networks") and Frontier Software Systems, Inc.
("Frontier Software"). Competitors for the TyLink group of digital transmission
products include Digital Link Corporation ("Digital Link"), Racal, AT&T 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. There can be no assurance
that the Company will be able to compete successfully in the future. 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, product performance,
features, functionality and reliability, price, 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.

                                       12
<PAGE>
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 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, 1996, the Company employed 213 persons, including 74 in
engineering, 72 in sales and marketing (including 13 systems and support
engineers), 43 in operations and 24 in finance and administration. On March 20,
1997, the Company announced that it expects to implement significant expense
reductions with the goal of enabling the Company to achieve profitability at
lower revenues. These expense reductions are expected to include a reduction in
force. 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--Recent Results" 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 14, 1997:

<TABLE>
<CAPTION>
NAME                               AGE                              POSITION
-----------------------------      ---      ---------------------------------------------------------
<S>                            <C>          <C>
John H. Rademaker............          49   Chief Executive Officer and Director

Otto Berlin..................          55   Vice President of International Sales

Roger A. Dorf................          54   President, Chief Operating Officer and Director

Dominic Genovese.............          54   Vice President of Sales

Todd J. Krautkremer..........          36   Vice President of Marketing

Karen Ratta..................          44   Vice President of Manufacturing

Nicholas Redding.............          41   Vice President of Engineering

Ronald J. Scioscia...........          49   Vice President of Finance and Administration,
                                              Secretary and Chief Financial Officer
</TABLE>

                                       13
<PAGE>
    MR. RADEMAKER, a founder of the Company, has served as the Company's Chief
Executive Officer and as a director since the Company's inception in 1981, and
as President from inception to March 1996. Mr. Rademaker received his B.S. in
Sociology from the University of California, Berkeley.

    MR. BERLIN joined the Company in May 1996 and was elected Vice President of
International Sales in August 1996. Before joining the Company, Mr. Berlin was
the Vice President of International Operations for AT&T Paradyne, a networking
systems company, from 1985 to May 1996. Mr. Berlin received his B.S. in
Accounting from Indiana State University.

    MR. DORF joined the Company as President and Chief Operating Officer on
March 11, 1996. Prior to joining the Company, he was President of AT&T Network
Systems Group (Caribbean and Latin America), a networking systems company, and
was also Executive Vice President and Chief Operating Officer at AT&T Paradyne.
From 1965 to 1986 Mr. Dorf held a variety of positions with IBM including Site
General Manager of Entry Systems Division. Mr. Dorf holds a B.S. in Mechanical
Engineering from University of Missouri, Rolla and an M.S. in Manufacturing
Engineering and an M.B.A. from Boston University.

    MR. GENOVESE joined the Company in May 1996 and was elected Vice President
of Sales in August 1996. Before joining the Company, Mr. Genovese was Regional
Sales Manager for Cisco, a networking company, from January 1992 to May 1996.
Mr. Genovese holds a B.S. in Electrical Engineering from Newark College of
Engineering.

    MR. KRAUTKREMER has served as the Company's Vice President of Marketing
since April 1995. Prior to such time, he was Director of Field Marketing for the
Company from January 1994 to March 1995 and Director of Sales from October 1988
to December 1993. Mr. Krautkremer received his B.S. in Computer Science from St.
Cloud State University.

    MS. RATTA has served as the Company's Vice President of Manufacturing since
January 1995. Prior to joining the Company, Ms. Ratta was Director of Operations
for Systech Computer Corporation, a provider of input/output devices for
Unix-based platforms. Ms. Ratta received her B.S. from the University of
Arizona.

    MR. REDDING has served as the Company's Vice President of Engineering since
May 1995. Prior to joining the Company, Mr. Redding was Vice President,
Engineering for Fujitsu Business Communications Systems, a business
communications company, from May 1992 to April 1995. From 1991 to 1992, Mr.
Redding was Vice President, Engineering at Computer Consoles, Inc., a telephone
and computer systems company. Mr. Redding received his B.S. in Computer Science
from the University of London and a Master's Degree in Mathematics from the
University of Waterloo. Mr. Redding resigned from the Company, effective March
31, 1997.

    MR. SCIOSCIA has served as the Company's Vice President of Finance and
Administration and Chief Financial Officer since June 1995. Prior to joining the
Company, Mr. Scioscia was Vice President, Finance and Corporate Controller at
Read-Rite Corporation, a provider of rigid disk magnetic recording head products
for the data storage industry, from 1994 to June 1995. From 1989 to 1994, Mr.
Scioscia was Vice President, Finance and Chief Financial Officer of Sunward
Technologies, Inc., a provider of rigid disk magnetic recording head products
for the data storage industry. Mr. Scioscia received his B.S. in Business
Administration from Seton Hall University.

ITEM 2.  PROPERTIES

    The Company entered into a seven-year real estate lease and relocated its
primary operations during the fourth quarter of 1996. In addition, the Company's
Tylink operation leases an industrial building in Norton, Massachusetts. The
Company also has sales and support offices in seventeen other states.

ITEM 3.  LEGAL PROCEEDINGS

    There is no material legal proceeding 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, 1996.

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

    None.

                                       14
<PAGE>
                                    PART II

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

    The Company's common stock has been traded on the Nasdaq National Market
under the symbol SYNX since the consummation of the Company's initial public
offering on November 9, 1995. Prior to the initial public offering, no public
market existed for the Company's common stock. 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 period indicated.

<TABLE>
<CAPTION>
                                                                           HIGH        LOW
                                                                         ---------  ----------
<S>                                                                      <C>        <C>
1996
  Q1...................................................................  $  44.375  $    13.00
  Q2...................................................................  $   22.25  $    13.25
  Q3...................................................................  $  17.125  $   8.6875
  Q4...................................................................  $  19.625  $    11.75

1995
  11/9/95-12/31/95.....................................................  $   55.25  $    40.00
</TABLE>

    The Company had approximately 193 stockholders of record as of March 14,
1997, including several holders who are nominees for an undetermined number of
beneficial owners.

    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.

                                       15
<PAGE>
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

    The following table presents the selected consolidated financial data of
Sync Research, Inc. giving effect to the merger of Sync and Tylink using the
pooling of interests method of accounting for each of the five years in the
period ended December 31, 1996. The consolidated statement of operations data
for the years ended December 31, 1996, 1995 and 1994 and the consolidated
balance sheet data at December 31, 1996 and 1995 are derived from, and are
qualified by reference to, the audited financial statements of the Company
included elsewhere in this Report on Form 10-K and should be read in conjunction
with those financial statements and the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Report on Form 10-K.
<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                                ------------------------------------------------------
                                                                   1996       1995       1994       1993       1992
                                                                ----------  ---------  ---------  ---------  ---------
                                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                             <C>         <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................................................  $   36,346  $  34,933  $  23,315  $  18,824  $  16,058
Cost of sales.................................................      19,995     17,584      9,536      7,802      5,832
                                                                ----------  ---------  ---------  ---------  ---------
Gross profit..................................................      16,351     17,349     13,779     11,022     10,226
Operating expenses:
  Research and development....................................       7,687      5,636      4,543      4,494      3,260
  Selling and marketing.......................................      14,484     11,248      8,087      8,483      5,733
  General and administrative..................................       5,858      2,871      2,339      2,476      1,942
                                                                ----------  ---------  ---------  ---------  ---------
  Total operating expenses....................................      28,029     19,755     14,969     15,453     10,935
                                                                ----------  ---------  ---------  ---------  ---------
Operating loss................................................     (11,678)    (2,406)    (1,190)    (4,431)      (709)
Interest income (expense), net and other income...............       2,247        461         74       (100)        10
                                                                ----------  ---------  ---------  ---------  ---------
Loss before income taxes......................................      (9,431)    (1,945)    (1,116)    (4,531)      (699)
Provision (benefit) for income taxes..........................           2         45        215       (212)         1
                                                                ----------  ---------  ---------  ---------  ---------
Net loss......................................................  $   (9,433) $  (1,990) $  (1,331) $  (4,319) $    (700)
                                                                ----------  ---------  ---------  ---------  ---------
                                                                ----------  ---------  ---------  ---------  ---------
Net loss per common share.....................................  $    (0.61) $   (0.40) $   (0.33) $   (0.78) $   (0.13)
                                                                ----------  ---------  ---------  ---------  ---------
                                                                ----------  ---------  ---------  ---------  ---------
Shares used in computing net loss per common share(1).........      16,289      7,925      5,981      5,540      5,401
                                                                ----------  ---------  ---------  ---------  ---------
                                                                ----------  ---------  ---------  ---------  ---------
Pro forma net loss per common share...........................              $   (0.22) $   (0.15)
                                                                            ---------  ---------
                                                                            ---------  ---------
Shares used in computing the pro forma net loss per common
  share(1)....................................................                 14,452     13,267
                                                                            ---------  ---------
                                                                            ---------  ---------

<CAPTION>

                                                                               YEARS ENDED DECEMBER 31,
                                                                ------------------------------------------------------
                                                                   1996       1995       1994       1993       1992
                                                                ----------  ---------  ---------  ---------  ---------
                                                                                    (IN THOUSANDS)
<S>                                                             <C>         <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents.....................................  $   35,874  $  50,633  $   8,512  $   3,653  $     540
Working capital...............................................      44,336     58,260     13,062      5,368      2,326
Total assets..................................................      55,692     66,672     18,011     11,178      5,812
Capitalized lease obligations less current maturities.........         146        398         64         94        129
Mandatorily redeemable preferred stock........................          --      5,591      4,428         --         --
Total preferred and common stockholders' equity...............      48,803     54,862     16,761      6,960      3,457
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements for an explanation of the
    determination of the number of shares used to compute net loss per common
    share and pro forma net loss per common share.

                                       16
<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 ConversionNode
and frame relay access products. The Company expanded its operations in late
1992 and 1993 in anticipation of an expanding market for Sync's WAN access
products. The Company implemented a work-force reduction in late 1993, when the
market for the Company's products was slower to develop than expected and when
anticipated increased sales were not realized. The Company continued its
historical emphasis on identifying potential channel partners, educating
potential and existing channel partners and other resellers and supporting sales
efforts of these resellers. As a result of these activities, in 1994 and early
1995, the Company entered into relationships with several additional channel
partners. Sales through channel partners and other resellers increased as the
market for the Company's products began to grow significantly in 1994. The
Company currently maintains OEM, marketing and sales arrangements with
communications and networking companies such as IBM and 3Com, as well as
carriers such as Sprint, MCI, Ameritech, PacBell and CompuServe. In the first
half of 1995, the Company added significant senior management personnel. In
addition, in order to support the anticipated growth in its business, the
Company began expanding its operations and increased its manufacturing capacity
through the expansion of its relationships with contract manufacturers and
internal manufacturing resources.

    On August 23, 1996, Sync acquired TyLink, pursuant to a merger of a
wholly-owned subsidiary of the Company with and into TyLink. 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.

    On March 20, 1997, the Company announced that it expects to implement
significant expense reductions with the goal of enabling the Company to achieve
profitability at lower revenue levels. 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, or that its efforts to implement expense reductions will enable it to
become profitable at lower revenue levels, if at all.

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," "Recent
Results," "Inflation," 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. Such risks and
uncertainties include (but are not limited to) fluctuations in quarterly orders,
market conditions in the networking industry and extraordinary charges relating
to expense reductions.

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

    The Company has experienced operating losses since inception, with, in
recent years, operating losses of $1.2 million in 1994, $2.4 million in 1995 and
$11.7 million in 1996. As of December 31, 1996, the Company had an accumulated
deficit of approximately $22.4 million. The Company has experienced, and may in
the future experience, significant fluctuations in revenues and operating
results from quarter to

                                       17
<PAGE>
quarter and from year to year due to a combination of factors. Factors that have
in the past caused, or 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 rate at which Tylink operations become integrated with Sync
operations; 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 rate of migration of large IBM customers
to frame relay; production or quality problems; changes in material costs;
disruption in sources of supply; 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, as channel partners and other
resellers continue to account for a substantial 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, subsequent 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 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. 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, that the
relationship between the Company and IBM will be successful, that IBM will not
terminate the relationship 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

    The growth in the Company's net revenues in fiscal 1996 relative to fiscal
1995 was due in part to growth in sales of Sync's frame relay access products,
which enable SNA and client/server internetworking over frame relay. The market
for SNA-over-frame relay products is relatively new and still evolving. The

                                       18
<PAGE>
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 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.

    RISKS ASSOCIATED WITH ACQUISITION OF TYLINK CORPORATION

    In August 1996, the Company acquired TyLink. In integrating the personnel
and operations of Sync and TyLink, the Company faces certain risks, including
the risk that the operations and personnel of TyLink will not be successfully
assimilated into the Company's business on a timely basis, or at all. Other
risks associated with the merger include the possible loss of key personnel of
either Tylink or Sync, potential disruption of the respective ongoing businesses
of TyLink and the Company, the inability of the Company's management to maximize
the financial and strategic position of the combined entity through successful
incorporation of TyLink's personnel and clients, the inability to implement
uniform standards, controls, procedures and policies and the impairment of
relationships with existing employees and clients as a result of the Company's
integration of new management personnel. Any of these factors could have a
material adverse effect on the Company's business, financial condition and
operating results.

    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 substantial 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 85.7%, 88.1%,
and 79.6% of net revenues of the Company in 1996, 1995 and 1994, respectively.
The Company currently maintains OEM, marketing and sales arrangements with
communications and networking companies such as IBM and 3Com, as well as
carriers such as Sprint, PacBell, CompuServe, Ameritech and MCI. 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. 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.

                                       19
<PAGE>
    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. For
example, both NET and Racal, which accounted for, respectively, 6.6% and 4.4% of
the Company's net revenues in 1996, have developed competitive products and
product strategies. Moreover, the product lines acquired in the TyLink merger
compete with certain Racal products. Thus, Sync expects product revenues from
NET and Racal to decline over the next year. Sales to 3Com accounted for 19.2%,
17.9% and 6.5% of net revenues of the Company in 1996, 1995 and 1994,
respectively. The Company believes the relative amount of revenues derived from
sales to 3Com will likely decline as competitive products impact the conversion
product business. During 1995, sales to Cabletron accounted for 11.2% of net
revenues of the Company, but sales to Cabletron have declined substantially, to
0.4% of net revenues of the Company in 1996, and there can be no assurance that
sales to Cabletron will increase in the future.

    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 substantial majority of
the Company's net revenues, gross profit as a percentage of net revenues may
decline. 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. 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 financial condition.

                                       20
<PAGE>
    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 Bay
Networks; FRAD providers, such as Hypercom, Motorola ISG and Netlink, which was
recently acquired by Cabletron; and circuit management providers such as Visual
Networks and Frontier Software. Competitors for the TyLink group of digital
transmission products include Digital Link, Racal, AT&T Paradyne and 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 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, 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. There can be no assurance
that the Company will 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 an arrangement with a contract
manufacturer in 1995 to outsource substantial portions of its procurement,
assembly and system integration operations. The Company has recently contracted
with a second supplier to diversify purchasing commitments while maintaining the
outsource strategy. 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

                                       21
<PAGE>
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. The
Company increased manufacturing capacity in 1995 and 1996 through the expansion
of its relationships with contract manufacturers and internal manufacturing
resources. 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.

    DEPENDENCE ON AND RISKS ASSOCIATED WITH INTERNATIONAL SALES

    Sales to customers outside of the United States accounted for approximately
12.7%, 10.7% and 6.3% of the Company's net revenues in 1996, 1995 and 1994,
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. In addition, the Company
currently anticipates that international sales may increase as a percentage of
the Company's net revenues in future periods. Historically, the Company's
international sales have been conducted primarily through independent
country-specific distributors. The Company intends to market its products in
foreign countries in the future increasingly 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 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

                                       22
<PAGE>
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 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. Six of the eight current executive officers joined
the Company since January 1995, and thus the management team is still

                                       23
<PAGE>
relatively new. The Company maintains a key person life insurance policy only on
John H. Rademaker, the Company's Chief Executive Officer. 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. On March 20, 1997, the Company announced that it
expects to implement significant expense reductions with the goal of enabling
the Company to achieve profitability at lower revenues. These expense reductions
are expected to include a reduction in force. 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.

    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 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 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 specified 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 present plan to issue shares of preferred
stock.

                                       24
<PAGE>
RESULTS OF OPERATIONS

    COMPARISON OF 1996 AND 1995 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, which have not been material to date, are
recognized ratably over the term of the maintenance period, which is typically
12 months.

    Net revenues in 1996 were $36.3 million, an increase of 4% from the net
revenues of $34.9 million in 1995. The higher net revenues in 1996 reflected
increased sales of frame relay access products and management products,
partially offset by lower sales of the older conversion products and lower
average selling prices. Net revenues from sales of frame relay access products
were $14.2 million in 1996, as compared to $9.2 million in 1995. The increase in
net revenues from frame relay access products reflected the full year impact of
the Company's new 4200 product, which was introduced in the last quarter of
1995, and overall growth in the frame relay access market. Net revenues from
sales of management products were $7.0 million in 1996, as compared to $3.2
million in 1995, primarily due to increased acceptance of the Company's SNMP and
circuit management products, which were introduced by TyLink in July 1995. The
percentage of net revenues represented by sales through channel partners and
other resellers declined to 85.7% in 1996 versus 88.1% in 1995. Sales of the
Company's frame relay access products represented approximately 39.1% of total
net revenues for 1996, as compared to 26.6% for 1995. Sales of the Company's
management products represented 19.4% of net revenues for 1996, as compared to
9.3% of net revenues for 1995. Sales of the Company's transmission products
represented 17.5% of net revenues for 1996, or slightly above the 16.2% of net
revenues in 1995. Sales of all other products and services declined to 24.0% of
net revenues in 1996 versus 47.9% of net revenues for 1995, as sales of older
conversion products significantly declined. 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 substantial majority of net
revenues; however, the mix of sales among channel partners and other resellers
may change from period to period. Sales of frame relay access products and
circuit management products are expected to grow as a percentage of net revenues
and transmission and other products revenues are expected to decline as a
percentage of net revenues. International sales accounted for 12.7% of net
revenues in 1996, as compared to 10.7% of net revenues in 1995. The Company
expects that international sales may increase as a percentage of net revenues in
1997.

    GROSS PROFIT.  Cost of sales primarily consists of purchased materials used
in the assembly of the Company's products and compensation paid to employees in
the Company's manufacturing organization.

    Gross profit decreased to $16.4 million for 1996 from $17.3 million in 1995
due primarily to lower average selling prices, especially in transmission
products, which faced severe price pressure in the marketplace, and lower
margins earned on increased sales of frame relay access products. These frame
relay access products were sold through channel partners and other resellers,
and thus typically have lower margins than direct sales. The decrease in gross
profit in 1996 was partially offset by decreases in manufacturing costs.

    Gross profit as a percentage of net revenues decreased to 45.0% for the year
ended December 31, 1996 as compared to 49.7% for the year ended December 31,
1995, due primarily to increases in the percentage of sales of frame relay
access products through channel partners and resellers and lower average selling
prices, partially offset by decreases in manufacturing costs.

    OPERATING EXPENSES.  Research and development expenses primarily consist of
compensation paid to personnel, including consultants, engaged in research and
development, amounts paid for outside development services, costs of materials
utilized in the development of hardware products, including prototype

                                       25
<PAGE>
units, and license fees and other payments to acquire rights to technology. The
Company expenses all research and development costs as incurred. Research and
development costs increased to $7.7 million for the year ended December 31,
1996, as compared to $5.6 million for the year ended December 31, 1995. The
increased expenses in 1996 were primarily due to the addition of personnel for
the development of new products and the continued enhancement of existing
products.

    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 increased to $14.5 million for the year ended December 31,
1996, as compared to $11.2 million for the year ended December 31, 1995. The
increased expenses principally reflected increased hiring and personnel-related
expenses associated with the build-up of the Company's sales organization.

    General and administrative expenses consist primarily of compensation paid
to administrative personnel, payments to consultants and professional service
providers, and costs incurred in recruiting senior management personnel. General
and administrative expenditures increased to $5.9 million for the year ended
December 31, 1996, as compared to $2.9 million for the year ended December 31,
1995. The increased expenses were primarily due to $1.3 million in expenditures
incurred in connection with the merger of Sync and TyLink, increased
administrative personnel costs, and costs related to public company and investor
relation activities since the Company completed its initial public offering in
November 1995.

    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, 1996 were $265,000 of such expenses, as
compared to $223,000 for the year ended December 31, 1995.

    Net interest income was $2.2 million for the year ended December 31, 1996,
as compared to $0.5 million in the year ended December 31, 1995, as a result of
significantly higher cash balances from the Company's initial public offering in
November 1995.

    INCOME TAXES.  The provisions for income taxes in 1996 and 1995 represent
minimum state taxes and federal and state minimum taxes, respectively.

    COMPARISON OF 1995 AND 1994 RESULTS

    NET REVENUES.  Net revenues in 1995 were $34.9 million, an increase of 50.4%
from the net revenues of $23.3 million in 1994. The higher net revenues in 1995
reflected increased market acceptance of the Company's newer frame relay access
and conversion products, the initial sales of the new SNMP and circuit
management products and overall growth in sales through channel partners and
other resellers, offset in part by lower average selling prices. Net revenues
from sales of frame relay access and conversion products were $17.9 million in
1995, as compared to $11.4 million in 1994. Net revenues from sales of
management products were $3.2 million in 1995. There were no sales of these
products in 1995. Net revenues from sales of the Company's older transmission
products, which faced severe price competition in 1995, were $5.6 million in
1995, as compared to $8.0 million in 1994. The percentage of net revenues
represented by sales through channel partners and other resellers increased to
88.1% in 1995 versus 79.6% in 1994. Net revenues from sales of all other
products and services increased to $8.2 million in 1995 versus $3.8 million in
1994, primarily reflecting an increase in sales of conversion products to 3Com
in 1995. International sales accounted for 10.7% of net revenues in 1995, as
compared to 6.3% of net revenues in 1994.

                                       26
<PAGE>
    GROSS PROFIT.  Gross profit increased to $17.3 million for 1995 from $13.8
million in 1994, due primarily to significantly increased sales volume, which
was partially offset by lower average selling prices. Gross profit as a
percentage of net sales decreased to 49.7% in 1995, as compared to 59.1% in
1994, due primarily to increases in the percentage of sales of frame relay
access products to channel partners and resellers and lower average selling
prices, partially offset by lower manufacturing costs.

    OPERATING EXPENSES.  Research and development expenses increased to $5.6
million in 1995, as compared to $4.5 million in 1994. The increased expenses in
1995 were primarily due to the addition of personnel for the development of new
products and the continued enhancement of existing products.

    Selling and marketing expenses increased to $11.2 million in 1995, as
compared to $8.1 million in 1994. The increased expenses principally reflected
increased hiring and personnel-related expenses associated with the build-up of
the Company's sales organization.

    General and administrative expenditures increased to $2.9 million in 1995,
as compared to $2.3 million in 1994.

    As noted above, 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. Included in operating expenses and cost of sales
for the year ended December 31, 1995 were $223,000 of such expenses, which did
not exist in 1994.

    Net interest income was $0.5 million in 1995, as compared to $74,000 in
1994, as a result of significantly higher cash balances from the Company's
initial public offering in November 1995.

    INCOME TAXES.  The provisions for income taxes in 1995 and 1994 represent
minimum state taxes and federal and state minimum taxes, respectively.

RECENT RESULTS

    On March 20, 1997, the Company announced that it expects that revenues for
the first fiscal quarter of 1997, ending March 31, will be in range of $5 to $6
million. The Company also announced that it expects to incur a net loss of
approximately $6 million, including restructuring charges, and that the
Company's expectations for operating results were below the expectations of
securities analysts. In addition, the Company announced that it planned to make
significant expense reductions during the two weeks following the announcement,
with the goal of enabling the Company to achieve profitability at lower
revenues. There can be no assurance, however, that the Company's efforts to
implement expense reductions will enable it to become profitable at lower
revenue levels, if at all.

    The anticipated results described in the preceding paragraph constitute
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to a
number of risks and uncertainties which could cause actual results to differ
materially from those projected. Such risks and uncertainties include, in
particular, fluctuations in orders during the remainder of the first quarter of
1997 from that experienced during the quarter to date, market conditions in the
networking industry, financial adjustments in connection with the closing of
results for such quarter and the amount of charges relating to expense
reductions.

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.

                                       27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

    As of December 31, 1996, the Company's principal sources of liquidity
consisted of $35.9 million of cash and cash equivalents. In November 1995, the
Company realized net proceeds of $47.2 million from an initial public offering.
Prior to November 1995, the Company had financed its operations primarily
through private sales of equity securities. As of December 31, 1995, the
Company's principal sources of liquidity consisted of $50.6 million of cash and
cash equivalents and a $3.0 million unsecured bank line of credit which expired
on October 5, 1996. As of December 31, 1996, there were approximately $800,000
in bank borrowings outstanding. As of December 31, 1996, $32.9 million of the
Company's cash was invested in high grade commercial paper with maturities of
less than three months.

    During 1996, cash utilized by operating activities was $9.3 million,
compared to $3.4 million for fiscal 1995. Utilization of cash during 1996
resulted primarily from the Company's net loss of $9.4 million, an increase in
inventory of $1.5 million and a reduction in accounts payable and accrued
liabilities of $0.8 million. These changes reflected the higher operating loss,
lower level of purchasing and related payables and higher levels of inventory.
In addition, the Company paid the holders of TyLink Series B preferred stock an
aggregate of $4 million in cash as partial consideration for the purchase of
their shares. Capital expenditures during fiscal 1996 were $3.1 million,
compared to $1.4 million for 1995, which reflected the computer hardware support
of increased staffing, leasehold improvements in the new building and the
establishment of improved hardware and software test capability. At December 31,
1996, the Company had no material commitments for capital expenditures.

    In the fourth quarter of December 1996, the Company entered into a new seven
year real estate lease and relocated its primary operations. Therefore, the
Company expects, on a forward looking basis, that lease, operating and
maintenance costs will increase.

    As of December 31, 1996, the Company's net working capital was $44.3
million, of which $35.9 million was invested in cash and cash equivalents, $7.6
million was invested in accounts receivable, and $7.1 million was invested in
inventory.

    The Company believes that its available cash and cash equivalents will be
sufficient to meet its working capital requirements at least through 1997.

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.

                                       28
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

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, 1996 and 1995, and the related consolidated
statements of operations, mandatorily redeemable preferred stock and preferred
and common stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. 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 did not audit the financial statements and
schedule of TyLink Corporation, which statements reflect total assets of
$6,818,938 as of March 29, 1996 and which statements reflect total revenues of
$11,854,676 and $11,460,348 for the years ended March 29, 1996 and March 31,
1995, respectively. Those statements and schedule were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
data included for TyLink Corporation, is based solely on the report of the other
auditors.

    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 and the report of other auditors provide a reasonable
basis for our opinion.

    In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sync Research, Inc. at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, 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 28, 1997, except for Note 12,
as to which the date is March 20, 1997

                                       29
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

June 13, 1996, except as to Note 11
which is as of August 23, 1996

The Board of Directors and Stockholders of
TyLink Corporation

    In our opinion, the balance sheet and the related statements of operations,
of mandatory redeemable preferred stock and common stockholders' deficit and of
cash flows (not presented separately herein, including the Financial Statement
Schedule, not presented separately herein) present fairly, in all material
respects, the financial position of TyLink Corporation at March 29, 1996, and
the results of its operations and its cash flows for each of the two years in
the period ended March 29, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Boston, Massachusetts

                                       30
<PAGE>
                              SYNC RESEARCH, INC.
                          CONSOLIDATED BALANCE SHEETS
                                     ASSETS

                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                              --------------------
                                                                                                1996       1995
                                                                                              ---------  ---------
<S>                                                                                           <C>        <C>
Current assets:
  Cash and cash equivalents.................................................................  $  35,874  $  50,633
  Accounts and other receivables, less allowance for doubtful accounts of $348 in 1996 and
    $308 in 1995............................................................................      7,587      7,803
  Inventories...............................................................................      7,139      5,256
  Prepaid expenses and other current assets.................................................        479        389
                                                                                              ---------  ---------
    Total current assets....................................................................     51,079     64,081

Furniture, fixtures and equipment, net......................................................      4,570      2,239

Note receivable from officer................................................................         --        315

Other assets................................................................................         43         37
                                                                                              ---------  ---------
    Total assets............................................................................  $  55,692  $  66,672
                                                                                              ---------  ---------
                                                                                              ---------  ---------

                             LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
                                    PREFERRED AND COMMON STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..........................................................................  $   3,984  $   4,486
  Accrued compensation and related costs....................................................        974        769
  Deferred revenue..........................................................................        501        145
  Other accrued liabilities.................................................................        443        245
  Bank borrowings...........................................................................        802         --
  Current maturities of capitalized lease obligations.......................................         39        176
                                                                                              ---------  ---------
    Total current liabilities...............................................................      6,743      5,821

Capitalized lease obligations less current maturities.......................................        146        398

Commitments and contingencies (Note 8)

Mandatorily redeemable Series B preferred stock.............................................         --      5,591

Preferred and common 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--16,946 in
    1996 and 15,833 in 1995.................................................................         17         16
  Additional paid-in capital................................................................     71,385     68,504
  Deferred compensation.....................................................................       (156)      (421)
  Accumulated deficit.......................................................................    (22,443)   (13,237)
                                                                                              ---------  ---------
Total preferred and common stockholders' equity.............................................     48,803     54,862
                                                                                              ---------  ---------
Total liabilities, mandatorily redeemable preferred stock and preferred and common
 stockholders' equity.......................................................................  $  55,692  $  66,672
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</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,
                                                                                 ---------------------------------
                                                                                    1996        1995       1994
                                                                                 -----------  ---------  ---------
<S>                                                                              <C>          <C>        <C>
Net revenues...................................................................  $    36,346  $  34,933  $  23,315
Cost of sales..................................................................       19,995     17,584      9,536
                                                                                 -----------  ---------  ---------
  Gross profit.................................................................       16,351     17,349     13,779

Operating expenses:
  Research and development.....................................................        7,687      5,636      4,543
  Selling and marketing........................................................       14,484     11,248      8,087
  General and administrative...................................................        5,858      2,871      2,339
                                                                                 -----------  ---------  ---------
    Total operating expenses...................................................       28,029     19,755     14,969
                                                                                 -----------  ---------  ---------
Operating loss.................................................................      (11,678)    (2,406)    (1,190)
Interest income, net...........................................................        2,247        461         74
                                                                                 -----------  ---------  ---------
Loss before income taxes.......................................................       (9,431)    (1,945)    (1,116)
Provision for income taxes.....................................................            2         45        215
                                                                                 -----------  ---------  ---------
Net loss.......................................................................  $    (9,433) $  (1,990) $  (1,331)
                                                                                 -----------  ---------  ---------
                                                                                 -----------  ---------  ---------
Net loss per common share......................................................  $     (0.61) $   (0.40) $   (0.33)
                                                                                 -----------  ---------  ---------
                                                                                 -----------  ---------  ---------
Shares used in computing net loss per common share.............................       16,289      7,925      5,981
                                                                                 -----------  ---------  ---------
                                                                                 -----------  ---------  ---------
Pro forma net loss per common share............................................               $   (0.22) $   (0.15)
                                                                                              ---------  ---------
                                                                                              ---------  ---------
Shares used in computing pro forma net loss per common share...................                  14,452     13,267
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>

                            See accompanying notes.

                                       32
<PAGE>
                              SYNC RESEARCH, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED DECEMBER 31,
                                                                                 ---------------------------------
                                                                                    1996        1995       1994
                                                                                 -----------  ---------  ---------
<S>                                                                              <C>          <C>        <C>
OPERATING ACTIVITIES
Net loss.......................................................................  $    (9,433) $  (1,990) $  (1,331)
Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization..............................................          777        620        515
    Loss on disposal of equipment..............................................           --         --         31
    Issuance of common stock for consulting services...........................           --        175         --
    Deferred taxes.............................................................           --         --        214
    Provision for losses on accounts receivable................................          420        158        133
    Deferred compensation expense..............................................          265        223         --
Changes in operating assets and liabilities:
    Accounts and other receivables.............................................          409     (3,819)      (565)
    Inventories................................................................       (1,529)    (1,883)    (1,627)
    Prepaid expenses and other current assets..................................          (66)       (73)      (146)
    Accounts payable...........................................................         (872)     2,884        122
    Accrued compensation and related costs.....................................          335        258        (78)
    Deferred revenue...........................................................          412        (35)      (124)
    Other accrued liabilities..................................................          103        106       (130)
    Other......................................................................         (115)       (12)         9
                                                                                 -----------  ---------  ---------
Net cash used in operating activities..........................................       (9,294)    (3,388)    (2,987)

INVESTING ACTIVITIES
    Purchases of furniture, fixtures and equipment.............................       (3,107)    (1,361)      (453)
    Proceeds on loan to officer................................................          315         --          4
                                                                                 -----------  ---------  ---------
Net cash used in investing activities..........................................       (2,792)    (1,361)      (449)

FINANCING ACTIVITIES
    Net borrowings (payments) under credit agreements..........................          515       (395)       (84)
    Payments on capitalized lease obligations..................................          (43)      (113)      (119)
    Proceeds from sale of restricted common stock..............................           --        115         --
    Proceeds from common stock options and warrants exercised..................          687         79          9
    Proceeds from employee stock purchase plan.................................          137         --         --
    Repurchase of mandatorily redeemable preferred stock.......................       (4,000)        --         --
    Net proceeds from issuance of common stock.................................          (19)    47,185        960
    Proceeds from issuance of mandatorily redeemable preferred stock and Series
      B convertible preferred stock............................................           --         --      7,530
                                                                                 -----------  ---------  ---------
Net cash provided by financing activities......................................        2,723     46,871      8,297
                                                                                 -----------  ---------  ---------
Net increase (decrease) in cash and cash equivalents...........................      (14,809)    42,122      4,859
Effect of pooling of interests.................................................           50         --         --
Cash and cash equivalents at beginning of year.................................       50,633      8,511      3,652
                                                                                 -----------  ---------  ---------
Cash and cash equivalents at end of year.......................................  $    35,874  $  50,633  $   8,511
                                                                                 -----------  ---------  ---------
                                                                                 -----------  ---------  ---------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Interest paid..............................................................  $       105  $     113  $      85
                                                                                 -----------  ---------  ---------
                                                                                 -----------  ---------  ---------
    Income taxes paid..........................................................  $         2  $      17  $       1
                                                                                 -----------  ---------  ---------
                                                                                 -----------  ---------  ---------
</TABLE>

                            See accompanying notes.

                                       33
<PAGE>
                              SYNC RESEARCH, INC.
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE PREFERRED STOCK AND PREFERRED
                        AND COMMON STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                           MANDATORILY
                                            REDEEMABLE       SERIES A         SERIES B         SERIES C
                                             SERIES B      CONVERTIBLE      CONVERTIBLE      CONVERTIBLE
                                            PREFERRED       PREFERRED        PREFERRED        PREFERRED
                                              STOCK           STOCK            STOCK            STOCK         COMMON STOCK
                                          --------------  --------------   --------------   --------------   --------------
                                          SHARES  AMOUNT  SHARES  AMOUNT   SHARES  AMOUNT   SHARES  AMOUNT   SHARES  AMOUNT
                                          ------  ------  ------  ------   ------  ------   ------  ------   ------  ------
<S>                                       <C>     <C>     <C>     <C>      <C>     <C>      <C>     <C>      <C>     <C>
Balance at December 31, 1993............      --  $  --    3,500   $ 4      3,103   $  3        --   $ --     3,985   $ 4
  Conversion of subordinated debt to
    common stock........................      --     --       --    --         --     --        --     --        85    --
  Exercise of warrants and common stock
    options.............................      --     --       --    --         --     --        --     --       107    --
  Issuance of mandatorily redeemable
    preferred stock.....................   2,541  3,789       --    --         --     --        --     --        --    --
  Accretion of cumulative dividend and
    redemption value of mandatorily
    redeemable preferred stock..........      --    639       --    --         --     --        --     --        --    --
  Issuance of series C preferred
    stock...............................      --     --       --    --         --     --     1,000      1        --    --
  Issuance of common stock..............      --     --       --    --         --     --        --     --       400     1
  Net loss..............................      --     --       --    --         --     --        --     --        --    --
                                                                    --
                                          ------  ------  ------           ------  ------   ------  ------   ------  ------
Balance at December 31, 1994............   2,541  4,428    3,500     4      3,103      3     1,000      1     4,577     5
  Exercise of warrants and common stock
    options.............................      --     --       --    --         --     --        --     --       438    --
  Accretion of cumulative dividend and
    redemption value of mandatorily
    redeemable preferred stock..........      --  1,163       --    --         --     --        --     --        --    --
  Issuance of restricted common stock...      --     --       --    --         --     --        --     --       574    --
  Issuance of common stock..............      --     --       --    --         --     --        --     --     2,640     3
  Adjustment of 1994 cost of stock
    issuance............................      --     --       --    --         --     --        --     --        --    --
  Deferred compensation.................      --     --       --    --         --     --        --     --        --    --
  Amortization of deferred
    compensation........................      --     --       --    --         --     --        --     --        --    --
  Conversion of preferred stock into
    common stock........................      --     --   (3,500)   (4)    (3,103)    (3)   (1,000)    (1)    7,603     8
  Net loss..............................      --     --       --    --         --     --        --     --        --    --
                                                                    --
                                          ------  ------  ------           ------  ------   ------  ------   ------  ------
Balance at December 31, 1995............   2,541  $5,591      --   $--         --   $ --        --   $ --    15,833   $16
  Exercise of warrants and common stock
    options.............................      --     --       --    --         --     --        --     --       892     1
  Adjustment of 1995 cost of stock
    issuance............................      --     --       --    --         --     --        --     --        --    --
  Accretion of cumulative dividend and
    redemption value of mandatorily
    redeemable preferred stock..........      --    486       --    --         --     --        --     --        --    --
  Repurchase of mandatorily redeemable
    preferred stock.....................  (2,541) (6,077)     --    --         --     --        --     --       209    --
  Issuance of stock under employee stock
    purchase plan.......................      --     --       --    --         --     --        --     --        12    --
  Amortization of deferred
    compensation........................      --     --       --    --         --     --        --     --        --    --
  Effect of pooling of interests........      --     --       --    --         --     --        --     --        --    --
  Net loss..............................      --     --       --    --         --     --        --     --        --    --
                                                                    --
                                          ------  ------  ------           ------  ------   ------  ------   ------  ------
Balance at December 31, 1996............      --  $  --       --   $--         --   $ --        --   $ --    16,946   $17
                                                                    --
                                                                    --
                                          ------  ------  ------           ------  ------   ------  ------   ------  ------
                                          ------  ------  ------           ------  ------   ------  ------   ------  ------

<CAPTION>

                                                         ADDITIONAL
                                            DEFERRED      PAID-IN     ACCUMULATED
                                          COMPENSATION    CAPITAL       DEFICIT      TOTAL
                                          ------------   ----------   -----------   -------
<S>                                       <C>            <C>          <C>           <C>
Balance at December 31, 1993............     $  --        $15,063      $ (8,114)    $ 6,960
  Conversion of subordinated debt to
    common stock........................        --            538            --         538
  Exercise of warrants and common stock
    options.............................        --              9            --           7
  Issuance of mandatorily redeemable
    preferred stock.....................        --             --            --          --
  Accretion of cumulative dividend and
    redemption value of mandatorily
    redeemable preferred stock..........        --             --          (639)       (639)
  Issuance of series C preferred
    stock...............................        --          3,740            --       3,741
  Issuance of common stock..............        --            959            --         960
  Net loss..............................        --             --        (1,331)     (1,331)

                                             -----       ----------   -----------   -------
Balance at December 31, 1994............        --         20,309       (10,084)     10,238
  Exercise of warrants and common stock
    options.............................        --             79            --          79
  Accretion of cumulative dividend and
    redemption value of mandatorily
    redeemable preferred stock..........        --             --        (1,163)     (1,163)
  Issuance of restricted common stock...        --            115            --         115
  Issuance of common stock..............        --         47,360            --      47,363
  Adjustment of 1994 cost of stock
    issuance............................        --             (3)           --          (3)
  Deferred compensation.................      (644)           644            --          --
  Amortization of deferred
    compensation........................       223             --            --         223
  Conversion of preferred stock into
    common stock........................        --             --            --          --
  Net loss..............................        --             --        (1,990)     (1,990)

                                             -----       ----------   -----------   -------
Balance at December 31, 1995............     $(421)       $68,504      $(13,237)    $54,862
  Exercise of warrants and common stock
    options.............................        --            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)
  Repurchase of mandatorily redeemable
    preferred stock.....................        --          2,077            --       2,077
  Issuance of stock under employee stock
    purchase plan.......................        --            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............     $(156)       $71,385      $(22,443)    $48,803

                                             -----       ----------   -----------   -------
                                             -----       ----------   -----------   -------
</TABLE>

                            See accompanying notes.

                                       34
<PAGE>
                              SYNC RESEARCH, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    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 28, 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 years ended
March 31, 1995 and March 29, 1996 have been combined in the accompanying
consolidated financial statements for the years ended December 31, 1994 and
1995, respectively. 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 ending December 31, 1996.

    COMPANY BACKGROUND

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

    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.

                                       35
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    INVENTORIES

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

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                       --------------------
                                                                                         1996       1995
                                                                                       ---------  ---------
<S>                                                                                    <C>        <C>
Raw materials........................................................................  $   3,973  $   2,657
Work in process......................................................................      1,043        862
Finished goods.......................................................................      2,123      1,737
                                                                                       ---------  ---------
                                                                                       $   7,139  $   5,256
                                                                                       ---------  ---------
                                                                                       ---------  ---------
</TABLE>

    REVENUE RECOGNITION

    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, which have not been significant
historically, 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.

    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 not been
significant. To date, all software development costs have been expensed as
incurred and included in research and development expenses.

    FURNITURE, FIXTURES AND EQUIPMENT

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

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

    LONG-LIVED ASSETS

    Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In accordance
with 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

                                       36
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
those assets. The adoption of SFAS No. 121 had no impact on the Company's
financial condition or results of operations.

    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.

    STOCK BASED COMPENSATION

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

    PER SHARE INFORMATION

    Net loss per common share is computed 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, except that for
periods prior to the Company's initial public offering, pursuant to the
requirements of the Securities and Exchange Commission (SEC), common shares
issued by Sync during the twelve months immediately preceding its initial public
offering which was completed on November 10, 1995, plus the number of equivalent
shares resulting from stock options and warrants granted during this period,
have been included in the calculation of the shares used in computing net loss
per share as if they were outstanding for all periods presented (using the
treasury stock method and the estimated public offering price in calculating
equivalent shares). 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 and common stock. Net loss
applicable to common and common equivalent shares reflects the accretion of
dividends and liquidation value related to the mandatorily redeemable preferred
stock. Such accretion aggregated $486,000, $1,163,000 and $639,000 in 1996, 1995
and 1994, respectively. Pro forma net loss per common share also includes
6,526,114 and 7,285,432 weighted average shares of common stock in 1995 and
1994, respectively, as if the conversion of the preferred stock occurred at the
beginning of the respective period.

2. MERGER

    On August 28, 1996, Sync Research, Inc. (Sync), SR Acquisition Corp, a
wholly owned subsidiary of Sync, and TyLink Corporation entered into an
Agreement and Plan of Reorganization (the Agreement).

                                       37
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. MERGER (CONTINUED)
Pursuant to the Agreement all outstanding shares of TyLink's Series A redeemable
preferred 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
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.

    Separate and combined results of Sync and TyLink, after the elimination of
intercompany transactions, prior to the merger are as follows:

<TABLE>
<CAPTION>
                                                             SYNC      TYLINK     ELIMINATION    COMBINED
                                                           ---------  ---------  -------------  -----------
                                                                            (IN THOUSANDS)
<S>                                                        <C>        <C>        <C>            <C>
Six months ended June 30, 1996 (unaudited)
  Revenues...............................................  $  10,079  $   6,660    $     (75)    $  16,664
  Net loss...............................................     (3,101)      (908)         (75)       (4,084)

Year ended December 31, 1995 and March 29, 1996,
  respectively
  Revenues...............................................  $  23,153  $  11,855    $     (75)    $  34,933
  Net income (loss)......................................        925     (2,840)         (75)       (1,990)

Year ended December 31, 1994 and March 31, 1995,
  respectively
  Revenues...............................................  $  11,855  $  11,460    $      --     $  23,315
  Net income (loss)......................................     (1,384)        53           --        (1,331)
</TABLE>

3. FURNITURE, FIXTURES AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                       --------------------
                                                                                         1996       1995
                                                                                       ---------  ---------
<S>                                                                                    <C>        <C>
Equipment acquired under capital leases..............................................  $     250  $     239
Furniture and fixtures...............................................................        558        461
Computer and equipment...............................................................      5,428      3,319
Leasehold improvements...............................................................      1,032        202
                                                                                       ---------  ---------
Accumulated depreciation and amortization............................................      7,268      4,221
                                                                                          (2,698)    (1,982)
                                                                                       ---------  ---------
                                                                                       $   4,570  $   2,239
                                                                                       ---------  ---------
                                                                                       ---------  ---------
</TABLE>

4. TRANSACTIONS WITH RELATED PARTIES

    During fiscal 1993, the Company loaned an aggregate of $300,000 to an
officer of the Company which was repaid in fiscal 1996, including accrued
interest.

                                       38
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. 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. The Company is
dependent upon certain suppliers of key components and contract manufacturers.
Sales to one customer represented 19% of the Company's total sales in 1996.
Sales to two customers amounted to 17.9% and 11.2%, respectively, of total sales
in 1995.

    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, 1996, 16 major customers represented 72% of
total accounts receivable.

    Sales to foreign customers, primarily in Europe, aggregated $4,617,000 or
12.7%, $3,749,000 or 10.7% and $1,468,000 or 6.3% of net sales in 1996, 1995 and
1994, respectively.

6. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                              -------------------------------
                                                                                1996       1995       1994
                                                                              ---------  ---------  ---------
<S>                                                                           <C>        <C>        <C>
Statutory federal benefit for income taxes..................................  $  (3,206) $    (636) $    (379)
Incentive stock option compensation.........................................     (3,162)        75         --
State tax, net of federal benefit...........................................          2       (136)         9
Tax effect of losses without current benefit................................      5,882        699        572
Alternative minimum tax.....................................................         --         45         --
Other, net..................................................................        486         (2)        13
                                                                              ---------  ---------  ---------
                                                                              $       2  $      45  $     215
                                                                              ---------  ---------  ---------
                                                                              ---------  ---------  ---------
</TABLE>

                                       39
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)
    Significant components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                  -------------------------------
                                                                                    1996       1995       1994
                                                                                  ---------  ---------  ---------
<S>                                                                               <C>        <C>        <C>
Current:
  Federal.......................................................................  $      --  $     650  $      --
  State.........................................................................          2        158          1
                                                                                  ---------  ---------  ---------
Subtotal........................................................................          2        808          1
Utilization of net operating loss carryforwards.................................         --       (763)        --
                                                                                  ---------  ---------  ---------
Total current...................................................................          2         45          1
                                                                                  ---------  ---------  ---------
Deferred:
  Federal.......................................................................         --         --        182
  State.........................................................................         --         --         32
                                                                                  ---------  ---------  ---------
Total deferred..................................................................         --         --        214
                                                                                  ---------  ---------  ---------
                                                                                  $       2  $      45  $     215
                                                                                  ---------  ---------  ---------
                                                                                  ---------  ---------  ---------
</TABLE>

    The Company has approximately $25 million of federal net operating loss
carryforwards at December 31, 1996, which will begin to expire in 2006.
Approximately $10 million of this loss is attributable to deductions from the
exercise of non-qualified stock options. A valuation allowance has been
established for the entire deferred tax asset related to those 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.

                                       40
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)
    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):

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                               --------------------
                                                                                 1996       1995
                                                                               ---------  ---------
<S>                                                                            <C>        <C>
Deferred tax assets:
  Allowance for doubtful accounts............................................  $     139  $     121
  Depreciation...............................................................         98         --
  Warranty reserve...........................................................         76         29
  Accrued commission.........................................................        174         26
  Net operating loss carryforwards...........................................      9,352      3,438
  Deferred revenue...........................................................        201         83
  Inventory reserves.........................................................        507        494
  Accrued vacation...........................................................        228        102
  Other......................................................................         55         71
                                                                               ---------  ---------
Total deferred tax assets....................................................     10,830      4,364
Deferred tax liabilities:
  Operating leases...........................................................        (30)       (43)
  Depreciation...............................................................         --        (44)
                                                                               ---------  ---------
Total deferred tax liabilities...............................................        (30)       (87)
                                                                               ---------  ---------
Total net deferred tax assets................................................     10,800      4,277
Valuation allowance for deferred tax assets..................................    (10,800)    (4,277)
                                                                               ---------  ---------
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 believes that the limitation on the net
operating losses will not 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.

                                       41
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. EMPLOYEE BENEFIT PLANS

    The Company sponsors two profit sharing plans (the Plans) pursuant to
Section 401 of the Internal Revenue Code (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 Plans, as
determined by the Board of Directors. For the years ended December 31, 1996,
1995 and 1994, contributions made by the Company aggregated $57,000, $46,000 and
$46,000, 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 5,554,760 and 319,402 shares at December 31, 1996.

    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>
<S>                                                                  <C>
Risk free interest rate............................................       6.5%
Stock volatility factor............................................       1.00
Weighted average expected option life..............................    6 years
Expected dividend yield............................................         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 1995 and 1996 amounts are
only based upon the grants during those years. Pro forma information is as
follows (in thousands except for earnings per share information):

<TABLE>
<CAPTION>
                                                                          1996        1995
                                                                        ---------  -----------
<S>                                                                     <C>        <C>
Pro forma net loss....................................................  $ (16,814) $    (3,477)
Pro forma net loss per share..........................................  $   (1.03) $     (0.24)
</TABLE>

                                       42
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. EMPLOYEE BENEFIT PLANS (CONTINUED)
    A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:

<TABLE>
<CAPTION>
                                             1994                           1995                           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..........................   1,471,088      $    0.05       1,594,006      $    0.11       2,663,327      $    1.61
Granted........................     629,338           0.36       1,747,088           2.48       1,918,273          17.41
Exercised......................     (69,238)          0.10        (423,551)          0.16        (892,207)          0.77
Forfeited......................    (437,182)          0.14        (254,216)          0.20        (330,351)          6.25
                                 ----------          -----      ----------          -----      ----------         ------
Outstanding--end of year.......   1,594,006      $    0.11       2,663,327      $    1.61       3,359,042      $   10.68
                                 ----------          -----      ----------          -----      ----------         ------
                                 ----------          -----      ----------          -----      ----------         ------
Exercisable at end of year.....                                    500,369      $    0.15         621,904      $    1.61
                                                                ----------          -----      ----------         ------
                                                                ----------          -----      ----------         ------
Weighted-average fair value of
 options granted during the
 year..........................                                                 $    2.90                      $   13.61
                                                                                    -----                         ------
                                                                                    -----                         ------
</TABLE>

    The weighted average remaining contractual life of options as of December
31, 1996 were as follows:

<TABLE>
<CAPTION>
                                      OUTSTANDING                                                EXERCISABLE
----------------------------------------------------------------------------------------  --------------------------
                                                          WEIGHTED AVERAGE    WEIGHTED                   WEIGHTED
                                              NUMBER OF       REMAINING        AVERAGE                    AVERAGE
                                               SHARES     CONTRACTUAL LIFE    EXERCISE      SHARES       EXERCISE
         RANGE OF EXERCISE PRICES            OUTSTANDING       (YEARS)          PRICE     EXERCISABLE      PRICE
-------------------------------------------  -----------  -----------------  -----------  -----------  -------------
<S>                                          <C>          <C>                <C>          <C>          <C>
$0.04 to $1.00                                1,043,921            8.82       $    0.21      487,760     $    0.19
$1.01 to $10.00                                 348,408           10.67            4.60       88,015          3.66
Greater Than $10.00                           1,800,488           11.38           17.93       46,129         12.72
</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 1996 and 1995 totaled $265,000 and $223,000, 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 price of such stock 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 respective
semiannual offering period. During 1996, approximately 12,000 shares were issued
under this plan.

                                       43
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES

    The Company leases its office facilities and certain equipment under
noncancelable operating leases expiring through 2001. The Company also has
various leased equipment under capital leases that are included in "furniture,
fixtures and equipment" in the accompanying balance sheets. The cost and
accumulated depreciation and amortization of these leased assets were $250,000
and $72,000, respectively at December 31, 1996 and $239,000 and $43,000,
respectively, at December 31, 1995. Depreciation and amortization of equipment
leased under capital leases is included in depreciation expense.

    Future minimum annual rentals under lease arrangements at December 31, 1996
are as follows:

<TABLE>
<CAPTION>
                                                                             CAPITAL     OPERATING
                                                                             LEASES       LEASES
                                                                           -----------  -----------
                                                                                (IN THOUSANDS)
<S>                                                                        <C>          <C>
1997.....................................................................   $      58    $     646
1998.....................................................................          70          594
1999.....................................................................          54          486
2000.....................................................................          49          432
2001.....................................................................           5          432
                                                                                -----   -----------
    Total minimum future lease payments..................................         236    $   2,590
                                                                                        -----------
                                                                                        -----------

Amounts representing interest (9% to 15%)................................         (51)
                                                                                -----
Present value of net minimum lease payments..............................         185
Less current portion of capital lease obligations........................         (39)
                                                                                -----
Long-term portion of capital lease obligations...........................   $     146
                                                                                -----
                                                                                -----
</TABLE>

    Rent expense for 1996, 1995 and 1994 was $659,000, $465,000 and $436,000,
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.

9. 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.

10. PREFERRED AND COMMON STOCKHOLDERS' EQUITY

    In connection with the Company's initial public offering in November 1995,
all outstanding Series A, Series B and Series C preferred stock was converted
into an aggregate 7,603,240 shares of the Company's common stock.

                                       44
<PAGE>
                              SYNC RESEARCH, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. CREDIT AGREEMENT

    Under the Company's unsecured credit agreement with a bank, the Company may
borrow an amount not to exceed $5,000,000 at the Bank's prime rate on amounts
outstanding (8.25% at December 31, 1996). The agreement expires on October 5,
1997. There was $802,000 outstanding under this agreement as of December 31,
1996. The carrying value of this obligation approximates its fair value due to
its market rate of interest.

12. SUBSEQUENT EVENT

    On March 20, 1997, the Company announced its plan to restructure its
operations, including its intent to implement cost reduction initiatives.

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

    Not applicable.

                                       45
<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 13, 1997, 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.

                                       46
<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>        <C>                                                                              <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..............................  29

                      Report of Price Waterhouse LLP, Independent Accountants........................  30

                      Consolidated Balance Sheets at December 31, 1996 and 1995......................  31

                      Consolidated Statements of Operations for the Years Ended December 31, 1996,
                      1995 and 1994..................................................................  32

                      Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
                      1995 and 1994..................................................................  33

                      Consolidated Statements of Mandatorily Redeemable Preferred Stock and Preferred
                      and Common Stockholders' Equity................................................  34

                      Notes to Consolidated Financial Statements.....................................  35

           (2)        Financial Statement Schedules

                      Schedule II--Valuation and Qualifying Accounts for the Years Ended December
                      1996, 1995 and 1994............................................................  51

                      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)..............  52
</TABLE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER           DESCRIPTION
---------------  ------------------------------------------------------------------------------------------------
<S>              <C>
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(1)           Bylaws of Registrant.
9.1(1)           Amended and Restated Shareholders' Agreement dated April 25, 1994.
10.1(1)          Form of Indemnification Agreement.
10.2(3)          Amended and Restated 1991 Stock Plan (amended as of May 28, 1996) 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(1)          1995 Directors' Option Plan and form of Option Agreement.
10.5(1)          Amended and Restated Investors' Rights Agreement among the Registrant and certain
                   securityholders 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.
</TABLE>

                                       47
<PAGE>
<TABLE>
<S>              <C>
10.9(1)(6)       Reseller Purchase Agreement between the Company and Cabletron Systems, Inc. dated September 29,
                   1992.
10.10(1)(6)      OEM Agreement between the Company and Cabletron Systems, Inc. dated December 28, 1992.
10.11(1)(6)      Development Agreement between the Company and Cabletron Systems, Inc. dated September 29, 1992.
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 Company 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.
10.17(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, dated
                   September 30, 1996.
10.26(4)         Real Estate Lease between TyLink and Thomas J. Flatley d/b/a The Flatley Company, dated May 14,
                   1991.
11.1             Computation of Net Income (Loss) Per Share.
22.1             Subsidiaries of the Company.
23.1             Consent of Ernst & Young LLP, Independent Auditors.
23.2             Consent of Price Waterhouse LLP, Independent Accountants.
24.1             Power of Attorney.
</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.

                                       48
<PAGE>
(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.

(b) Reports on Form 8-K
    A report on Form 8-K (with a report date of August 23, 1996) was filed on
    September 6, 1996, describing the acquisition of TyLink Corporation. The
    item reported thereunder was Item 2 (Acquisition or Disposition of Assets).
    On November 8, 1996, an amendment to this Form 8-K was filed on Form 8-K/A.
    The item reported thereunder was Item 7 (Financial Statements and Exhibits).
    The audited financial statements of TyLink Corporation filed therewith
    contained balance sheets as of March 29, 1996 and March 31, 1995 and
    statements of operations, of mandatorily redeemable preferred stock and
    common stockholders' deficit and of cash flows for the three years ended
    March 29, 1996. The unaudited pro forma combined, condensed financial
    statements for Sync and TyLink filed therewith contained statements of
    operations for the three years ended December 31, 1993, 1994 and 1995 and
    the six months ended June 30, 1996 and balance sheets as of December 31,
    1995 and June 30, 1996.

                                       49
<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, in the City of Irvine,
State of California, on March 31, 1997.

                                SYNC RESEARCH, INC.

                                By:            /s/ RONALD J. SCIOSCIA
                                     -----------------------------------------
                                                 Ronald J. Scioscia
                                           VICE PRESIDENT OF FINANCE AND
                                                   ADMINISTRATION
                                            AND CHIEF FINANCIAL OFFICER

    KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John H. Rademaker and Ronald J. Scioscia, 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 in the
capacities and on the dates indicated:

          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------

    /s/ JOHN H. RADEMAKER
------------------------------  Chief Executive Officer,      March 31, 1997
      John H. Rademaker           Director

      /s/ ROGER A. DORF
------------------------------  President, Chief Operating    March 31, 1997
        Roger A. Dorf             Officer and Director

    /s/ RONALD J. SCIOSCIA      Vice President of Finance
------------------------------    and Administration and      March 31, 1997
      Ronald J. Scioscia          Chief Financial Officer

      /s/ GREGORIO REYES
------------------------------  Chairman of the Board of      March 31, 1997
        Gregorio Reyes            Directors

   /s/ DOUGLAS C. CARLISLE
------------------------------  Director                      March 31, 1997
     Douglas C. Carlisle

 /s/ ROBERT J. FINOCCHIO, JR.
------------------------------  Director                      March 31, 1997
   Robert J. Finocchio, Jr.

   /s/ CHARLES A. HAGGERTY
------------------------------  Director                      March 31, 1997
     Charles A. Haggerty

    /s/ WILLIAM J. O'MEARA
------------------------------  Director                      March 31, 1997
      William J. O'Meara

                                       50
<PAGE>
                              SYNC RESEARCH, INC.
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                                                  DEDUCTIONS/
                                                     BALANCE AT                   RECOVERIES                     BALANCE AT
                                                    BEGINNING OF                      AND                          END OF
DESCRIPTION                                            PERIOD       ADDITIONS     WRITE-OFFS    ADJUSTMENTS(1)     PERIOD
-------------------------------------------------  --------------  ------------  -------------  --------------  ------------
<S>                                                <C>             <C>           <C>            <C>             <C>
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

1995
  Allowance for doubtful accounts receivable.....    $  251,956    $    158,705   $  (102,533)    $       --     $  308,128
  Inventory reserves.............................       147,750         769,842       (97,592)            --        820,000

1994
  Allowance for doubtful accounts receivable.....    $  159,172    $    133,050   $   (40,266)    $       --     $  251,956
  Inventory reserves.............................       133,852          48,166       (34,268)            --        147,750
</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.

                                       51
<PAGE>
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     DESCRIPTION                                                                                           PAGE
-----------  -------------------------------------------------------------------------------------------------     -----
<C>          <S>                                                                                                <C>
      11.1   Computation of Net Income (Loss) Per Share.......................................................          53

      22.1   Subsidiaries of the Company......................................................................          54

      23.1   Consent of Ernst & Young, LLP, Independent Auditors..............................................          55

      23.2   Consent of Price Waterhouse, LLP, Independent Accountants........................................          56

      24.1   Power of Attorney (see page 50)..................................................................
</TABLE>

                                       52