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 December 31, 1997

                                       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__


      7,984,233 shares of the registrant's Common stock, $0.001 par value,
                    were outstanding as of February 2, 1998.

                                       1
<PAGE>
<TABLE>
                                                 INTERLINK COMPUTER SCIENCES, INC.
                                                          AND SUBSIDIARIES

                                                              CONTENTS
<CAPTION>
                                                                                                                       Page
                                                                                                                       ----
                                                   PART I: FINANCIAL INFORMATION
<S>           <C>                                                                                                        <C>
Item 1.       Financial Statements
                  Condensed Consolidated Balance Sheets:
                      December 31, 1997 and June 30, 1997.................................................................4
                  Condensed Consolidated Statements of Operations:
                      Three and six months ended December 31, 1997 and 1996...............................................5
                  Condensed Consolidated Statements of Cash Flows:
                      Six months ended December 31, 1997 and 1996.........................................................6
                  Notes to Condensed Consolidated Financial Statements....................................................7

Item 2.       Management's Discussion and Analysis of Financial
                  Condition and Results of Operations....................................................................11


                                                     PART II: OTHER INFORMATION

Item 1.       Legal Proceedings..........................................................................................25
Item 6.       Exhibits and Reports on Form 8-K...........................................................................25

Signatures    ...........................................................................................................26
</TABLE>
                                       2
<PAGE>




                          PART I: FINANCIAL INFORMATION



                                       3
<PAGE>

<TABLE>
               INTERLINK COMPUTER SCIENCES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<CAPTION>
                                                                    December 31,  June 30,
                                                                        1997        1997
                                                                      --------    --------
                                                                    (unaudited)
<S>                                                                   <C>         <C>     
ASSETS
Current assets:
     Cash and cash equivalents ....................................   $ 21,115    $ 28,106
     Accounts receivable, net .....................................      8,069       9,752
     Inventories ..................................................        620         674
     Current deferred tax asset ...................................      7,140       2,092
     Other current assets .........................................        885       1,240
                                                                      --------    --------
         Total current assets .....................................     37,829      41,864
Property and equipment, net .......................................      2,726       1,676
Long-term deferred tax asset ......................................      2,195       1,541
Purchased software products and other non-current assets ..........      1,299       3,282
                                                                      --------    --------
         Total assets .............................................   $ 44,049    $ 48,363
                                                                      ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
     Current portion of long-term debt ............................   $     30    $    314
     Accounts payable .............................................      1,523       1,421
     Accrued liabilities ..........................................      5,664       7,286
     Deferred maintenance and product revenue .....................      6,874       7,488
                                                                      --------    --------
         Total current liabilities ................................     14,091      16,509
Long-term debt, less current portion ..............................        147         802
Deferred maintenance revenue ......................................      1,052       1,403
Other liabilities .................................................      2,662         975
Liabilities retained in connection with sale of HARBOR product line      1,232        --
                                                                      --------    --------
         Total liabilities ........................................     19,184      19,689
                                                                      --------    --------
Commitments and contingencies (Note 6)
Common stock ......................................................          7           7
Additional paid-in capital ........................................     51,126      50,814
Cumulative translation adjustment .................................       (522)       (591)
Accumulated deficit ...............................................    (25,746)    (21,556)
                                                                      --------    --------
     Total stockholders' equity ...................................     24,865      28,674
                                                                      --------    --------
         Total liabilities and stockholders' equity ...............   $ 44,049    $ 48,363
                                                                      ========    ========
<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 data)
<CAPTION>
                                                   Three months ended      Six months ended
                                                       December 31,           December 31,
                                                    -----------------      -----------------
                                                    1997        1996        1997        1996
                                                  --------    --------    --------    --------
                                                      (unaudited)             (unaudited)
<S>                                               <C>         <C>         <C>         <C>     
Revenues:
      Product .................................   $  3,388    $  5,960    $  6,221    $ 10,792
      Maintenance and consulting ..............      3,360       3,673       6,842       7,566
                                                  --------    --------    --------    --------
            Total revenues ....................      6,748       9,633      13,063      18,358
                                                  --------    --------    --------    --------

Cost of revenues:
      Product .................................        348         678         628       1,363
      Maintenance and consulting ..............      1,176       1,209       2,505       2,446
                                                  --------    --------    --------    --------
            Total cost of revenues ............      1,524       1,887       3,133       3,809
                                                  --------    --------    --------    --------

Gross profit ..................................      5,224       7,746       9,930      14,549
                                                  --------    --------    --------    --------

Operating expenses:
      Product development .....................      3,233       1,969       5,551       3,870
      Sales and marketing .....................      3,020       3,194       5,798       6,258
      General and administrative ..............      1,933       1,107       3,257       2,019
      Purchased research and development and
         product amortization .................        117         139       3,863         301
      Loss on sale of HARBOR product line .....      2,171        --         2,171        --
                                                  --------    --------    --------    --------
            Total operating expenses ..........     10,474       6,409      20,640      12,448
                                                  --------    --------    --------    --------

Operating income (loss) .......................     (5,250)      1,337     (10,710)      2,101

Interest and other income, net ................        255         144         520          88
                                                  --------    --------    --------    --------

Income (loss) before provision for income taxes     (4,995)      1,481     (10,190)      2,189

Benefit from (provision for) income taxes .....      4,546        (578)      6,000        (847)
                                                  --------    --------    --------    --------

Net income (loss) .............................   ($   449)   $    903    ($ 4,190)   $  1,342
                                                  ========    ========    ========    ========

Net income (loss) per share:
     Basic ....................................   ($   .06)   $    .14    ($   .55)   $    .23
                                                  ========    ========    ========    ========
     Diluted ..................................   ($   .06)   $    .12    ($   .55)   $    .19
                                                  ========    ========    ========    ========

Shares used in per share calculation:
     Basic ....................................      7,615       6,492       7,586       5,740
     Diluted ..................................      7,615       7,671       7,586       6,886

<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>
                                                                                                 Six months ended December 31,
                                                                                                          1997       1996
                                                                                                        --------    --------
                                                                                                           (unaudited)
<S>                                                                                                     <C>         <C>     
Cash flows from operating activities:
     Net income (loss) ..............................................................................   ($ 4,190)   $  1,342
     Adjustments to reconcile net income (loss) to net cash
         provided by (used in) operating activities:
              Purchased research and development and other ..........................................      3,599        --
              Loss on sale of HARBOR product line ...................................................      2,171        --
              Depreciation and amortization .........................................................      1,092         848
              Provision for excess and obsolete inventory ...........................................        122        --
              Provision  for doubtful accounts ......................................................         43         100
              Exchange loss .........................................................................         50         (32)
              Deferred income taxes .................................................................     (6,161)       --
              Changes in operating assets and liabilities:
                  Accounts receivable ...............................................................      2,319        (195)
                  Inventories .......................................................................        (70)       (623)
                  Other assets ......................................................................       (368)      1,027
                  Accounts payable ..................................................................        107        (133)
                  Accrued liabilities ...............................................................     (1,878)       (618)
                  Deferred maintenance and product revenue ..........................................       (551)       (713)
                  Other liabilities .................................................................       (115)       (156)
                                                                                                        --------    --------
                      Net cash provided by (used in) operating activities ...........................     (3,830)        847
                                                                                                        --------    --------
Cash flows from investing activities:
     Acquisition of NetLOCK network security technology .............................................     (1,175)       --
     Acquisition of property and equipment ..........................................................     (2,007)       (714)
     Capitalization of software development costs....................................................       --           (56)
                                                                                                        --------    --------
                      Net cash used in investing activities .........................................     (3,182)       (770)
                                                                                                        --------    --------
Cash flows from financing activities:
     Payments on capital lease obligations ..........................................................        (32)       (130)
     Payments on notes payable and other ............................................................       (147)     (2,915)
     Payments on bank line of credit ................................................................       --        (5,000)
     Proceeds from issuance of common stock, net ....................................................        313      29,012
                                                                                                        --------    --------
                      Net cash provided by financing activities .....................................        134      20,967
                                                                                                        --------    --------

                           Net increase (decrease) in cash and cash equivalents .....................     (6,878)     21,044

Effect of exchange rate changes on cash .............................................................       (113)       (104)
Cash and cash equivalents, beginning of period ......................................................     28,106       6,121
                                                                                                        --------    --------
Cash and cash equivalents, end of period ............................................................   $ 21,115    $ 27,061
                                                                                                        ========    ========
<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
                                   (unaudited)

1.   Basis of Presentation:

The 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 1997  report on Form 10-K
should  be read in  conjunction  with  these  Condensed  Consolidated  Financial
Statements.  The consolidated results of operations for the three and six months
ended  December  31, 1997 are not  necessarily  indicative  of the results to be
expected for any subsequent period or for the entire fiscal year ending June 30,
1998.  The June 30,  1997  balance  sheet was  derived  from  audited  financial
statements,  but does not include all disclosures required by generally accepted
accounting principles.

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
December 31, 1997 and June 30, 1997.

3. NetLOCK Network Security Technology Acquisition:

On  September  18,  1997,  the  Company  acquired  the  NetLOCK  technology,  an
end-to-end  network  security  technology,  that encrypts data and helps prevent
security  break-ins,  and  certain  assets  from  Hughes  Aircraft  Company  for
approximately  $2,144,000  in cash and  incurred  related  acquisition  costs of
$300,000. The Company also licensed certain core technology that is incorporated
into the NetLOCK technology from a third party licensor.  Under the terms of the
license agreement, the Company paid an up front fee of $175,000 and is obligated
to pay royalties  ranging from 3% to 9% of future NetLOCK revenues on an ongoing
basis, with guaranteed  future minimum royalties of $2,300,000  through 2002. As
of the  date  of  the  acquisition,  the  NetLOCK  technology  had  not  reached
technological   feasibility  nor  did  it  have  any  future   alternative  use.
Accordingly,   $3.1  million  has  been  recorded  as  purchased   research  and
development,  which  consists of the amount of the purchase  price  allocated to
purchased  research and development and the guaranteed minimum royalty payments,
net of present value discount of $724,000. The remaining portion of the purchase
price of $1,144,000 has been recorded as property and equipment. The Company has
recorded a tax benefit  equal to 28% of its losses  before income taxes with the
exception  of a $1.2  million  tax  benefit  recorded  related  to the charge to
operations  for purchased  research and  development.  In  conjunction  with the
NetLOCK technology  purchase,  the Company employed  approximately 25 people and
entered into an operating lease for facilities  with a third party.  The related
employee  and  facility  costs have been  included in the  Company's  results of
operations from the date of the acquisition of the technology.

Under  the  terms of the  NetLOCK  facility  operating  lease,  the  Company  is
obligated  to make monthly  future  minimum  lease  payments  totaling  $364,000
through fiscal 2001.

4.  Write-Down of the HARBOR  Purchased  Software and Sale of the HARBOR Product
Line.

On December 29, 1995, the Company  acquired all of the outstanding  stock of New

                                       7
<PAGE>
Era Systems Services Ltd. ("New Era"), a Canadian company that develops, markets
and supports the HARBOR storage  management and software  distribution  products
and recorded $3.2 million on the balance sheet as purchased  software  products.
During the quarter ended September 30, 1997, revenue expectations for the HARBOR
product line declined.  As a result,  the Company  determined  that the recorded
amount  for  purchased  software  had  been  impaired  and  recorded  a loss  of
approximately $550,000, the amount by which the recorded intangible at September
30, 1997 exceeded the present value of the estimated  future net cash flows.  On
December 18, 1997 the Company sold substantially all of the assets of the HARBOR
product line to a former  executive  and member of the board of directors of the
Company  who  resigned  both  posts  effective  as of the date of the sale.  The
consideration  paid to the Company  consisted of $1,250,000 in installment notes
receivable  plus a  $600,000  convertible  note  receivable  that may,  upon the
occurrence of certain  events,  entitle the Company to an additional  payment of
$150,000.   In  addition  the  purchasers   assumed   certain   liabilities  and
obligations,  including a note payable in the amount of $1,232,000 for which the
Company is the guarantor, and $356,000 in deferred maintenance  obligations.  As
the Company has continuing involvement in the HARBOR business, primarily through
its guarantee of the note payable,  and there is substantial  uncertainty  about
the ability of HARBOR to meet its obligations,  the Company has (i) not recorded
the  notes  receivable,  (ii)  provided  a  valuation  allowance  on all  assets
transferred to the purchaser and (iii) recorded a liability  equal to the amount
of the guarantee of the note assumed. As a result of this treatment, the Company
recorded  a loss of  $2,171,000  on the sale of the  HARBOR  product  line.  The
Company also recorded a tax benefit of $3.2 million  relating to the sale of the
HARBOR  product  line,  of which,  $2.8  million will be realized as a refund of
federal income taxes  previously paid, once the Company files its tax return for
the current fiscal year.

5.     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.
<TABLE>

Basic and diluted  earnings per share are calculated as follows during the three
and six month periods ended December 31, 1997 and 1996 (in thousands  except for
per share amounts):
<CAPTION>
                                                   Three months ended    Six  months ended
                                                   ------------------    -----------------
                                                      December 31,        December 31,
                                                   ------------------    -----------------
                                                     1997      1996      1997       1996
                                                   -------    -------   -------    -------
                                                       (unaudited)          (unaudited)
<S>                                                <C>        <C>       <C>        <C>    
Basic:
     Weighted average shares ...................     7,615      6,492     7,586      5,740
                                                   -------    -------   -------    -------
     Shares used in per share calculation ......     7,615      6,492     7,586      5,740
                                                   -------    -------   -------    -------
     Net income (loss) .........................   $  (449)   $   903   $(4,190)   $ 1,342
                                                   =======    =======   =======    =======
     Net income (loss) per share ...............   $ (0.06)   $  0.14   $ (0.55)   $  0.23
                                                   =======    =======   =======    =======


Diluted:
     Weighted average shares ...................     7,615      6,492     7,586      5,740
     Common equivalent shares from stock options
         and warrants ..........................      --        1,179      --        1,146
                                                   -------    -------   -------    -------
     Shares used in per share calculation ......     7,615      7,671     7,586      6,886
                                                   =======    =======   =======    =======
     Net income (loss) .........................   $  (449)   $   903   $(4,190)   $ 1,342
                                                   =======    =======   =======    =======
     Net income (loss) per share ...............   $ (0.06)   $  0.12   $ (0.55)   $  0.19
                                                   =======    =======   =======    =======
</TABLE>
                                       8
<PAGE>

Options and  warrants to purchase  the  following  shares of common stock at the
indicated  range of price per share  were  outstanding  during the three and six
month  periods  ended  December 31, 1997 and 1996,  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):

                                 Options and warrants          Range of
                                       excluded             exercise prices
                                       --------             ---------------
Three months ended:
   December 31, 1997                     2,089               $0.70-$15.00
   December 31, 1996                        17                     $16.25

Six months ended:
   December 31, 1997                     2,089               $0.70-$15.00
   December 31, 1996                        19              $10.50-$16.25

6.   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 former  distributor  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 former  distributor  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.  Claimant has stated its intention
to commence arbitration proceedings.

The Company has accrued  $300,000 for  litigation or 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 

                                       9
<PAGE>

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.
<TABLE>

7. Supplemental Cash Flow Disclosures (in thousands):
<CAPTION>
                                                                 Six months ended December 31,
                                                                           1997     1996
                                                                          ------   ------
<S>                                                                       <C>      <C>   
     Interest paid ....................................................   $    9   $  177
     Income taxes paid ................................................   $1,229   $1,412
     Non cash transactions from financing activities:
         Conversion of preferred stock to common
              stock in connection with initial public offering ........     --     $6,310
         Liabilities assumed in connection with the purchase of the
              NetLOCK network security technology .....................   $1,876     --
         Assets of the HARBOR product line sold to a related party ....   $2,265     --
         Liabilities of the HARBOR product line sold to a related party      356     --
         Costs accrued related to the sale of the HARBOR product line .   $  262     --
</TABLE>

8.  Concentrations of  Revenues:

During  the  three  and six  months  ended  December  31,  1997,  11%  and  13%,
respectively,  of the  Company's  total  revenues were derived from sales to and
through Cisco  Systems,  Inc.  ("Cisco").  During the three and six months ended
December  31,  1996,  no one  customer  accounted  for  more  than  10% of total
revenues.

9.  Recent Pronouncements:

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No. 130 (SFAS  130),  Reporting  Comprehensive
Income. This statement establishes  requirements for disclosure of comprehensive
income and becomes  effective for the Company for fiscal years  beginning  after
December 15, 1997, with  reclassification  of earlier  financial  statements for
comparative  purposes.  Comprehensive income generally represents all changes in
stockholders' equity except those resulting from investments or contributions by
stockholders.  The Company is evaluating alternative formats for presenting this
information,  but does not expect this  pronouncement  to materially  impact the
Company's results of operations.

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  becomes  effective for fiscal years beginning after December 15, 1997,
and requires  that  comparative  information  from earlier  years be restated to
conform to the  requirements  of this  standard.  The Company is evaluating  the
requirements  of SFAS 131 and the  effects,  if any,  on the  Company's  current
reporting and disclosures.

In October 1997, the Accounting  Standards  Executive Committee issued Statement
of Position 97-2 (SOP 97-2), Software Revenue Recognition,  which delineates the
accounting  for software  product and maintenance  revenues. SOP 97-2 supersedes
the  Accounting  Standards  Executive  Committee  Statement  of  Position  91-1,
Software Revenue Recognition,  and is effective for transactions entered into in
fiscal years  beginning  after  December 15, 1997. The Company is evaluating the
requirements  of SOP  97-2  and the  effects,  if any on the  Company's  current
revenue recognition policies.

                                       10

<PAGE>
10.     Subsequent Events:

On January 13, 1998, the Company  acquired  Networkers  Engineering  Limited,  a
software development company based in the United Kingdom. Under the terms of the
agreement,   the  Company  purchased  Networkers   Engineering,   including  all
technology  rights, in exchange for cash of $600,000,  deferred cash payments of
$1,000,000  and  239,578  shares of the  Company's  common  stock.  The  Company
believes a substantial portion of the purchase price,  together with $400,000 of
costs related to the  acquisition  of customer  contracts in a related  company,
previously paid minimum license fees and acquisition  costs,  will be charged to
purchased research and development in the quarter ended March 31, 1998.

On  January  14,  1998 the Board of  Directors  granted  employees  the right to
convert  certain  outstanding  stock options into option grants with an exercise
price of $4.875 per share (the fair market  value as of  February  6, 1998,  the
date  specified by the Board's  authorization).  The  converted  options vest on
dates six months  after the dates such  installments  would have  vested had the
option not been  amended  by the  employee  exercising  this  conversion  right.
Options for approximately 700,000 shares of Common Stock (having exercise prices
ranging from $5.00 to $15.00) were repriced pursuant to this program.

                                       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,  network transport products and
system management applications,  which efficiently transport,  store and protect
the integrity of mission-critical  data and applications.  The Company sells its
products  principally  for use in data  centers of Fortune 1000  companies.  The
principal products include TCP/IP connectivity, fault tolerance, remote printing
services, and CICS and IMS-to-LAN application integration, as well as management
and control  products  built on its new  "OpenMAX"  technology.  Interlink  also
offers  a  suite  of  security  products,  which  includes  NetLOCK,  the  first
transparent solution to provide  enterprise-wide,  end-to-end  protection of all
information that crosses the network; and Sentinel/IP,  which provides audit and
access control for mainframe users.

In December  1996,  the Company  entered  into a strategic  alliance  with Cisco
Systems,  Inc.  pursuant to which Cisco acquired 622,000 shares of the Company's
Common Stock for $6.8 million.  In January 1997, Cisco and the Company agreed to
cooperate to develop and market certain TCP/IP  software known as IOS/390.  As a
result of the agreement,  the Company's  sales personnel  significantly  reduced
direct selling  efforts in favor of supporting  the Cisco sales teams.  However,
the level of sales achieved by Cisco fell short of  expectations,  and in August
1997,  the Company and Cisco  amended the  agreement to provide  that  Interlink
would  resume  selling  its TCP/IP  product  and would also  resell the  IOS/390
software  and  certain  Cisco  router  products.  In October  1997,  the Company
formally amended the development and marketing agreement.

In September 1997, the Company acquired the NetLOCK network security  technology
from Hughes  Electronics  Corporation  and recorded a charge in its fiscal first
quarter  of  approximately   $3.1  million   relating  to  in-process   software
development. Revenue from the NetLOCK product commenced in January 1998.

In December 1997, the Company sold its HARBOR product line and recorded a charge
of $2.2 million, offset by a tax credit of $3.2 million. Most of the tax credit,
or $2.8 million, will be realized as a refund of federal income taxes previously
paid.  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.  Revenues from HARBOR
products  were  $667,000 and $1.4 million and direct  expenses were $775,000 and
$1.5  million for the three and  six-month  periods  ended  December  31,  1997,
respectively.

In January  1998,  subsequent  to the close of the fiscal  quarter,  the Company
purchased  Networkers  Engineering,  Limited  and the  customer  contracts  of a
related  business,  for  a  combined  cost  of  approximately  $2.9  million,  a
substantial  portion  of  which  will  be  charged  to  purchased  research  and
development  in the quarter ended March 31,  1998..  The  acquisition  gives the
Company a base of technology and additional resources for the development of its
management and control  products.  Revenues from these new products are expected
to  commence  in the  second  half of the  current  fiscal  year but will not be
significant until fiscal year 1999.

                                       12
<PAGE>

Results of Operations
<TABLE>
The  following  table sets forth,  as a percentage  of total  revenues,  certain
condensed consolidated statement of operations data for the periods indicated:
<CAPTION>
                                                             Three months         Six months
                                                          ended December 31,  ended December 31,
                                                           ---------------     ---------------
                                                            1997      1996      1997      1996
                                                           -----     -----     -----     -----
<S>                                                         <C>       <C>       <C>       <C>  
Revenues:
     Product .........................................      50.2%     61.9%     47.6%     58.8%
     Maintenance and consulting ......................      49.8      38.1      52.4      41.2
                                                           -----     -----     -----     -----
         Total revenues ..............................     100.0     100.0     100.0     100.0
                                                           -----     -----     -----     -----

Cost of revenues:
     Product .........................................       5.2       7.0       4.8       7.4
     Maintenance and consulting ......................      17.4      12.6      19.2      13.3
                                                           -----     -----     -----     -----
         Total cost of revenues ......................      22.6      19.6      24.0      20.7
                                                           -----     -----     -----     -----

Gross profit .........................................      77.4      80.4      76.0      79.3

Operating expenses:
     Product development .............................      47.9      20.4      42.5      21.1
     Sales and marketing .............................      44.8      33.2      44.4      34.1
     General and administrative ......................      28.6      11.5      24.9      11.0
     Purchased research and development and product
             amortization ............................       1.7       1.4      29.6       1.7
     Loss on sale of HARBOR Product Line .............      32.2        --      16.6        --
                                                           -----     -----     -----     -----
         Total operating expenses ....................     155.2      66.5     158.0      67.9
                                                           -----     -----     -----     -----

Operating income (loss) ..............................     (77.8)     13.9     (82.0)     11.4
Interest and other income, net .......................       3.8       1.5       4.0        .5
                                                           -----     -----     -----     -----
     Income (loss) before income taxes ...............     (74.0)     15.4     (78.0)     11.9
Benefit from (provision for) income taxes ............      67.4      (6.0)     45.9      (4.6)
                                                           -----     -----     -----     -----
     Net income (loss) ...............................      (6.7)%     9.4%    (32.1)%     7.3%
                                                           =====     =====     =====     ===== 

Cost of sales as a percentage of the related revenues:
     Product .........................................      10.3%     11.4%     10.1%     12.6%
     Maintenance and consulting ......................      35.0%     32.9%     36.6%     32.3%
</TABLE>

Revenues:

Total revenues were $6.7 million and $9.6 million for the three months and $13.1
million and $18.4  million for the six months ended  December 31, 1997 and 1996,
respectively,  representing  a decrease of  approximately  30% for both periods.
Product  sales were $3.4  million and $6.0 million for the three months and $6.2
million and $10.8  million for the six months ended  December 31, 1997 and 1996,
respectively, representing a decrease of 42%. These decreases were primarily due
to fewer sales  through  the Cisco  sales  force than the  Company  anticipated.
During the period from January 1997 through  August 1997,  the  Company's  sales
force  focused  attention to supporting  the Cisco sales effort  pursuant to its
strategic  relationship  instead of continuing its direct selling efforts.  From
September  1997  forward,  the  Company's  sales  force  was  again  focused  on
rebuilding  its sales leads as well as  supporting  Cisco's  efforts to sell the
Company's  software.  Also a factor in the decrease was $1.0 million recorded in
December  1996  relating  to  prepaid  licenses  from  Cisco.   Maintenance  and
consulting  revenues were $3.4 million and $3.7 million for the three months and
$6.8  million and $7.6  million for the six months  ended  December 31, 1997 and
1996, respectively,  representing a decrease of 9% and 10%, respectively.  These
decreases resulted  principally from a decrease in maintenance revenues from the
DECnet product line.

                                       13
<PAGE>

Cost of Revenues:

Product.  Cost of revenues  from product sales  consists  primarily of hardware,
product media,  documentation  and packaging costs. Cost of revenues for product
sales was  $348,000  and  $678,000,  representing  10% and 11% of total  product
revenues for the three months  ended  December 31, 1997 and 1996,  respectively.
Cost of revenues for product sales was $628,000 and $1.4  million,  representing
10% and 13% of total product revenues for the six months ended December 31, 1997
and 1996,  respectively.  Both the  revenue  and cost of  revenue  from  selling
hardware products declined while the Company was receiving credit from Cisco for
Cisco's sales of hardware into accounts using the Company's products in favor of
reselling  hardware  directly.  These  credits  from  Cisco  will cease when the
Company receives total credits of $1.2 million but not later than June 30, 1998.
At that time,  the Company  presently  intends to resell  third  party  hardware
products once again.

Maintenance  and  Consulting.  Cost of revenues from  maintenance and consulting
consists  primarily of personnel  related costs incurred in providing  telephone
support and software  updates.  Cost of revenues from maintenance and consulting
was $1.2 million in both of the three month periods ended  December 31, 1997 and
1996,  representing  35% and 33% of total  maintenance and consulting  revenues,
respectively.  Cost of revenues from maintenance and consulting was $2.5 million
and $2.4 million,  representing 37% and 32% of total  maintenance and consulting
revenues  for the six months  ended  December  31, 1997 and 1996,  respectively.
These  increases in  maintenance  and  consulting  costs as a percentage  of the
related  revenue is due to lower annual  maintenance  prices as a percentage  of
related product  revenue,  with costs remaining  stable as the majority of costs
are fixed.

Operating Expenses:

Total operating expenses were $10.5 million and $6.4 million,  representing 155%
and 67% of total revenues for the three months ended December 31, 1997 and 1996,
respectively.  Total  operating  expenses were $20.6 million and $12.4  million,
representing  158% and 68% of total  revenues for the six months ended  December
31, 1997 and 1996,  respectively.  The increases 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,  the
charge  relating to the sale of the HARBOR  product  line in the  quarter  ended
December 31, 1997, the costs  associated  with operating both HARBOR and NetLOCK
operations during the periods and one-time charges of approximately $500,000 for
legal and severance costs. See further discussion below.

Product Development. Product development expenses consist primarily of personnel
related costs.  Product development expenses were $3.2 million and $2.0 million,
representing  48% and 20% of total  revenues for the three months ended December
31, 1997 and 1996, respectively.  Product development expenses were $5.6 million
and $3.9 million,  representing 43% and 21% of total revenues for the six months
ended  December  31, 1997 and 1996,  respectively.  These  increases  in product
development  expenses  resulted from the expansion of the Company's product line
as a result of the  acquisition  of  NetLOCK  network  security  technology  and
ongoing product development efforts.

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 87% and 89% of
product  revenues  for the  three  months  ended  December  31,  1997 and  1996,
respectively,  and 89% and 85% of  product  revenues  for the six  months  ended
December 31, 1997 and 1996, respectively. Sales and marketing expenses were $3.0
million and $3.2  million,  representing  45% and 33% of total  revenues for the
three  months  ending  December  31,  1997 and  1996,  respectively.  Sales  and
marketing expenses were $5.8 million and $6.3 million,  representing 44% and 34%
of total  revenues  for the six  months  ending  December  31,  1997  and  1996,
respectively.  The decreased  cost was a result of lower  commission  expense on
lower revenues.

                                       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.  General and administrative expenses
were $1.9 million and $1.1 million,  representing  29% and 11% of total revenues
for the three months ended December 31, 1997 and 1996, respectively. General and
administrative expenses were $3.3 million and $2.0 million, representing 25% and
11% of total  revenues  for the six months  ended  December  31,  1997 and 1996,
respectively.  The  increases  were a result of higher legal  costs,  recruiting
costs, severance costs and consulting expenses, including approximately $500,000
in one-time expenses in the three months ended December 31, 1997.

Purchased Research and Development and Product Amortization.  Purchased research
and development and product amortization was $117,000 and $139,000, representing
2% and 1% of total  revenues for the three  months  ended  December 31, 1997 and
1996, respectively.  Purchased research and development and product amortization
was $3.9 million and $301,000, representing 30% and 2% of total revenues for the
six months ended December 31, 1997 and 1996, respectively.  A one-time charge of
$3.1  million for  purchased  research  and  development  related to the NetLOCK
acquisition,  and a write-down  of $550,000  relating to purchased  research and
development in connection with the HARBOR acquisition were recorded in September
1997. (See Notes 3 and 4 to Condensed Consolidated Financial Statements)

Loss on Sale of HARBOR Product Line. The loss on sale of the HARBOR product line
was $2.2 million,  representing  32% and 17% of total revenues for the three and
six months ended December 31, 1997, respectively. 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
of a  Canadian  loan in the  amount of $1.2  million,  which was  assumed by the
buyers. (See Note 4 to Condensed Consolidated Financial Statements)

Interest and Other  Income,  Net. Net interest and other income was $255,000 and
$144,000 for the three months  ended  December 31, 1997 and 1996,  respectively.
Net  interest and other income was $520,000 and $88,000 for the six months ended
December  31, 1997 and 1996,  respectively.  The  increases  in net interest and
other income was due primarily to a reduction of bank borrowings  related to the
Harbor  acquisition  and  interest  earned on the  larger  cash  balances  which
resulted from the Company's  initial public offering in August 1996 and the sale
of stock to Cisco in December 1996.

Benefit from  (Provision  for) Income Taxes.  The benefit from  (provision  for)
income taxes was $4.5 million and ($578,000) for the three months ended December
31, 1997 and 1996,  respectively.  The benefit from (provision for) income taxes
was $6.0 million and  ($847,000)  for the six months ended December 31, 1997 and
1996, respectively. Included in the three and six months ended December 31, 1997
is a tax  benefit of $3.2  million  relating  to the sale of the HARBOR  product
line. Of this tax benefit,  $2.8 million will be realized as a refund of federal
income  taxes  previously  paid,  once the Company  files its tax return for the
current  fiscal year. The effective tax rate was  approximately  28% and 39% for
the three and six month periods ended December 31, 1997 and 1996,  respectively.
The decrease in the  effective tax rate is due to operating  losses  experienced
during the three and six months  ended  December  31,  1997.  The  Company  will
continue to evaluate the recoverability of its deferred tax assets.

Recent Pronouncements

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No. 130 (SFAS  130),  Reporting  Comprehensive
Income. This statement establishes  requirements for disclosure of comprehensive
income and becomes  effective for the Company for fiscal years  beginning  after
December 15, 1997, with  reclassification  of earlier  financial  statements for
comparative  purposes.  Comprehensive income generally represents all changes in
stockholders' equity except those resulting from investments or contributions

                                       15
<PAGE>

by stockholders.  The Company is evaluating  alternative  formats for presenting
this  information,  but does not expect this  pronouncement to materially impact
the Company's results of operations.

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  becomes  effective for fiscal years beginning after December 15, 1997,
and requires  that  comparative  information  from earlier  years be restated to
conform to the  requirements  of this  standard.  The Company is evaluating  the
requirements  of SFAS 131 and the  effects,  if any,  on the  Company's  current
reporting and disclosures.

In October 1997, the Accounting  Standards  Executive Committee issued Statement
of Position 97-2 (SOP 97-2), Software Revenue Recognition,  which delineates the
accounting for software  product and maintenance  revenues.  SOP 97-2 supersedes
the  Accounting  Standards  Executive  Committee  Statement  of  Position  91-1,
Software Revenue Recognition,  and is effective for transactions entered into in
fiscal years  beginning  after  December 15, 1997. The Company is evaluating the
requirements  of SOP  97-2  and the  effects,  if any on the  Company's  current
revenue recognition policies.

Liquidity and Capital Resources

Working  capital was $23.7  million and $25.4  million at December  31, 1997 and
June 30, 1997,  respectively.  The decrease in working capital was primarily due
to the acquisition of NetLOCK network security technology and related assets and
net losses for the three and six months ended December 31, 1997.

For the  six  months  ended  December  31,  1997,  net  cash  used in  operating
activities   resulted  primarily  from  the  net  loss,   decreases  in  accrued
liabilities  and deferred  maintenance and product  revenue,  and an increase in
deferred tax assets,  partially offset by a decrease in accounts  receivable,  a
write-off of purchased research and development,  and sale of the HARBOR product
line.  For the six  months  ended  December  31,  1996,  net  cash  provided  by
operations  resulted  primarily from net income,  depreciation and amortization,
decrease in accounts receivable and other assets, partially offset by a decrease
in accrued  liabilities,  a decrease in deferred maintenance and product revenue
and an increase in inventories.

For the six months ended December 31, 1997, the Company's  investing  activities
have  consisted  primarily  of  the  acquisition  of  NetLOCK  network  security
technology  and  purchases  of property  and  equipment  including  $1.1 million
purchased  in the NetLOCK  acquisition.  For the six months  ended  December 31,
1996, the Company's  investing  activities  consisted  primarily of purchases of
property and equipment.

For the six months ended December 31, 1997, the Company's  financing  activities
have  consisted  primarily of payments on notes  payable and  proceeds  from the
issuance of common  stock.  For the six months  ended  December  31,  1996,  the
Company's  financing  activities  consisted of proceeds from the initial  public
offering and the equity  investment by Cisco partially offset by payments on the
Company's bank line of credit and notes payable.

At  December  31,  1997,  the  Company  had  $21.1  million  in  cash  and  cash
equivalents.  The  Company  had $8.1  million  in  accounts  receivable,  net of
allowance  for doubtful  accounts,  and $7.9 million of unearned  revenues,  the
majority of which are expected to be earned over the 12 month  period  following
December 31, 1997.

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

The Company operates in a rapidly changing environment that involves a number of
risks,  some of  which  are  beyond  the  Company's  control,  and  include  the
following:

Dependence on Current Products

During the three months ended  December 31, 1997 and 1996,  sales of the network
transport   products,   excluding   maintenance  and  hardware,   accounted  for
approximately  31% and 34%, and,  including  related  maintenance  and hardware,
accounted for  approximately 88% and 85%,  respectively,  of the Company's total
revenues.  The Company's  operating results have historically been significantly
dependent  upon sales of the  network  transport  products.  Approximately  $1.0
million per quarter of  maintenance  revenues is 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  difficulty
in deriving  significant revenues from sales by Cisco of the IOS/390 product. As
a result of  renegotiating  its agreement with Cisco in August 1997, the Company
has resumed direct sales of its TCPaccess product and continues to support Cisco
in its sales of  IOS/390.  Increased  sales of  network  transport  products  is
dependent upon the Company's  ability to continue to expand its sales leads and,
in part, on cooperation  with Cisco in the sale of IOS/390 into larger accounts.
The failure to increase  sales levels of TCPaccess  or IOS/390  could  adversely
affect the Company's results of operations.

Reliance on IBM and the Mainframe as an Enterprise Server

The  Company's  network  transport  products  are  designed for use with IBM and
IBM-compatible mainframe computers. Specifically, these software products target
users of the MVS  operating  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 such 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  many  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  IOS/390 and  TCPaccess  product,  and have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

New TCP/IP Products and Rapid Technological Change

The markets for the Company's network transport  products and systems management
applications  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

                                       17
<PAGE>

depend upon its ability to develop 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 that 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  new  versions  of  TCPaccess  or  IOS/390),   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.

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

During the past several  quarters,  the Company has expanded its market focus to
include  products that provide  security for and  management and control of data
and programs in  electronic  commerce.  In pursuit of that  vision,  the Company
acquired  the  NetLOCK  product  technology  in  September  1997 and the OpenMAX
technology  in  January  1998.  Further  development  of these  technologies  is
required.  There can be no  assurance  that the Company  will be  successful  in
integrating  the  operations  and  personnel  associated  with these new product
lines,  successfully  commercializing  the  technologies,  deriving  significant
future sales therefrom,  or in establishing and maintaining  uniform  standards,
controls,  procedures  and policies,  or overcoming  other  problems that may be
encountered  in  connection  with these  acquisitions.  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.

To date, the Company's core  technologies  for its principal  network  transport
products and systems  management  applications  have been  acquired and have not
been developed internally.  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 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.

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  

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<PAGE>

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 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,  and may have 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 historically sold its TCPaccess suite of
products principally to customers who had installed IBM 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 products.  IBM has continued to
enhance the  functionality  and performance of its TCP/IP product.  In addition,
IBM's OS/390 operating system, which includes TCP/IP communications  software in
a  bundle  of  software  provided  to  purchasers  of  OS/390,  has  been and is
aggressively  marketed  by IBM,  and the  Company  believes  it has lost and may
continue  to lose sales of the  Company's  IOS/390 and  TCPaccess  products as a
result.  IBM has in some cases  included  and may continue to include its TCP/IP
product in the bundle of software provided to purchasers of its OS/390 operating
system without charge.  The Company believes that any general reduction in price
of the IBM TCP/IP products, or the widespread bundling of those products without
charge in its OS/390  operating  system,  would make  marketing of the Company's
IOS/390 and TCPaccess  products  difficult,  which would have a material adverse
effect on the Company's business, financial condition and results of operations.

Security and System Management Products. The primary competitors for the NetLOCK
products based on the Company's  recently acquired  end-to-end  network security
product, is Network  Associates,  Inc.,  Security Dynamics  Technologies,  Inc.,
Cylink, Time Step, Red Creek Communications Inc., V-One Technologies,  Inc., and
Security First 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. The primary
competitors  for the  management  and control  products to be  developed  on the
OpenMAX  technology  acquired  with  the  purchase  of  Networkers  Engineering,
Limited,  include IBM,  Computer  Associates and Sterling  Software.  Many other
companies in the computer industry have announced  products and plans to compete
in the management and control of computer systems and networks.

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,
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.

                                       19
<PAGE>

Dependence on Distributors and New Sales Channels

The Company's sales are primarily made through the Company's  direct sales force
and its  distributors in some  international  markets.  The Company is currently
investing, and plans to continue to invest, significant resources to develop new
strategic   marketing   relationships   and  channels  of  distribution,   which
investments  could  adversely  affect  the  Company's   operating  margins.   In
particular, the Company plans to develop new channels of distribution, including
new  distributors  and  resellers  and a tele-sales  marketing  organization  in
connection with sales of its new security  products.  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 develop  these new sales  channels.
There can be no assurance that any distributor,  systems integrator or strategic
partner will not discontinue its  relationship  with the Company,  for 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.

The Company is involved in a  commercial  dispute and  litigation  with a former
distributor (See Notes to Condensed Consolidated Financial Statements). Although
the Company  has  accrued  amounts  for  potential  liabilities  related to this
dispute,  should the distributor  prevail on its claims to a greater degree, the
Company's  business,  financial  condition  and results of  operations  could be
materially adversely affected.

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 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.

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.   In  addition,   in  the  process  of
commercializing  new  products  the Company may detect  errors or failures  that
delay or prevent commercialization, any of which could

                                       20
<PAGE>

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.

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. In recent periods,  the Company has experienced longer sales cycles
in certain instances. 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  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,  and a substantial
majority of those orders are 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 December and June and weaker sales
in the quarters ending in September and March.  The decrease in product revenues
in the  quarters  ending  in  September  is due  to the  international  customer
seasonal buying patterns. The quarters ending in March are historically weak due
to  government  and  large  organization  annual  budgeting  cycles.  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,  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.

Reliance on and Risks Associated with International Sales

During the three months ended  December 31, 1997 and 1996,  40% of the Company's
total revenues were derived from sales to  international  customers.  During the
six months ended December 31, 1997 and 1996, 36% and 44%,  respectively,  of the
Company's total revenues were derived from sales to international customers. The
decrease in sales in the six months period ended December 31, 1997 is indicative
of the risks associated 

                                       21
<PAGE>

with international sales and there can be no assurance that such a decrease will
not occur  again in the  future.  The  Company's  international  sales have been
primarily to European  markets,  and sales are  generally  denominated  in local
currencies.  Although  the  Company  plans to focus its  initial  NetLOCK  sales
efforts in the U.S. market, the regulatory  environment with respect to sales of
NetLOCK to international customers is complex and uncertain.  Should the Company
wish  to  sell  NetLOCK  internationally  it  may be  unable  to do so or may be
required to incur considerable regulatory costs to do so.

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 and
import 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  generally  has not  attempted  to  reduce  the  risk  of  currency
fluctuations  by  hedging  except in  certain  limited  circumstances  where the
Company expects to hold an account receivable 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.

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  unauthorized  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

                                       22
<PAGE>

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  functionality's 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 or remain  below  current  levels.  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 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 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.


                                       23
<PAGE>


                           PART II: OTHER INFORMATION


                                       24

<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   The  Company   filed  a  current
                                                reports  on Form 8-K on  October
                                                3, 1997,  October  15,  1997 and
                                                December 18, 1997.
                                                        


                                       25
<PAGE>


SIGNATURE

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:    February 13, 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


                                       26