UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     For the quarterly period ended September 30, 1998

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     FOR THE TRANSITION PERIOD OF FROM __________________ TO ________________

Commission file number 0-21077

                        INTERLINK COMPUTER SCIENCES, INC.
             (Exact name of registrant as specified in its charter)


            Delaware                                     94-2990567
    (State of incorporation)                (IRS Employer Identification Number)


                             47370 Fremont Boulevard
                            Fremont, California 94538
                                 (510) 657-9800

          (Address and telephone number of principal executive offices)

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

Indicate by check mark whether  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,  and (2) has been subject to such filing  requirements
for the past 90 days.

                                  YES _X_ NO __


8,271,797  shares of the  registrant's  Common  stock,  $0.001 par  value,  were
outstanding as of November 1, 1998.

                                       1

<PAGE>


                        INTERLINK COMPUTER SCIENCES, INC.
                                AND SUBSIDIARIES

                                    CONTENTS

                                                                            Page
                                                                            ----
                          PART I: FINANCIAL INFORMATION

Item 1.   Financial Statements
              Condensed Consolidated Balance Sheets:
                  September 30, 1998 and June 30, 1998.........................4
              Condensed Consolidated Statements of Operations:
                  Three months ended September 30, 1998 and 1997...............5
              Condensed Consolidated Statements of Cash Flows:
                  Three months ended September 30, 1998 and 1997...............6
              Notes to Condensed Consolidated Financial Statements.............7

Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations.............................12


                           PART II: OTHER INFORMATION

Item 1    Legal Proceedings...................................................29
Item 6    Exhibits and Reports on Form 8-K....................................29

Signatures    ................................................................30

                                       2

<PAGE>


                          PART I: FINANCIAL INFORMATION



                                       3

<PAGE>


<TABLE>
                                         INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
                                                CONDENSED CONSOLIDATED BALANCE SHEETS
                                                           (in thousands)

<CAPTION>
                                                                                                   September 30,           June 30,
                                                                                                       1998                  1998
                                                                                                     --------              --------
                                                                                                    (unaudited)
<S>                                                                                                  <C>                   <C>     
ASSETS:
    Cash and cash equivalents ..........................................................             $ 16,816              $ 18,189
    Accounts receivable, net ...........................................................                9,243                 8,876
    Inventories ........................................................................                  366                   380
    Current deferred tax asset .........................................................                7,499                 7,497
    Other current assets ...............................................................                  704                   492
                                                                                                     --------              --------
      Total current assets .............................................................               34,628                35,434
    Property and equipment, net ........................................................                2,703                 2,392
    Long-term deferred tax asset .......................................................                3,615                 3,165
    Purchased software products & other non-current assets .............................                1,378                 1,341
                                                                                                     --------              --------
      Total assets .....................................................................             $ 42,324              $ 42,782
                                                                                                     ========              ========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:
    Accounts payable ...................................................................                  941                   793
    Current portion of long-term debt ..................................................                  782                 1,031
    Accrued compensation ...............................................................                2,087                 1,879
    Accrued income taxes ...............................................................                1,304                 1,328
    Other accrued liabilities ..........................................................                3,381                 3,544
    Deferred maintenance and product revenue ...........................................                6,366                 6,828
                                                                                                     --------              --------
      Total current liabilities ........................................................               14,861                15,403
Long-term debt, less current portion ...................................................                  123                   132
Deferred maintenance revenue ...........................................................                1,622                 1,421
Other liabilities ......................................................................                1,630                 1,692
Liabilities retained in connection with sale of HARBOR .................................                  987                 1,109
                                                                                                     --------              --------
      Total liabilities ................................................................               19,223                19,757
                                                                                                     --------              --------
Commitments and contingencies (Note 5)
Common stock ...........................................................................                    8                     8
Additional paid-in capital .............................................................               52,549                52,505
Cumulative translation adjustment ......................................................                 (485)                 (525)
Accumulated deficit ....................................................................              (28,971)              (28,963)
                                                                                                     --------              --------
      Total stockholders' equity .......................................................               23,101                23,025
                                                                                                     --------              --------
      Total liabilities and stockholders' equity .......................................             $ 42,324              $ 42,782
                                                                                                     ========              ========

<FN>
                                See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>

                                                                 4

<PAGE>


<TABLE>
                                         INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
                                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                              (in thousands, except per share amounts)

<CAPTION>
                                                                                                             September 30,
                                                                                                       1998                  1997
                                                                                                     --------              --------
                                                                                                               (unaudited)
<S>                                                                                                  <C>                   <C>     
Revenues:
    Product ............................................................................             $  4,523              $  2,833
    Maintenance and consulting .........................................................                3,731                 3,482
                                                                                                     --------              --------
      Total revenues ...................................................................                8,254                 6,315
                                                                                                     --------              --------

Cost of revenues:
    Product ............................................................................                  208                   392
    Maintenance and consulting .........................................................                  923                 1,217
                                                                                                     --------              --------
      Total cost of revenues ...........................................................                1,131                 1,609
                                                                                                     --------              --------

Gross profit ...........................................................................                7,123                 4,706
                                                                                                     --------              --------

Operating expenses:
    Product development ................................................................                2,732                 2,318
    Sales and marketing ................................................................                3,693                 2,778
    General and administrative .........................................................                1,100                 1,324
    Purchased research and development and product amortization ........................                   17                 3,746
    Loss (recovery) on sale of HARBOR ..................................................                 (271)                 --
                                                                                                     --------              --------
      Total operating expenses .........................................................                7,271                10,166
                                                                                                     --------              --------

Operating loss .........................................................................                 (148)               (5,460)

Interest and other income, net .........................................................                  136                   265
                                                                                                     --------              --------

Loss before provision for income taxes .................................................                  (12)               (5,195)

Benefit from income taxes ..............................................................                    4                 1,454
                                                                                                     --------              --------

Net Loss ...............................................................................             $     (8)             $ (3,741)
                                                                                                     ========              ========

Net loss per share
    Basic ..............................................................................             $  (0.00)             $  (0.50)
    Diluted ............................................................................             $  (0.00)             $  (0.50)

Shares used in per share calculation
    Basic ..............................................................................                8,177                 7,557
    Diluted ............................................................................                8,177                 7,557

<FN>
                                See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>

                                                                 5

<PAGE>


<TABLE>
                                         INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
                                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (in thousands)

<CAPTION>
                                                                                                    Three months ended September 30,
                                                                                                           1998              1997
                                                                                                         --------          --------
                                                                                                                  (unaudited)
<S>                                                                                                      <C>               <C>      
Cash flows from operating activities:
    Net loss ...................................................................................         $     (8)         $ (3,741)
    Adjustments to reconcile net loss to net cash used in operating activities:
      Purchased research and development .......................................................             --               3,599
      Depreciation and amortization ............................................................              328               503
      Provision for excess and obsolete inventory ..............................................               91               101
      Provision for (reduction in) doubtful accounts ...........................................               41                (7)
      Exchange loss (gain) .....................................................................             (133)               65
      Deferred income taxes ....................................................................               (2)           (1,080)
      Changes in operating assets and liabilities:
         Accounts receivable ...................................................................             (408)            2,916
         Inventories ...........................................................................               77              (100)
         Other assets ..........................................................................              (70)              343
         Accounts payable ......................................................................              147              (464)
         Accrued liabilities ...................................................................               21            (3,170)
         Deferred maintenance and product revenue ..............................................             (261)             (944)
         Other liabilities .....................................................................              (62)              (65)
                                                                                                         --------          --------
              Net cash used in operating activities ............................................             (393)           (2,044)
                                                                                                         --------          --------
Cash flows from investing activities:
    Acquisition of NetLOCK network security technology .........................................             --              (1,175)
    Acquisition of property and equipment ......................................................             (632)           (1,269)
    Capitalization of software development costs ...............................................             (177)             --
                                                                                                         --------          --------
              Net cash used in investing activities ............................................             (809)           (2,444)
                                                                                                         --------          --------
Cash flows from financing activities:
    Payments on capital lease obligations ......................................................               (8)              (68)
    Payments on notes payable and other ........................................................             (372)             (105)
    Proceeds from issuance of common stock, net ................................................               44                26
                                                                                                         --------          --------
              Net cash used in financing activities ............................................             (336)             (147)
                                                                                                         --------          --------
              Net decrease in cash and cash equivalents ........................................           (1,538)           (4,635)
                                                                                                         --------          --------
Effect of exchange rate changes on cash ........................................................              165               (49)
                                                                                                         --------          --------
Cash and cash equivalents, beginning of period .................................................           18,189            28,106
                                                                                                         --------          --------
Cash and cash equivalents, end of period .......................................................         $ 16,816          $ 23,422
                                                                                                         ========          ========

<FN>
                                See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>

                                                                 6

<PAGE>


               INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation:

These unaudited condensed consolidated financial statements included herein have
been  prepared  by  Interlink  Computer  Sciences,  Inc.  and  its  subsidiaries
(collectively,  the "Company") in accordance with generally accepted  accounting
principles  and reflect all  adjustments,  consisting  only of normal  recurring
adjustments,  which in the opinion of management are necessary to fairly present
the Company's consolidated financial position,  results of operations,  and cash
flows for the periods presented.  The financial  statements include the accounts
of the Company and its wholly owned subsidiaries after all material intercompany
balances and transactions  have been  eliminated.  The Notes to the Consolidated
Financial  Statements  contained  in the  fiscal  year 1998  report on Form 10-K
should  be read in  conjunction  with  these  Condensed  Consolidated  Financial
Statements.  The  consolidated  results of operations for the three months ended
September 30, 1998 are not necessarily  indicative of the results to be expected
for any  subsequent  period or for the entire  fiscal year ending June 30, 1999.
The June 30, 1998 balance sheet was derived from audited  financial  statements,
but does not include all disclosures  required by generally accepted  accounting
principles.

For  software  arrangements  entered  into  after  July  1,  1998,  the  Company
recognizes  revenue in  accordance  with  Statement  of Position  ("SOP")  97-2,
"Software  Revenue  Recognition." SOP 97-2 supercedes SOP 91-1 "Software Revenue
Recognition"  and  requires  that if an  arrangement  to deliver  software  or a
software  system  does not  require  significant  production,  modification,  or
customization  of software,  then revenue should be recognized  when  persuasive
evidence of an arrangement  exists,  delivery has occurred,  the vendor's fee is
fixed or determinable, and collectibility is probable.  Accordingly, the Company
will  generally  recognize  license fee revenue upon product  shipment  provided
there are no contingencies and collection is probable.

Cost of revenues  have been  restated for the three months ended  September  30,
1997,  to  include  the  freight  and  other  cost of sales in  product  cost of
revenues.  In prior periods these  expenses  were  included in  maintenance  and
consulting cost of revenues.

2.   Inventories:

Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.  Inventories  are  principally  comprised of finished goods at
September 30, 1998 and June 30, 1998.


3.   Comprehensive Income:

Comprehensive  income as defined by Statements of Financial Accounting Standards
No. 130, Reporting  Comprehensive  Income, is net income plus direct adjustments
to stockholders' equity.

                                       7

<PAGE>


                                                           Three months ended
                                                             September 30,
                                                          1998            1997
                                                         -------        -------
Comprehensive income::
Net loss .........................................       $    (8)       $(3,741)
Cumulative translation adjustment ................            40            (18)
                                                         -------        -------
  Total comprehensive income (loss) ..............       $    32        $(3,759)
                                                         =======        =======


4.   Computation of Net Income (Loss) Per Share:

The Company has adopted the  provisions  of Statement  of  Financial  Accounting
Standards No. 128 ("SFAS 128")  effective  December 31, 1997.  SFAS 128 requires
the presentation of basic and diluted earnings per share.  Basic EPS is computed
by dividing  income  available to common  shareholders  by the weighted  average
number of common shares  outstanding for the period.  Diluted EPS is computed by
giving  effect to all dilutive  potential  common  shares that were  outstanding
during the period. For the Company,  dilutive potential common shares consist of
the  incremental  common shares  issuable upon the exercise of stock options and
warrants for all periods. In accordance with SFAS 128, all prior period earnings
per share amounts have been restated to reflect this method of calculation.

Basic and  diluted  earnings  per share  during  the three  month  period  ended
September 30, 1998 and 1997 are  calculated as follows (in thousands  except for
per share amounts):


                                                             Three months ended
                                                               September 30,
                                                            1998         1997
                                                           -------      -------
Basic:
    Weighted average shares ..........................       8,177        7,557
                                                           -------      -------
    Shares used in per share calculation .............       8,177        7,557
                                                           -------      -------
    Net loss .........................................     $    (8)     $(3,741)
                                                           =======      =======
    Net loss per share ...............................     $ (0.00)     $ (0.50)
                                                           =======      =======

Diluted:
    Weighted average shares ..........................       8,177        7,557
    Common equivalent shares from stock options
      and warrants ...................................        --           --
                                                           -------      -------
    Shares used in per share calculation .............       8,177        7,557
                                                           =======      =======
    Net loss .........................................     $    (8)     $(3,741)
                                                           =======      =======
    Net loss per share ...............................     $ (0.00)     $ (0.50)
                                                           =======      =======


Options and  warrants to purchase  the  following  shares of common stock at the
indicated  range of price per share  were  outstanding  during  the three  month
period  ended  September  30,  1998  and  1997,  but were  not  included  in the
computation  of diluted  earnings per share  because the  exercise  price of the
options and  warrants  was greater  than the average  market price of the common
shares for each  period or the  inclusion  of the  options  and  warrants in the
diluted per share  calculation  was  antidilutive  (in thousands  except for per
share amounts):

                                       8

<PAGE>


                                    Options and warrants             Range of
                                           excluded              exercise prices
                                           --------              ---------------
Three months ended:
     September 30, 1998                     2,038                   $0.70-$14.00
     September 30, 1997                     1,909                   $0.70-$16.25


5.   Contingencies:

The  Company  is  involved  in  a  commercial  dispute  with  a  former  Italian
distributor  ("Claimant"),  which has  alleged  that the  Company and two of its
subsidiaries  have breached and unlawfully  terminated  various  distributorship
agreements for  distribution  of the Company's  TCPaccess and HARBOR products in
Italy,  and which  has  asserted  various  claims in two  lawsuits  against  the
Company, its subsidiaries, and several officers of the Company.

In January 1997,  the Claimant  initiated a lawsuit in Milan,  Italy against the
Company's  Canadian  Subsidiary,  New Era Systems Services Ltd. ("New Era"); the
Company; the Company's French subsidiary,  Interlink France S.A.R.L. ("Interlink
France");  and the Company's current  distributor in Italy, an unrelated Italian
Corporation.  The  litigation  is based on the  Claimant's  distribution  of the
Company's  HARBOR  products  pursuant to a  distributor  agreement  with New Era
Systems  Services  Ltd., an affiliated  Irish  corporation  ("New Era Ireland"),
which   pre-dates  the  Company's   acquisition  of  New  Era.  The  distributor
relationship  with the Claimant for the distribution of HARBOR products in Italy
and Spain has terminated.  Pursuant to court documents, Claimant alleges damages
for breach of contract  and related  tort claims in the amount of  2,500,000,000
Italian Lira (approximately $1,500,000) and requests that the defendants pay all
expenses  resulting  from the  litigation.  New Era  Ireland has filed a lawsuit
against  the  Claimant in Ireland  for  recovery  of amounts due on  outstanding
invoices and a declaration that the distributor relationship has terminated.

In March  1997 the  Claimant  initiated  a separate  lawsuit in Alameda  County,
California against the Company, certain officers of the Company and of Interlink
France,  and  the  Company's  current  Italian  distributor.  In the  complaint,
Claimant alleges various tort claims related to the defendants'  alleged actions
with respect to prior distribution agreements between Claimant, the Company, and
Interlink France for distribution of the Company's  TCPaccess products in Italy.
The claims  alleged  include  fraud,  deceit,  defamation,  trade libel,  unfair
competition,   misappropriation,   breach  of  confidential  relationship,   and
conversion.  Claimant  demands  compensatory  damages  in excess of  $2,000,000,
unspecified  punitive  damages,  interest,  attorneys'  fees,  and  costs of the
litigation.  The Company has  successfully  moved to compel  arbitration  of the
claims in accordance with the arbitration clauses in the earlier distributorship
agreements  with the  Claimant.  The lawsuit was stayed as to all parties by the
Alameda  County  Superior  Court pending  arbitration  of the claims against the
Company.

On or about March 9, 1998 the Claimant initiated arbitration  proceedings in San
Francisco,  California under the International Chamber of Commerce ("ICC") Rules
of  Arbitration.  The  request  for  arbitration  alleges  claims  for breach of
contract,   fraudulent  inducement,  trade  libel,  use  of  trade  secrets  and
confidential information, unfair business practices, interference with

                                       9

<PAGE>


customers and improper use of confidential  information  and ideas.  The request
seeks  damages  in  the  amount  of  $3,000,000,  plus  punitive  damages  in an
unspecified  amount,  less an offset for amounts owed to Interlink France, and a
constructive trust.

The  Company  has denied that it breached  any  agreement  with the  Claimant or
engaged in any  wrongful  or  fraudulent  conduct as the  Claimant  alleges.  In
addition,  the Company has  counterclaimed  against the  Claimant  for breach of
contract,  claiming damages in an unspecified amount to be determined  according
to proof.

On or about June 12, 1998 the parties agreed to a sole arbitrator.  Discovery is
proceeding. Arbitration hearings are currently scheduled to occur in March 1999.

The Company has accrued $350,000 for settlement of any liability that may result
upon resolution of these matters. No estimate of the ultimate liability that may
result upon the  resolution of these matters is presently  determinable.  Should
the Company be  unsuccessful  in defending  any of these  claims,  the Company's
business,  financial  condition  and results of  operations  could be materially
adversely affected.

6. Supplemental Cash Flow Disclosures (in thousands):

                                                              Three months ended
                                                                September 30,
                                                                1998     1997
                                                               ------   ------
Interest paid ..............................................   $    4   $    5
Income taxes paid ..........................................     --      1,205
Non cash transactions from financing activities:
    Liabilities assumed in connection with the purchase
     of the NetLOCK network security technology ............     --      1,876


7.  Concentrations of  Revenues:

During the three months ended  September 30, 1998,  12% of the  Company's  total
revenues were derived from sales to a large  telecommunications  company. During
the three months ended  September 30, 1997, 13% of the Company's  total revenues
were derived from sales to and through Cisco Systems, Inc. ("Cisco").

8.  Recent Pronouncements:

In June 1997,  The  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 131 (SFAS 131), Disclosures about Segments of
an Enterprise and Related Information.  This statement establishes standards for
disclosure about operating segments in annual financial  statements and selected
information in interim  financial  reports.  It also  establishes  standards for
related  disclosures  about  products and services,  geographic  areas and major
customers. This statement supersedes Statement of Financial Accounting Standards
No. 14,  Financial  Reporting  for  Segments of a Business  Enterprise.  The new
standard became  effective for the Company's  fiscal year 1999. The Company will
adopt the requirements of

                                       10

<PAGE>


SFAS 131 and provide all  disclosures  necessary in the Company's  annual report
for fiscal year 1999.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  and for hedging activities.  It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statements of financial  position and measure those  instruments  at fair value.
Management  has not yet  evaluated  the effects of this change on its  financial
position and its results of  operations.  The Company will adopt SFAS No. 133 as
required for its first quarterly filing of fiscal 2000.

                                       11

<PAGE>


         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

The following  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties.  The Company's actual results could differ  materially from those
discussed  herein.  Factors that could cause or contribute  to such  differences
include,  but are not limited to, those  discussed in the section below entitled
"Risk Factors That May Affect Future  Results," as well as those risks discussed
in this section and elsewhere in this Report.

Overview

The Company offers a suite of high-performance  solutions for enterprise systems
networking.  Interlink  provides software and services which enable customers to
use their IBM and  IBM-compatible  MVS  mainframes  as  "enterprise  servers" in
distributed,  heterogeneous client/server network environments.  The Company was
incorporated  in December 1985 and registered its shares on the Nasdaq  National
Market System on August 15, 1996.

In  January  1997 the  Company  entered  into a  strategic  alliance  with Cisco
Systems,  Inc.  ("Cisco")  pursuant  to which  Cisco and the  Company  agreed to
cooperate  to  develop  certain  TCP/IP  software  known as Cisco  IOS for S/390
("IOS/390").  Pursuant to the agreement,  Cisco had principal responsibility for
all TCP sales,  with Interlink field personnel  providing  training and support.
Early experience with this sales structure was unsatisfactory and in August 1997
Cisco and  Interlink  restated  the  agreement  to allow the  Company  to resell
IOS/390 and, once again,  independently market and sell TCPaccess.  Either Cisco
or the  Company may  terminate  the current  relationship  upon 90 days  written
notice.

In September 1997, the Company acquired the NetLOCK network security  technology
from Hughes  Electronics  Corporation and recorded a charge in its first quarter
of  fiscal  year 1998 of  approximately  $3.1  million  relating  to  in-process
software  development.  Revenue  from the NetLOCK  product  commenced in January
1998.  Revenue to date from this product line has not been a significant  source
of revenue for the Company.

In December  1997, the Company sold its HARBOR product line , which was acquired
in  conjunction  with the  acquisition  of New Era Systems  Services,  Ltd.  and
recorded a charge of $2.2 million,  offset by a tax benefit of $3.2 million. The
sale of the HARBOR  product  line  resulted in a charge to earnings  because the
Company  guaranteed  a Canadian  loan in the amount of $1.2  million,  which was
assumed by the buyers, and because the notes receivable of $1.9 million from the
sale could not presently be recognized.

In January 1998, the Company purchased  Networkers  Engineering  Limited and the
customer  contracts of a related business,  for a combined cost of approximately
$2.9  million,  of which  approximately  $2.6  million was charged to  purchased
research and development in the quarter ended March 31, 1998.

                                       12

<PAGE>


Results of Operations

The  following  table sets forth,  as a percentage  of total  revenues,  certain
condensed consolidated statement of operations data for the periods indicated:


                                                              Three months ended
                                                                 September 30,
                                                                1998       1997
                                                                -----     -----
Revenues:
        Product ..........................................       54.8%     44.9%
        Maintenance and consulting .......................       45.2      55.1
                                                                -----     -----
             Total revenues ..............................      100.0     100.0
                                                                -----     -----

Cost of revenues:
        Product ..........................................        2.5       6.2
        Maintenance and consulting .......................       11.2      19.3
                                                                -----     -----
             Total cost of revenues ......................       13.7      25.5
                                                                -----     -----

Gross profit .............................................       86.3      74.5
                                                                -----     -----

Operating expenses:
        Product development ..............................       33.1      36.7
        Sales and marketing ..............................       44.7      44.0
        General and administrative .......................       13.3      21.0
        Purchased research and development
            and product amortization .....................        0.2      59.3
        Loss (recovery) on sale of  HARBOR ...............       -3.3       --
                                                                -----     -----
             Total operating expenses ....................       88.1     161.0
                                                                -----     -----

Operating loss ...........................................       -1.8     -86.5
Interest and other income, net ...........................        1.7       4.2
                                                                -----     -----
        Loss before income taxes .........................       -0.1     -82.3
                                                                -----     -----
Benefit from income taxes ................................        0.0      23.0
                                                                -----     -----
        Net loss .........................................       -0.1%    -59.3%
                                                                =====     =====

Cost of sales as a percentage of the related revenues:
        Product ..........................................        4.6%     13.8%
        Maintenance and consulting .......................       24.7%     35.0%


Revenues:

Total  revenues  were $8.3  million and $6.3  million for the three months ended
September  30,  1998 and 1997,  respectively,  representing  an increase of 32%.
Product  sales were $4.5  million and $2.8  million for the three  months  ended
September 30, 1998 and 1997, respectively, representing an increase of 61%. This
increase  resulted  primarily  from  sales of the new  e-Control  product  which
contributed  $1.7  million in product  revenue  for the first  quarter of fiscal

                                       13

<PAGE>


1999. Maintenance and consulting revenues were $3.7 million and $3.5 million for
the three months ended September 30, 1998 and 1997,  respectively,  representing
an increase of 6%.

Cost of Revenues:

Product.  Cost of revenues  from product sales  consists  primarily of hardware,
product media, documentation, shipping and packaging costs. Cost of revenues for
product  sales  was  $208,000  and  $392,000,  representing  4% and 14% of total
product  revenues  for the  three  months  ended  September  30,  1998 and 1997,
respectively. This resulted primarily from decreases in hardware and third-party
product sales which carry higher costs of product revenue.

Maintenance  and  Consulting.  Cost of revenues from  maintenance and consulting
consists  primarily of personnel  related costs incurred in providing  telephone
support,  consulting and software updates. Cost of revenues from maintenance and
consulting  was $923,000  and $1.2 million for the three months ended  September
30, 1998 and 1997,  representing 25% and 35% of total maintenance and consulting
revenues,  respectively.  This decrease in maintenance and consulting costs as a
percentage  of the  related  revenue  is due to lower  support  headcount  which
resulted  from  the  sale  of the  HARBOR  product  line,  which  had a  smaller
maintenance revenue base relative to the Company's other products.

Operating Expenses:

Total operating  expenses were $7.3 million and $10.2 million,  representing 88%
and 161% of total  revenues for the three months  ended  September  30, 1998 and
1997, respectively. The decrease in total operating expenses is primarily due to
the purchased  research and development  expense  relating to the acquisition of
NetLOCK incurred in the quarter ended September 30, 1997. See further discussion
below.

Product Development. Product development expenses consist primarily of personnel
related costs.  Product development expenses were $2.7 million and $2.3 million,
representing  33% and 37% of total revenues for the three months ended September
30, 1998 and 1997,  respectively.  This increase in product development expenses
resulted  from the  expansion of the  Company's  product line as a result of the
acquisition of Networkers  Engineering  Limited and the NetLOCK network security
technology and ongoing  product  development  efforts,  offset  partially by the
reduction of product development related to the sale of the HARBOR product line.

Sales and Marketing.  Sales and marketing expenses consist primarily of salaries
and commissions for sales and marketing personnel,  the fixed costs of worldwide
sales offices, and promotional costs. The Company sells through its direct sales
force,  resellers and  distributors.  The direct channel produced 89% and 77% of
product  revenues  for the  three  months  ended  September  30,  1998 and 1997,
respectively.  Sales and marketing  expenses were $3.7 million and $2.8 million,
representing 45% and 44% of total revenues for the three months ending September
30,  1998 and 1997,  respectively.  The  increase  was the  result of  increased
headcount in both sales and marketing and increased  marketing  expenses related
to the introduction of the Company's new products.

                                       14

<PAGE>


General  and  Administrative.   General  and  administrative   expenses  include
personnel  and  other  costs  of  the  finance,   human  resources,   legal  and
administrative  departments  of the  Company  and  includes  gains and losses on
foreign currency  transactions.  General and  administrative  expenses were $1.1
million and $1.3  million,  representing  13% and 21% of total  revenues for the
three  months  ended  September  30, 1998 and 1997,  respectively.  The decrease
primarily relates to foreign currency  transaction gains of $133,000  recognized
during  the  three  months  ending  September  30,  1998  and  foreign  currency
transaction  losses  of  $65,000  recognized  during  the  three  months  ending
September 30, 1997.

Purchased Research and Development and Product Amortization.  Purchased research
and  development  and  product   amortization  was  $17,000  and  $3.7  million,
representing  less than 1% and 59% of total  revenues for the three months ended
September 30, 1998 and 1997, respectively. A charge of $3.1 million was recorded
for purchased  research and  development  related to the NetLOCK  acquisition in
September  1997. A  write-down  of $550,000  relating to purchased  research and
development in connection with the HARBOR  acquisition was recorded in September
1997.

Loss  (Recovery) on Sale of HARBOR Product Line. The loss  (recovery) on sale of
the HARBOR product line was  ($271,000),  representing  3% of total revenues for
the three months ended  September 30, 1998.  The sale of the HARBOR product line
occurred  in  December  1997  and  included  the  establishment  of a  valuation
allowance related to certain assets and liabilities and the continuing guarantee
by the  Company of a  Canadian  loan in the  amount of $1.2  million,  which was
assumed by the buyers. The recovery is a result of payments on the Canadian loan
by the buyer and  collections  on a note  receivable  which had a full valuation
allowance against it.

Interest and Other  Income,  Net. Net interest and other income was $136,000 and
$265,000 for the three months ended  September 30, 1998 and 1997,  respectively.
The decrease in net interest and other income was due primarily to less interest
earned as a result of lower cash balances.

Benefit  from Income  Taxes.  The benefit  from income taxes was $4,000 and $1.5
million for the three months ended  September  30, 1998 and 1997,  respectively.
The effective tax rate was  approximately 33% and 28% for the three months ended
September 30, 1998 and 1997, respectively.

Liquidity and Capital Resources

Working  capital was $19.8  million and $20.0  million at September 30, 1998 and
June 30, 1998, respectively.

For the three  months  ended  September  30,  1998,  net cash used in  operating
activities  resulted  primarily  from an  increase  in  accounts  receivable,  a
decrease in deferred  maintenance  and product  revenue,  and an exchange  gain,
partially offset by depreciation and  amortization,  and an increase in accounts
payable.  For the  three  months  ended  September  30,  1997,  net cash used in
operating  activities  resulted  primarily from a net loss,  decrease in accrued
liabilities, decrease in

                                       15

<PAGE>


deferred  maintenance and product  revenue,  and an increase in the deferred tax
asset,  partially offset by a decrease in accounts receivable and a write-off of
purchased research and development.

For  the  three  months  ended  September  30,  1998,  the  Company's  investing
activities  consisted  primarily  of purchases  of property  and  equipment  and
capitalization  of  software  development  costs.  For the  three  months  ended
September 30, 1997, the Company's  investing  activities  consisted primarily of
the acquisition of NetLOCK network security technology and purchases of property
and equipment.

For  the  three  months  ended  September  30,  1998,  the  Company's  financing
activities  consisted  primarily  of  payments on notes  payable.  For the three
months ended September 30, 1997, the Company's  financing  activities  consisted
primarily  of  payments  on capital  lease  obligations  and  payments  on notes
payable.

At  September  30,  1998,  the  Company  had  $16.8  million  in cash  and  cash
equivalents.  The  Company  had $9.2  million  in  accounts  receivable,  net of
allowance  for doubtful  accounts,  and $8.0 million of unearned  revenues,  the
majority of which are expected to be earned over the 12 month  period  following
September 30, 1998.

The Company believes that its current cash and cash equivalents balances as well
as its  cash  flow  from  operations,  if any,  will be  sufficient  to meet its
anticipated  working capital and capital  expenditure  requirements for at least
the next 12 months.

                                       16

<PAGE>


RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

New Products and Rapid Technological Change

The markets for the Company's  network  transport  products,  system  management
products and network  security  products are  characterized  by rapidly changing
technologies,  evolving industry standards,  frequent new product  introductions
and rapid changes in customer requirements. The Company believes that its future
success will depend upon its ability to develop, manufacture and market products
which meet  changing  user needs,  to continue  to enhance its  products  and to
develop and  introduce in a timely  manner new products  that take  advantage of
technological advances, keep pace with emerging industry standards,  and address
the increasingly sophisticated needs of its customers. There can be no assurance
whether  TCP/IP will  continue to be  accepted as a  communications  protocol on
client/server networks.  Furthermore, there can be no assurance that the Company
will be  successful in  acquiring,  developing or marketing,  on a timely basis,
product  enhancements or new products (including the IOS/390 product,  e-Control
product and NetLOCK),  either  independently  or with strategic  partners,  that
respond to technological change or evolving industry standards, that the Company
will not  experience  difficulties  that could delay or prevent  the  successful
development,  introduction  and  sale of  these  products  or that  any such new
products or product  enhancements  will adequately meet the  requirements of the
marketplace and achieve market acceptance. The Company's failure or inability to
adapt its  products  to  technological  changes or to  acquire  or  develop  new
products  successfully  would have a material  adverse  effect on the  Company's
business, financial condition and results of operations.

The  introduction  or  announcement of products by the Company or one or more of
its competitors,  including, but not limited to IBM, embodying new technologies,
or changes in customer  requirements or the emergence of new industry  standards
and  practices  could  render  the  Company's  existing  products  obsolete  and
unmarketable. There can be no assurance that the introduction or announcement of
new product  offerings by the Company or one or more of its competitors will not
cause customers to defer purchasing the existing products of the Company or that
the Company will  successfully  manage the transition from older products.  Such
deferment of purchases or inability to manage the  transition of products  could
have a material adverse effect on the Company's  business,  financial  condition
and results of  operations.  In  addition,  there can be no  assurance  that the
Company will successfully identify new product opportunities,  develop and bring
to market in a timely manner such new products, or that products or technologies
developed  by others  will not render the  Company's  products  or  technologies
noncompetitive or obsolete.

Competition

General.  The market in which the Company operates is intensely  competitive and
is characterized by extreme price  competition and rapid  technological  change.
The  competitive  factors  influencing  the markets for the  Company's  products
include  product  performance,   price,  reliability,   features,   scalability,
interoperability across multiple platforms, adherence to industry standards, and
the provision of support and maintenance  services.  The Company competes with

                                       17

<PAGE>


a number of companies,  principally  IBM, that  specialize in one or more of the
Company's  product  lines,  and such  competitors  may have  greater  financial,
technical, sales and marketing resources to devote to the development, promotion
and sale of their products, as well as longer operating histories,  greater name
recognition,  and greater  market  acceptance  for their  products  and services
compared to those of the Company.  There can be no assurance  that the Company's
current  competitors  or any new  market  entrants  will not  develop  networked
systems  management  products  or  other  technologies  that  offer  significant
performance,  price or other  advantages  over the Company's  technologies,  the
occurrence  of which  would  have a  material  adverse  effect on the  Company's
business, financial condition and results of operations.

Network Transport Products. The Company sells its IOS/390 and TCPaccess suite of
products to customers  who have  installed  mainframes  using the MVS  operating
system. The Company's main competition for its IOS/390 and TCPaccess products is
IBM. IBM sells TCP/IP and associated products for its MVS mainframe systems that
compete directly with the Company's  IOS/390 and TCPaccess product line. IBM has
continued to enhance the  functionality  and  performance of its TCP/IP product,
which  enhancements  may require the Company to update its IOS/390 and TCPaccess
product to remain  competitive.  There can be no assurance that the Company will
be able to make the improvements in its IOS/390 and TCPaccess products necessary
to remain  competitive  with IBM or that any such  improvements by IBM would not
have a material adverse effect on the Company's business, financial condition or
results of operations.  In addition, IBM includes TCP/IP communications software
in a bundle of software provided to purchasers of their OS/390 operating system.
An IBM  customer  can request to have the IBM TCP/IP  product  removed  from the
software  bundle  provided by IBM and thereby  reduce the purchase  price of the
system  purchased.  The reduction in the purchase price related to the exclusion
of IBM's  TCP/IP for MVS product  from its  software  bundle,  in certain  model
groups, is substantially  lower than the price the customer would have to pay to
purchase the Company's  corresponding  IOS/390 and TCPaccess  products.  Because
IBM's  TCP/IP  product  may be less  expensive  to purchase  than the  Company's
corresponding  IOS/390 and TCPaccess products there could be substantial erosion
of the  Company's  margins if the  Company  reduces the price of its IOS/390 and
TCPaccess  products in order to compete  against IBM, which erosion would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  Principle  competition for the Company's X.25 product is
from  IBM's  specialized  front  end  processors  which  process  X.25  protocol
communications from the network to the mainframe.  CICS Programmers Toolkit is a
specialized application and has no direct competition as a product. However, the
benefits  provided by CPT can also be provided by IBM's CICS Sockets,  which are
part of the OS/390 operating system.

Systems  Management  Products.  The primary  competitors  for e-Control  include
Tivoli Systems (an IBM company) with its various  framework  products  including
NetView,  Sterling Software, Inc. with its NetMaster for TCP/IP product, Applied
Expert Systems and TDSLink.  Many other companies in the computer  industry have
announced products and plans to compete in the market for management and control
of computer  systems and  networks.  The  Company's  Enterprise  Print  Services
competes  principally with IBM's IP-PrintWay & NetSpool,  as well as Levi, Ray &
Shoup, Inc. with their VPS product.

                                       18

<PAGE>


Network Security Products.  The primary competitors for the NetLOCK products are
Snare Networks, Kyberpass, Cylink, Time Step, Red Creek Communications Inc., and
V-One  Technologies,  Inc. In addition,  security products comparable to NetLOCK
are  currently  available  and are  already  incorporated  into  some  operating
systems, thereby significantly diminishing the market for NetLOCK.

Other Factors.  The Company's  ability to compete  successfully  depends on many
factors,  including  the  Company's  success in  developing  new  products  that
implement new technologies,  performance,  price, product quality,  reliability,
and the success of  competitors'  products,  general  economic  conditions,  and
protection  of  Interlink  products by  effective  utilization  of  intellectual
property  laws.  In  particular,  competitive  pressures  from  existing  or new
competitors who offer lower prices or other incentives or introduce new products
could result in price  reductions  which would  adversely  affect the  Company's
profitability. There can be no assurance that the Company's current or other new
competitors  will  not  develop  enhancements  to,  or  future  generations  of,
competitive products that offer superior price or performance features, that the
Company will be able to compete  successfully in the future, or that the Company
will  not be  required  to  incur  substantial  additional  investment  costs in
connection with its engineering,  research, development,  marketing and customer
service  efforts in order to meet any  competitive  threat.  The Company expects
competition  to intensify,  and increased  competitive  pressure could cause the
Company to lower prices for its products, or result in reduced profit margins or
loss of market share,  any of which could have a material  adverse effect on the
Company's business, financial condition and results of operations.

Dependence on Current Products

During the three months ended September 30, 1998 and 1997,  sales of the network
transport products,  excluding  maintenance and consulting revenues and hardware
sales, accounted for approximately 51% and 67%,  respectively,  of the Company's
total  revenues.   The  Company's   operating  results  have  historically  been
significantly  dependent upon sales of the network transport products. A portion
of the maintenance  revenues are from customers of the Company's DECnet product.
The Company no longer  actively  markets  the DECnet  product,  and  maintenance
revenues  from DECnet  customers  have  declined each year since the fiscal year
ended June 30, 1993, and are expected to continue to decline.

Since its  availability on May 13, 1997, the Company has  experienced  increased
revenues  from sales by Cisco or the  Company of the  IOS/390  product and other
products. The Company's operating results are currently dependent upon continued
product sales by both Cisco and the Company.  The failure by either Cisco or the
Company to increase sales levels of the IOS/390  product or collaborate on sales
opportunities for other products could adversely affect the Company's results of
operations.

Reliance on IBM and Emergence of the Mainframe as an Enterprise Server

The  Company's  current  software  products  are  designed  for use with IBM and
IBM-compatible mainframe computers. Specifically, these software products target
users of the MVS  operating

                                       19

<PAGE>


system, the Customer Information Control System communications subsystem and the
IMS and DB2  database  management  systems.  As a  result,  future  sales of the
Company's existing products and associated  recurring  maintenance  revenues are
dependent upon continued use of mainframes and their related  systems  software.
In addition,  because the Company's  products  operate in  conjunction  with IBM
systems  software,  changes to IBM systems  software  may require the Company to
adapt its products to these  changes,  and any  inability to do so, or delays in
doing so, may adversely affect the Company's  business,  financial condition and
results of operations.  Currently, TCP/IP is the communications protocol for the
Internet  and is  being  adopted  by some  organizations  as the  communications
protocol for their  client/server  local area  networks and wide area  networks.
This  adoption  has allowed IBM MVS  mainframe  computers  to act as  enterprise
servers  on such  networks.  The use of  mainframes  as  enterprise  servers  is
relatively new and still emerging.  The Company's future  financial  performance
will  depend  in large  part on the  acceptance  and  growth in the  market  for
centralized network management.  Adoption of another communications  protocol on
client/server  networks could make TCP/IP  communication not viable, which would
undermine the demand for the  Company's  products,  and have a material  adverse
effect on the Company's business, financial condition and results of operations.

Dependence on Key Personnel

The Company is highly dependent on the continued  service of, and on its ability
to attract and retain,  qualified  technical,  sales,  marketing and  managerial
personnel.  The  competition  for qualified  personnel in the software  industry
(including  engineers skilled in MVS operating systems) is intense, and the loss
of any such persons,  as well as the failure to recruit additional key personnel
in a timely  manner,  could  have a  material  adverse  effect on the  Company's
business,  financial  condition  and  results  of  operations.  There  can be no
assurance  that the  Company  will be able to continue to attract and retain the
qualified personnel  necessary for the development of its business.  The Company
has employment  agreements with certain executive officers,  but such agreements
do  not  ensure  their  continued  service  to  the  Company  or  prevent  their
competition with the Company following a termination of employment.  The Company
does not maintain key man life insurance on the lives of its key employees.

Customer  Acceptance  and  Scalability  of New  Products;  History  of  Acquired
Technologies

The Company has acquired a significant portion of the technology associated with
its e-Control and NetLOCK  products.  There can be no assurance that the Company
will be successful in integrating  the operations and personnel  associated with
its recent  acquisitions of the NetLOCK  technology and Networkers  Engineering,
Ltd.  There can be no assurance  that the Company will be successful in deriving
significant future sales from the products developed from these technologies, or
establishing  and  maintaining  uniform  standards,   controls,  procedures  and
policies.  To the extent that the Company is unable to accomplish the foregoing,
the Company's  business,  financial  condition and results of operations  may be
materially adversely affected.

There  can be no  assurance  that  the  Company  will  have the  opportunity  to
successfully  acquire or  develop  new  technologies  in the future or that such
technology,  if acquired,  can be successfully

                                       20

<PAGE>


integrated and commercialized by the Company.  An inability to acquire,  develop
or commercialize  new  technologies  would have a material adverse effect on the
Company's business,  financial condition and results of operations.  The Company
may also seek to acquire or invest in businesses,  products or technologies that
expand,  complement  or otherwise  relate to the Company's  current  business or
product  line.  There  can  be no  assurance  that  such  acquisitions  will  be
successfully  or   cost-effectively   integrated  into  the  Company's   current
operations,  or that  the  acquired  technologies  will  provide  the  necessary
complement  to  the  Company's  current  products.  If the  Company  consummates
additional  acquisitions  in the  future  that must be  accounted  for under the
purchase  method of  accounting,  such  acquisitions  would likely  increase the
Company's  amortization  expenses.  In addition,  any such acquisitions would be
subject  to the risks of  integration  mentioned  above.  The  Company  does not
currently have any understandings, commitments or agreements with respect to any
potential  acquisition  nor  is it  currently  engaged  in  any  discussions  or
negotiations with respect to any such transaction.

Product Errors; Product Liability

Software products as complex as those offered and being developed by the Company
often  contain  undetected  errors or failures  when first  introduced or as new
versions  are  released.  Testing  of the  Company's  products  is  particularly
challenging  because it is  difficult  to simulate the wide variety of computing
environments  in  which  the  Company's   customers  may  deploy  its  products.
Accordingly,  there can be no assurance that, despite testing by the Company and
by current and potential customers,  errors will not be found after commencement
of commercial shipments,  resulting in lost revenues, loss of or delay in market
acceptance  and negative  publicity  about the Company and its products,  any of
which could have a material adverse effect on the Company's business,  financial
condition and results of operations.

The Company's license  agreements with customers  typically  contain  provisions
designed to limit the Company's  exposure to potential product liability claims.
The limitation of liability  provisions contained in such license agreements may
not be  effective  under  the laws of some  jurisdictions,  particularly  if the
Company in the future  relies on "shrink  wrap"  licenses that are not signed by
licensees.  The Company's products are generally used to manage data critical to
organizations,  and as a result, the sale and support of products by the Company
may entail the risk of product  liability  claims. A successful  liability claim
brought  against  the  Company  could  have a  material  adverse  effect  on the
Company's business, financial condition and results of operations.

Dependence on Strategic Relationships

Alliance  with  Cisco.  In January  1997 the  Company  entered  into a strategic
alliance with Cisco  pursuant to which Cisco and the Company agreed to cooperate
to develop the IOS/390 product, which has been available since May 13, 1997. The
Company  restructured  this agreement  with Cisco in August 1997.  Cisco has not
guaranteed the Company any minimum sales  revenues in connection  with its sales
of the IOS/390  product,  and there can be no  assurance  that the Company  will
continue to receive any revenues  therefrom.  The Company  markets and sells its
software products and services  primarily through its direct sales  organization
and to a lesser

                                       21

<PAGE>


extent,  through  international  resellers  and  distributors  to  domestic  and
international customers, including original equipment manufacturers.

The alliance with Cisco is subject to all the risks  inherent in such  strategic
relationships  including  the  failure of the  parties to meet their  respective
obligations  under  the  terms of the  alliance,  the risk of loss of  rights to
important  intellectual property either jointly developed in connection with the
alliance or  otherwise,  and the risk of a dispute  over key  provisions  of the
alliance.  There can be no assurance that the parties will meet their objectives
under the terms of the  alliance.  The failure of either the Company or Cisco to
meet their  obligations  under the terms of the  alliance  would have a material
adverse effect on the Company's business,  financial  condition,  and results of
operations.  In  addition,  either  Cisco  or  the  Company  may  terminate  the
relationship upon 90 days written notice.

The Company is currently investing, and plans to continue to invest, significant
resources to develop additional  strategic  relationships,  and such investments
could adversely  affect the Company's  operating  margins.  The Company believes
that its success in penetrating  markets for its products  depends in large part
on  its  ability  to  maintain  these  relationships,  to  cultivate  additional
relationships  and  to  cultivate  alternative   relationships  if  distribution
channels  change.  There  can  be no  assurance  that  any  distributor,  system
integrator or strategic  partner will not discontinue its relationship  with the
Company, form competing arrangements with the Company's competitors,  or disrupt
the Company's other strategic relationships.

Dependence on Distributors

The Company's sales are primarily made through the Company's  direct sales force
and the Company's  distributors in some  international  markets.  The Company is
currently investing,  and plans to continue to invest,  significant resources to
develop new strategic marketing relationships, which investments could adversely
affect the Company's operating margins. The Company believes that its success in
penetrating  markets  for its  products  depends in large part on its ability to
maintain its existing  marketing and  distribution  relationships,  to cultivate
additional   relationships  and  to  cultivate   alternative   relationships  if
distribution  channels  change.  There can be no assurance that any distributor,
systems  integrator or strategic  partner will not discontinue its  relationship
with the Company, form competing arrangements with the Company's competitors, or
dispute the Company's other strategic relationships.

The  loss of,  or a  significant  reduction  in  revenues  from,  the  Company's
international  distributors  through  which the  Company  sells  certain  of its
products  could  have a  material  adverse  effect  on the  Company's  business,
financial  condition  and  results of  operations.  In  addition,  if one of the
Company's  distributors declares bankruptcy,  becomes insolvent,  or is declared
bankrupt  before the  distributor  remits to the  Company the  payments  for the
Company's products,  the Company may not be able to obtain the revenues to which
it would be entitled for sales made by such distributor  prior to the bankruptcy
or insolvency  proceeding.  In addition,  the Company's  distributors  generally
offer other products and these distributors may give higher priority to sales of
such other products.

                                       22

<PAGE>


The Company is involved in a  commercial  dispute and  litigation  with a former
distributor.  Should  the  distributor  prevail  on its  claims,  the  Company's
business,  financial  condition  and results of  operations  could be materially
adversely affected. See "Legal Proceedings."

Reliance on and Risks Associated with International Sales

During  the  three  months  ended  September  30,  1998 and  1997,  33% and 28%,
respectively,  of the  Company's  total  revenues  were  derived  from  sales to
international  customers.  The Company's international sales have been primarily
to European  markets,  and sales are generally  denominated in local currencies.
The Company  expects that  international  revenue  will  continue to represent a
significant portion of its total revenue.  Sales to international  customers are
subject to additional risks including  longer  receivables  collection  periods,
greater difficulty in accounts receivable collection, failure of distributors to
report sales of the  Company's  products,  political  and economic  instability,
nationalization,   trade  restrictions,  the  impact  of  possible  recessionary
environments  in economies  outside the United  States,  reduced  protection for
intellectual property rights in some countries, currency fluctuations and tariff
regulations and requirements for export licenses. There can be no assurance that
foreign  intellectual  property  laws  will  adequately  protect  the  Company's
intellectual property rights. In addition,  effective copyright and trade secret
protection  may  be  unavailable  or  limited  in  certain  foreign   countries.
Substantially  all of the  Company's  distribution  and  other  agreements  with
international  distributors  require  any  dispute  between  the Company and any
distributor  to be settled by  arbitration.  Under these  agreements,  the party
bringing the action, suit or claim is required to conduct the arbitration in the
domicile  of the  defendant.  The result is that,  if the Company has a cause of
action  against a party,  it may not be feasible  for the Company to pursue such
action, as arbitration in a foreign country could prove to be excessively costly
and have a less certain outcome depending on the laws and customs in the foreign
country.  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,  financial  condition  and  results  of
operations.

Most of the Company's  international  sales are denominated in local currencies.
The  Company  has not  historically  attempted  to reduce  the risk of  currency
fluctuations  by  hedging  except in  certain  limited  circumstances  where the
Company has held an account  receivable  expected to be outstanding for a period
of at least 6 months.  The  Company  may be  disadvantaged  with  respect to its
competitors  operating in foreign  countries by foreign  currency  exchange rate
fluctuations that make the Company's  products more expensive  relative to those
of  local  competitors.  The  Company  may  attempt  to  reduce  these  risks by
continuing to hedge in certain limited transactions in the future.  Accordingly,
changes in the  exchange  rates or exchange  controls may  adversely  affect the
Company's  results of  operations.  There can be no assurance that the Company's
current or any future currency  exchange strategy will be successful in avoiding
exchange  related losses or that any of the factors listed above will not have a
material  adverse  effect  on the  Company's  future  international  sales  and,
consequently,  on the  Company's  business,  financial  condition and results of
operations.

                                       23

<PAGE>


Fluctuations in Operating Results; Absence of Backlog; Seasonality

The  Company's  operating  results have  historically  been subject to quarterly
fluctuations  due to a variety of factors.  The Company has  typically  sold its
products   through  a  trial   process  to  allow   customers  to  evaluate  the
effectiveness of the Company's  products before  determining  whether to proceed
with broader  deployment of such products.  The Company's sales cycle,  from the
date the  sales  agent  first  contacts  a  prospective  customer  to the date a
customer ultimately purchases the Company's product, has typically been three to
nine  months.  There  can be no  assurance  that  customers  will  purchase  the
Company's  products after a trial period or that the Company's  sales cycle will
not  lengthen,  exposing  it to  the  possibility  of  shortfalls  in  quarterly
revenues,  which could have a material adverse effect on the Company's business,
financial  condition  or results of  operations  and cause  results to vary from
period to period.  The Company's  operating  results may also be affected by the
seasonality on fluctuations of Cisco sales, if any, of the IOS/390 product.  The
Company's  operating results will also be affected by general economic and other
conditions  affecting the timing of customer  orders and capital  spending,  and
order cancellations or rescheduling.

The Company  operates with very little backlog and most of its product  revenues
in each quarter  result from orders closed in that  quarter,  with a substantial
majority of those orders being completed at the end of that quarter. The Company
establishes its expenditure levels for sales, marketing, product development and
other  operating  expenses based in large part on its  expectations as to future
revenues,  and revenue  levels  below  expectations  could cause  expenses to be
disproportionately  high.  If revenues fall below  expectations  in a particular
quarter,  operating results and net income are likely to be materially adversely
affected.  Any  inability of the Company to adjust  spending to  compensate  for
failure  to meet  sales  forecasts  or to collect  accounts  receivable,  or any
unexpected increase in product returns or other costs, could magnify the adverse
impact of such events on the Company's operating results.

The Company's business has historically  experienced and is expected to continue
to experience significant  seasonality.  The Company has had higher sales of its
software  products in the quarters  ending in March and June and weaker sales in
the quarters ending in September and December.  The decrease in product revenues
in the  quarters  ending  in  September  is due  to the  international  customer
seasonal buying patterns.  Due to the foregoing  factors,  quarterly revenue and
operating   results  are  likely  to  vary   significantly  in  the  future  and
period-to-period  comparisons of its results of operations  are not  necessarily
meaningful and should not be relied upon as  indications of future  performance.
Further,  the  Company's  results have been and it is likely that in some future
quarters  the  Company's   revenue  or  operating  results  will  be  below  the
expectations of public market analysts and investors.  In such event,  the price
of the Company's Common Stock would likely be materially adversely affected.

                                       24

<PAGE>


Dependence  Upon  Proprietary   Technology;   Risk  of  Third-Party   Claims  of
Infringement

The  Company's  success  and  ability to compete is  dependent  in part upon its
proprietary  information.  The Company  relies  primarily  on a  combination  of
copyright and trademark laws, trade secrets, software security measures, license
agreements and  nondisclosure  agreements to protect its proprietary  technology
and software products. There can be no assurance,  however, that such protection
will be adequate to deter  misappropriation,  deter third  parties  from copying
aspects of, or otherwise  obtaining and using, the Company's  software  products
and technology  without  authorization,  or that the rights secured thereby will
provide competitive advantages to the Company.

There can be no assurance  that others will not  independently  develop  similar
products or duplicate the Company's products. There can be no assurance that the
steps taken by the Company to protect its  proprietary  technology  will prevent
misappropriation  of such  technology,  and such  protections  may not  preclude
competitors from developing  products with  functionality or features similar to
or superior to the Company's  products.  A  substantial  amount of the Company's
sales are in international  markets,  and the laws of other countries may afford
the Company little or no effective protection of its intellectual property.

While the Company believes that its products and trademarks do not infringe upon
the  proprietary  rights of third  parties,  there can be no assurance  that the
Company will not receive future communications from third parties asserting that
the Company's products infringe,  or may infringe,  on the proprietary rights of
third  parties.  The  Company was denied a  trademark  registration  of the name
"Interlink" based on the use of similar names by other companies in the computer
industry.   The  Company  expects  that  software  product  developers  will  be
increasingly  subject  to  infringement  claims as the  number of  products  and
competitors in the Company's  industry segments grow and the  functionalities of
products in  different  industry  segments  overlap.  Any such  claims,  with or
without  merit,  could  be time  consuming,  result  in  costly  litigation  and
diversion of technical and management  personnel,  cause product shipment delays
or  require  the  Company  to develop  non-infringing  technology  or enter into
royalty or  licensing  agreements,  any of which  could have a material  adverse
effect on the Company's business, financial condition and results of operations.
Moreover,  an adverse outcome in litigation or similar  adversarial  proceedings
could subject the Company to significant  liabilities to third parties,  require
expenditure  of  significant  resources  to develop  non-infringing  technology,
require  disputed  rights to be  licensed  from others or require the Company to
cease the  marketing  or use of  certain  products,  any of which  could  have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Possible Volatility of Share Price

There can be no assurance  that the market price of the  Company's  Common Stock
will not  decline.  The  trading  prices of the  Company's  Common  Stock may be
subject to wide  fluctuations  in  response  to a number of  factors,  including
variations in operating  results,  alliances,  changes in

                                       25

<PAGE>


earnings estimates by securities analysts, announcements of extraordinary events
such as litigation,  alliances, or acquisitions,  announcements of technological
innovations or new products or new contracts by the Company or its  competitors,
announcements  and reports  about the  declining  number of mainframe  computers
shipped,  press  releases  or  reports of IBM or other  competitors  introducing
competitive or substitute products,  as well as general economic,  political and
market  conditions.   In  addition,  the  stock  market  has  from  time-to-time
experienced  significant  price and volume  fluctuations  that have particularly
affected the market  prices for the common  stocks of  technology  companies and
that have  often been  unrelated  to the  operating  performance  of  particular
companies.  These broad market fluctuations may also adversely affect the market
price  of  the  Company's  Common  Stock.  In the  past,  following  periods  of
volatility  in the market  price of a  company's  securities,  securities  class
action  litigation  has occurred  against the issuing  company.  There can be no
assurance that such  litigation will not occur in the future with respect to the
Company.  Such litigation  could result in substantial  costs and a diversion of
management's attention and resources, which would have a material adverse effect
on the Company's business,  financial  condition and results of operations.  Any
adverse  determination  in such  litigation  could also  subject  the Company to
significant liabilities.

Year 2000 Issues

In the  computer  industry  many  systems  were not designed to handle any dates
beyond the year 1999,  and such  computer  hardware and software will need to be
modified  prior to the year 2000 in order to remain  functional.  The Company is
concerned that many enterprises will be devoting a substantial  portion of their
information systems spending to resolving this upcoming year 2000 problem.  This
may result in spending being  diverted over the next two years.  The Company has
completed its  assessment  and testing of its product lines and has  established
that the  current  versions of its  products  are all year 2000  compliant.  The
Company is in the process of completing  the assessment and testing of year 2000
compliance  for  its  internal  information  and  non-IT  systems.  The  Company
anticipates  that addressing the year 2000 problem for its internal  information
and non-IT  systems  and current  and future  products  will not have a material
impact on its  operations  or  financial  results and  expects to  complete  its
assessment by the end of fiscal 1999.  However,  there can be no assurance  that
these costs will not be greater than  anticipated,  or that  corrective  actions
undertaken will be completed before any year 2000 problems could occur. The year
2000 issue could lower demand for the Company's  products  while  increasing the
Company's costs.  These combining  factors,  while not quantified,  could have a
material  adverse impact on the Company's  financial  results.  The Company uses
certain  products  from  and  has  certain  key  relationships  with  suppliers,
including  Cisco.  If these  suppliers fail to adequately  address the year 2000
issue  for the  products  this  could  have a  material  adverse  impact  on the
Company's  operations and financial results.  The Company is still assessing the
effect the year 2000 issue will have and,  at this time,  cannot  determine  the
impact it will have, if any.

Issues Related to the European Monetary Conversion

The Company is aware of the issues  associated with the  forthcoming  changes in
Europe aimed at forming a European economic and monetary union (the "EMU").  One
of the  changes  resulting  from this union will  require  EMU member  states to
irrevocably  fix their  respective  currencies to

                                       26

<PAGE>


a new currency,  the Euro, on January 1, 1999. On that day, the Euro will become
a functional legal currency within these countries. During the next three years,
business  in the EMU member  states  will be  conducted  in both the 25 existing
national  currencies,  such as the Franc or Deutsche  Mark,  and the Euro.  As a
result,  companies operating in or conducting business in EMU member states will
need to ensure that their  financial and other  software  systems are capable of
processing  transactions and properly handling these  currencies,  including the
Euro.  The Company is still  assessing the impact the EMU formation will have on
both its  internal  systems  and the  products it sells.  The Company  will take
appropriate  corrective  actions  based on the results of such  assessment.  The
Company has not yet  determined  the cost related to  addressing  this issue and
there can be no assurance  that this issue and its related costs will not have a
materially  adverse  affect on the  company's  business,  operating  results and
financial condition.

                                       27

<PAGE>


                           PART II: OTHER INFORMATION



                                       28

<PAGE>


ITEM 1.   Legal Proceedings

          Incorporated  by reference  from the Notes to  Condensed  Consolidated
          Financial Statements-Item 6. Contingencies, provided in Part I hereto.


ITEM 6.   Exhibits and Reports on Form 8-K

          (a) Exhibit 27                        Financial Data Schedule
                                                (EDGAR version only)

          (b) Reports on Form 8-K               No  reports  on  Form  8-K  were
                                                filed  during the quarter  ended
                                                September 30, 1998.

                                       29

<PAGE>


SIGNATURES

Pursuant  to the  requirements  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.


Date:     November 12, 1998                     INTERLINK COMPUTER SCIENCES INC.
                                                AND SUBSIDIARIES
                                                (Registrant)



                                                By: /s/  James A. Barth
                                                    ----------------------------
                                                    James A. Barth
                                                    Chief Financial Officer and
                                                    Secretary

                                                By: /s/ Augustus J. Berkeley
                                                    ----------------------------
                                                    Augustus J. Berkeley
                                                    President and Chief 
                                                    Executive Officer

                                       30