UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549

                                    FORM 10-Q

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

   7,638,423 shares of the registrant's Common stock, $0.001 par value, were
                      outstanding as of November 1, 1997.

                                       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:
                      September 30, 1997 and June 30, 1997................................................................4
                  Condensed Consolidated Statements of Operations:
                      Three months ended September 30, 1997 and 1996......................................................5
                  Condensed Consolidated Statements of Cash Flows:
                      Three months ended September 30, 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..........................................................................................26
Item 6        Exhibits and Reports on Form 8-K...........................................................................26

Signatures    ...........................................................................................................27

</TABLE>
                                                             2

<PAGE>


                          PART I: FINANCIAL INFORMATION

                                       3
<PAGE>

<TABLE>

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

<CAPTION>
                                                                                                 September 30,             June 30,
                                                                                                 -------------             --------
                                                                                                      1997                   1997
                                                                                                      ----                   ----
                                                                                                  (unaudited)
<S>                                                                                                 <C>                   <C>
ASSETS
Current assets:
     Cash and cash equivalents .......................................................              $ 23,422               $ 28,106
     Accounts receivable, net ........................................................                 6,645                  9,752
     Inventories .....................................................................                   667                    674
     Other current assets ............................................................                 3,222                  3,332
                                                                                                    --------               --------
         Total current assets ........................................................                33,956                 41,864
Property and equipment, net ..........................................................                 2,697                  1,676
Long-term deferred tax asset .........................................................                 2,549                  1,541
Purchased software products and other non-current assets .............................                 3,052                  3,282
                                                                                                    --------               --------
         Total assets ................................................................              $ 42,254               $ 48,363
                                                                                                    ========               ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current portion of long-term debt ...............................................              $    251               $    314
     Accounts payable ................................................................                   954                  1,421
     Accrued liabilities .............................................................                 4,227                  7,286
     Deferred maintenance and product revenue ........................................                 6,625                  7,488
                                                                                                    --------               --------
         Total current liabilities ...................................................                12,057                 16,509
Long-term debt, less current portion .................................................                   868                    802
Deferred maintenance revenue .........................................................                 1,277                  1,403
Other liabilities ....................................................................                 3,112                    975
                                                                                                    --------               --------
     Total liabilities ...............................................................                17,314                 19,689
                                                                                                    --------               --------
Commitments and contingencies (Note 6)
Common stock .........................................................................                     7                      7
Additional paid-in capital ...........................................................                50,839                 50,814
Cumulative translation adjustment ....................................................                  (609)                  (591)
Accumulated deficit ..................................................................               (25,297)               (21,556)
                                                                                                    --------               --------
     Total stockholders' equity ......................................................                24,940                 28,674
                                                                                                    --------               --------
         Total liabilities and stockholders' equity ..................................              $ 42,254               $ 48,363
                                                                                                    ========               ========

<FN>
                               See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
                                        4
<PAGE>


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

                                                             Three months ended
                                                               September 30,
                                                               -------------
                                                             1997         1996
                                                             ----         ----
                                                          (unaudited)
Revenues:
       Product .........................................   $  2,833    $  4,832
       Maintenance and consulting ......................      3,482       3,893
                                                           --------    --------
              Total revenues ...........................      6,315       8,725
                                                           --------    --------
Cost of revenues:
       Product .........................................        280         685
       Maintenance and consulting ......................      1,329       1,237
                                                           --------    --------
              Total cost of revenues ...................      1,609       1,922
                                                           --------    --------

Gross profit ...........................................      4,706       6,803
                                                           --------    --------

Operating expenses:
       Product development .............................      2,318       1,901
       Sales and marketing .............................      2,778       3,064
       General and administrative ......................      1,324         912
       Purchased research and development and other ....      3,599        --
       Purchased software amortization .................        147         162
                                                           --------    --------
              Total operating expenses .................     10,166       6,039
                                                           --------    --------
Operating income (loss) ................................     (5,460)        764

Interest and other income (expense), net ...............        265         (56)
                                                           --------    --------

Income (loss) before provision income taxes ............     (5,195)        708

Benefit from (provision for) income taxes ..............      1,454        (269)
                                                           --------    --------

Net income (loss) ......................................   ($ 3,741)   $    439
                                                           ========    ========

Net income (loss) per share ............................   ($  0.50)   $    .07
                                                           ========    ========

Shares used in per share calculation ...................      7,557       6,147
                                                           ========    ========

     See accompanying notes to condensed consolidated financial statements.

                                           5
<PAGE>

<TABLE>

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

<CAPTION>
                                                                                                    Three months ended September 30,
                                                                                                           1997            1996
                                                                                                           ----            ----
                                                                                                           (unaudited)
<S>                                                                                                      <C>              <C>    
Cash flows from operating activities:
     Net income (loss) .........................................................................         ($ 3,741)         $    439
     Adjustments to reconcile net income (loss) to net cash
         provided by (used in) operating activities:
              Purchased research and development and other .....................................            3,599              --
              Depreciation and amortization ....................................................              503               457
              Provision for excess and obsolete inventory ......................................              101              --
              Provision  for (reduction in) doubtful accounts ..................................               (7)               50
              Exchange loss (gain) .............................................................               65               (51)
              Deferred income taxes ............................................................           (1,080)             --
              Changes in operating assets and liabilities:
                  Accounts receivable ..........................................................            2,916             1,433
                  Inventories ..................................................................             (100)               77
                  Other assets .................................................................              343               959
                  Accounts payable .............................................................             (464)             (865)
                  Accrued liabilities ..........................................................           (3,170)           (1,195)
                  Deferred maintenance and product revenue .....................................             (944)           (1,171)
                  Other liabilities ............................................................              (65)              (88)
                                                                                                         --------          --------
                      Net cash provided by (used in) operating activities ......................           (2,044)               45
                                                                                                         --------          --------
Cash flows from investing activities:
     Acquisition of NetLOCK network security technology ........................................           (1,175)             --
     Acquisition of property and equipment .....................................................           (1,269)             (168)
     Capitalization of software development costs ..............................................             --                 (25)
                                                                                                         --------          --------
                      Net cash used in investing activities ....................................           (2,444)             (193)
                                                                                                         --------          --------
Cash flows from financing activities:
     Payments on capital lease obligations .....................................................              (68)              (65)
     Payments on notes payable and other .......................................................             (105)             (497)
     Payments on bank line of credit ...........................................................             --              (5,000)
     Proceeds from issuance of common stock, net ...............................................               26            22,133
                                                                                                         --------          --------
                      Net cash provided by (used in) financing activities ......................             (147)           16,571
                                                                                                         --------          --------

                           Net increase (decrease) in cash and cash equivalents ................           (4,635)           16,423

Effect of exchange rate changes on cash ........................................................              (49)                5
Cash and cash equivalents, beginning of period .................................................           28,106             6,121
                                                                                                         --------          --------
Cash and cash equivalents, end of period .......................................................         $ 23,422          $ 22,549
                                                                                                         ========          ========

<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 months ended
September 30, 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
September 30, 1997 and June 30, 1997.

3.   NetLOCK Network Security Technology Acquisition:

On September 18, 1997, the Company  acquired 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 discount of
$724,000,  and the  $175,000  paid to the third party  licensor.  The  remaining
portion of the purchase  price of  $1,144,000  has been recorded as property and
equipment.  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 operating lease, the Company is obligated to make
future minimum lease payments of $364,000 through fiscal 2001.

4. Write-Down of Purchased  Software  Products Related to the Acquisition of New
Era Systems Services LTD.:

                                       7

<PAGE>

On December 29, 1995, the Company  acquired all of the outstanding  stock of New
Era Systems Services Ltd. ("New Era"), a Canadian company that develops, markets
and supports storage management and software  distribution products and recorded
$3.2 million as purchased software products.  During the quarter ended September
30,  1997  revenue   expectations  for  the  storage   management  and  software
distribution products declined due to the sales force focusing on NetLOCK as the
primary  application  product of the future and IBM gaining market share through
its ADSM product.  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.

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

Net income  (loss) per share is computed  using the weighted  average  number of
common and common  equivalent  shares  outstanding  during  the  period.  Common
equivalent shares are included in the per share calculations where the effect of
their inclusion  would be dilutive.  Dilutive  equivalent  shares consist of the
incremental  common  shares  issuable  upon  conversion  of  stock  options  and
warrants, using the treasury stock method in all periods.

6.   Contingencies:

The Company and the Company's  subsidiary in France are involved in a commercial
dispute  with  a  former  Italian  distributor  ("Claimant")  of  the  Company's
TCPaccess  products.  The former  distributor  alleged  in a letter  sent to the
Company that the Company had breached and  unlawfully  terminated  the agreement
pursuant to which the former  distributor  was  appointed a  distributor  of the
Company's  products  in Italy and  asserted  other  related  claims  against the
Company.  The  letter  demanded  the  former  distributor's  reinstatement  as a
distributor, the execution of a written distribution agreement setting forth the
distribution   arrangements   between  the  parties,   and  compensation  in  an
unspecified amount to be paid to the former distributor for the harm that it has
suffered. The Company's Canadian subsidiary,  New Era Systems Services Ltd., has
also  previously  used the former  distributor  as a  distributor  of the HARBOR
products  in Italy  pursuant  to a separate  agreement  which was  entered  into
between the claimant and New Era Systems  Services Ltd's Irish  subsidiary,  Era
Nua Teoranta.

On January 27, 1997 the former  distributor  initiated a lawsuit in the Court of
Milan in Milan,  Italy against New Era Systems Services Ltd., a Canadian company
and wholly owned  subsidiary  of the  Company,  the  Company,  Interlink  France
S.A.R.L.,  a French  company and wholly owned  subsidiary of the Company and the
Company's  current  distributor  in  Italy.  The  litigation  is  based  on  the
Claimant's  distribution of Company's HARBOR products  pursuant to a distributor
agreement with Era Nua Teoranta,  which  pre-dates the Company's  acquisition of
New Era Systems  Services,  Ltd. The  Company's  distributor  relationship  with
Claimant for the  distribution  of the  Company's  HARBOR  products in Italy and
Spain has  terminated.  This  litigation  does not  involve  the  Cisco  IOS/390
products or the  TCPaccess  products.  Pursuant to Claimant's  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.  Era Nua
Teoranta  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.

On March 12, 1997 the former distributor initiated a separate lawsuit in Alameda
County, California against the Company, certain employees of the Company and the
Company's  current  Italian  distributor.  The  litigation is based upon alleged
actions taken by the Company and certain  employees of the Company.  Pursuant to
Claimant's  complaint,  Claimant  alleged various tort claims,  including fraud,
deceit,  and  unfair   competition,   in

                                       8

<PAGE>

addition to statutory trade secret misappropriation,  and breach of confidential
relationship.  Claimant  is  requesting  that the  defendants  pay  compensatory
damages  in  excess  of  $2,000,000,  unspecified  punitive  damages,  interest,
attorneys'  fees,  and costs of the  litigation.  The Company and the individual
defendants  moved to stay the lawsuit on the grounds that all claims are subject
to arbitration  under the terms of the  distributor  agreement.  The lawsuit was
stayed by the Alameda County  Superior Court pending  arbitration of the claims.
No arbitration has to date been initiated.

On August 28, 1997, a Danish  distributor  has made a claim  against the Company
asking for  approximately  $300,000 in monetary  damages caused by the Company's
failure to deliver  workable  products on three software orders in Denmark.  The
claim is in the  discovery  stage and the Company  believes  it has  meritorious
defenses to the asserted claim.

No provision for any liability that may result upon  resolution of these matters
has been made in the  financial  statements  nor can an  estimate be made of the
range of loss.  Should the Company be  unsuccessful  in  defending  any of these
claims, the Company's  business,  financial  condition and results of operations
would be materially adversely affected.

<TABLE>
7.   Supplemental Cash Flow Disclosures (in thousands):
<CAPTION>
                                                                                    Three months ended September 30,
                                                                                           1997             1996
                                                                                           ----             ----
<S>                                                                                      <C>                <C> 
     Interest paid...........................................................                $5             $158
     Income taxes paid.......................................................            $1,205             $909
     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              --
</TABLE>

8.  Concentrations of  Revenues:

During the quarter ended September 30, 1997, 13% of the Company's total revenues
were derived from sales to and through Cisco Systems, Inc. ("Cisco"). During the
quarter ended September 30, 1996, no one customer accounted for more than 10% of
total revenues.

9.  Recent Pronouncements:

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No. 128 (SFAS 128),  Earning Per Share,  which
specifies the computation, presentation and disclosure requirements for earnings
per share.  SFAS 128  supersedes  Accounting  Principles  Board  Opinion No. 15,
Earnings Per Share, and is effective for financial statements issued for periods
ending  after  December  15,  1997.   SFAS  128  requires   restatement  of  all
prior-period  earnings per share data presented  after the effective  date. SFAS
128 is not  expected  to  have a  material  impact  on the  Company's  financial
position, results of operations or cash flows.

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,

                                       9

<PAGE>

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>

           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
systems management  applications which efficiently transport,  store and protect
the  integrity  of  mission-critical  data and  applications.  The  Company  was
incorporated in December 1985 and initially focused its products and development
on  providing   interoperability  between  IBM  mainframes  and  DECnet  network
environments. In 1990, the Company acquired the core technology of its TCPaccess
suite of  products.  In  December  1995 the  Company  acquired  New Era  Systems
Services  Ltd.  ("New Era"),  the developer of the HARBOR  products,  a software
product  line  providing   enterprise   systems   management   applications  for
client/server networks. This transaction was accounted for as a purchase.  Prior
to the  acquisition,  the  Company  distributed  the HARBOR  products in certain
countries in Europe for more than one year. New Era is a wholly-owned subsidiary
headquartered in Calgary, Alberta.

In  January  1997 the  Company  entered  into a  strategic  alliance  with Cisco
pursuant to which Cisco and the Company  agreed to cooperate to develop  certain
TCP/IP software known as IOS/390.  Although Interlink is an authorized  reseller
of the IOS/390 product, which has been available since May 13, 1997, the Company
continues to  independently  market and sell IOS/390 and TCPaccess.  Support for
the IOS/390  sold  through  Cisco and Cisco's  reseller  channels is provided by
Cisco. In August 1997 the Company signed a reseller agreement with Cisco for the
Cisco IOS for S/390  software  and the Cisco 7505 and 7513 router  products.  In
October 1997 the Company  modified  the  definitive  agreement  with Cisco which
clarified  the research and  development  investment  and modified the sales and
marketing processes.

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

                                       11

<PAGE>

Results of Operations

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

                                                                 Three months
                                                             ended September 30,
                                                             -------------------
                                                               1997        1996
                                                               ----        ----
Revenues:
     Product .............................................      44.9%      55.4%
     Maintenance and consulting ..........................      55.1       44.6
                                                               -----      -----
         Total revenues ..................................     100.0      100.0
                                                               -----      -----

Cost of revenues:
     Product .............................................       4.4        7.9
     Maintenance and consulting ..........................      21.1       14.2
                                                               -----      -----
         Total cost of revenues ..........................      25.5       22.1
                                                               -----      -----

Gross profit .............................................      74.5       77.9

Operating expenses:
     Product development .................................      36.7       21.8
     Sales and marketing .................................      44.0       35.1
     General and administrative ..........................      21.0       10.5
     Purchased research and development and other ........      57.0
     Purchased software amortization .....................       2.3        1.8
                                                               -----      -----
         Total operating expenses ........................     161.0       69.2
                                                               -----      -----

Operating income (loss) ..................................     (86.5)       8.7
Interest and other income (expense), net .................       4.2        (.6)
                                                               -----      -----
     Income (loss) before income taxes ...................     (82.3)       8.1
Provision for (benefit from) income taxes ................     (23.0)       3.1
                                                               -----      -----
     Net income (loss) ...................................     (59.2)%      5.0%
                                                               =====      =====

Cost of sales as a percentage of the related revenues:
     Product .............................................       9.9%      14.2%
     Maintenance and consulting ..........................      38.2%      31.8%

Revenues:

Total  revenues  were $6.3  million and $8.7  million for the three months ended
September  30,  1997 and 1996,  respectively,  representing  a decrease  of 28%.
Product  sales were $2.8  million and $4.8  million for the three  months  ended
September 30, 1997 and 1996, respectively,  representing a decrease of 41%. This
decrease was primarily  due to slower  development  in the selling  relationship
with Cisco and that international sales were 78% lower than in the first quarter
of fiscal  year  1997.  Additionally,  there was a  decrease  in HARBOR  product
revenue of  $500,000 in the three  months  ended  September  30, 1997 versus the
three months ended September 30, 1996.  Maintenance and consulting revenues were
$3.5 million and $3.9 million for the three months ended  September 30, 1997 and
1996,  respectively,  representing  an decrease of 11%. This  decrease  resulted
principally  from a decrease in  maintenance  revenues  from the DECnet  product
line.

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  $280,000  and  $685,000,  representing  10% and

                                       12

<PAGE>

14% of total product  revenues for the three months ended September 30, 1997 and
1996,  respectively.  This  percentage  decrease  was  due  to  a  reduction  in
third-party  revenue  and a decline in  hardware  revenue,  which  carry  higher
product costs as a percentage of their respective revenues.

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 $1.3 million and $1.2 million, representing 38% and 32% of total maintenance
and consulting  revenues for the three months ended September 30, 1997 and 1996,
respectively.  This increase in maintenance and consulting costs as a percentage
of the related revenue is due to lower revenues with costs remaining  consistent
as the majority of costs is headcount driven.

Operating Expenses:

Total operating expenses were $10.2 million and $6.0 million,  representing 161%
and 69% of total  revenues  for the three months  ended  September  30, 1997 and
1996, respectively. The increase in total operating expenses is primarily due to
the purchased  research and development  expense  relating to the acquisition of
the NetLOCK network security technology. See further discussion below.

Product Development. Product development expenses consist primarily of personnel
related costs.  Product development expenses were $2.3 million and $1.9 million,
representing  37% and 22% of total revenues for the three months ended September
30, 1997 and 1996,  respectively.  This increase 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. The Company believes that research and development expenses
will  increase in absolute  dollars in the future  primarily due to expansion of
the Company's product line as a result of the acquisition of the NetLOCK network
security  technology,  alliance with Cisco to further  develop IOS/390 and other
anticipated 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 86% and 80% of
product  revenues  for the  three  months  ended  September  30,  1997 and 1996,
respectively.  Sales and marketing  expenses were $2.8 million and $3.1 million,
representing 44% and 35% of total revenues for the three months ending September
30, 1997 and 1996,  respectively.  The decrease in absolute dollars was a result
of lower commission expense on lower revenues.

General  and  Administrative.   General  and  administrative   expenses  include
personnel and other costs of the finance,  human  resources  and  administrative
departments  of the  Company.  General  and  administrative  expenses  were $1.3
million and $900,000,  representing  21% and 11% of total revenues for the three
months ended September 30, 1997 and 1996, respectively. The increase in absolute
dollars was a result of higher legal costs, recruiting costs, and allowances for
doubtful accounts.

Purchased Research and Development and Other. Purchased research and development
and other was $3.6  million,  representing  57% of total  revenues for the three
months  ended  September  30,  1997.  There  were  no  purchased   research  and
development and other expense for the three months ended September 30, 1996. The
increase relates to a one-time  write-off of $3.1 million of purchased  research
and development related to the NetLOCK network security  technology  acquisition
in September  1997 and a write-down of $550,000 of purchased  software  products
relating  to the  acquisition  of  New  Era.  (See  Notes  3 and 4 to  Condensed
Consolidated Financial Statements)

                                       13

<PAGE>

Interest and Other Income (Expense) Net. Net interest and other income (expense)
was $265,000 and  ($56,000)  for the three months ended  September  30, 1997 and
1996,  respectively.  The  increase in interest  income and decrease in interest
expense was due primarily to a reduction of bank  borrowings  related to the New
Era Acquisition and interest earned on cash during the quarter.

Benefit from  (Provision  for) Income  Taxes.  The income tax provision was $1.5
million and ($269,000)  for the three months ended  September 30, 1997 and 1996,
respectively. The effective tax rate was approximately 28% and 39% for the three
months  ended  September  30,  1997  and  1996,  respectively.  Decrease  in the
effective tax rate is due to an operating loss experienced during the quarter.

Recent Pronouncements

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No. 128 (SFAS 128),  Earning Per Share,  which
specifies the computation, presentation and disclosure requirements for earnings
per share.  SFAS 128  supersedes  Accounting  Principles  Board  Opinion No. 15,
Earnings Per Share, and is effective for financial statements issued for periods
ending  after  December  15,  1997.   SFAS  128  requires   restatement  of  all
prior-period  earnings per share data presented  after the effective  date. SFAS
128 is not  expected  to  have a  material  impact  on the  Company's  financial
position, results of operations or cash flows.

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.

Liquidity and Capital Resources

                                       14

<PAGE>

Working  capital was $21.9  million and $25.4  million at September 30, 1997 and
June 30, 1997,  respectively.  Decrease in working  capital was primarily due to
$2.6 million relating to the acquisition of NetLOCK network security  technology
and certain assets and a net loss for the quarter.

For the three  months  ended  September  30,  1997,  net cash used in  operating
activities resulted primarily from a net loss, decrease in accrued  liabilities,
decrease in deferred  maintenance  and product  revenue,  and an increase in the
deferred tax asset,  partially offset by a decrease in accounts receivable and a
write-off of  purchased  research  and  development.  For the three months ended
September 30, 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 accounts payable,  decrease in accrued
liabilities and a decrease in deferred maintenance and product revenue.

For  the  three  months  ended  September  30,  1997,  the  Company's  investing
activities  have  consisted  primarily  of the  acquisition  of NetLOCK  network
security  technology  and  purchases  of property and  equipment.  For the three
months ended September 30, 1996, the Company's  investing  activities  consisted
primarily of purchases of property and equipment.

For  the  three  months  ended  September  30,  1997,  the  Company's  financing
activities have consisted primarily of payments on capital lease obligations and
payments on notes  payable.  For the three months ended  September 30, 1996, the
Company's  financing  activities  consisted of proceeds from the initial  public
offering partially offset by payments on the Company's bank line of credit.

At  September  30,  1997,  the  Company  had  $23.4  million  in cash  and  cash
equivalents.  The  Company  had $6.6  million  in  accounts  receivable,  net of
allowance for doubtful accounts, and $7.9 million of unearned revenues, majority
of which are expected to be earned over the 12 month period following  September
30, 1997.

The Company believes that its current cash and cash equivalents  balance and 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.

                                       15

<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 Strategic Relationships

Alliance  with  Cisco.  In January  1997 the  Company  entered  into a strategic
alliance with Cisco  pursuant to which Cisco and the Company agreed to cooperate
to develop the IOS/390 product,  which has been available since May 13, 1997. In
August 1997 the Company signed a reseller agreement with Cisco for the Cisco IOS
for S/390 software and the Cisco 7505 and 7513 router products.  In October 1997
the Company  modified the definitive  agreement  with Cisco which  clarified the
research  and  development  investment  and  modified  the sales  and  marketing
processes.  Cisco has not  guaranteed  the Company any minimum sales revenues in
connection with its sales of the IOS/390 product,  and there can be no assurance
that the Company  will  receive  any  revenues  therefrom.  Based on the amended
agreement,  marketing for the IOS/390 product is performed independently by each
Company.  The  Company  does not know at this time what  effect  this  sales and
marketing  relationship  will have on the sales cycle and on  obtaining  current
sales information for planning purposes. In addition,  customer price quotes are
managed by Cisco.

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

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

Dependence on Distributors

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

                                       16

<PAGE>

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.  Should  the  distributor  prevail  on its  claims,  the  Company's
business,  financial  condition  and results of  operations  would be materially
adversely affected.

In addition,  the Company has received notice of a claim from its distributor in
Denmark  which if  successful  could result in money  damages of up to $300,000.
(See Note 6 to the Condensed Consolidated Financial Statements)

Dependence on Current Products

During the three months ended September 30, 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.  A  portion  of the
maintenance  revenues  are from  historical  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 or the  Company of the
IOS/390 product. In addition, the Company has experienced difficulty in deriving
significant  revenues from sales of the HARBOR products since the acquisition of
New Era and the HARBOR product line in December  1995.  The Company's  operating
results are currently  dependent  upon continued  IOS/390  product sales by both
Cisco and the Company and upon continued  sales of HARBOR and other  third-party
products. The failure by either Cisco or the Company to increase sales levels of
the IOS/390  product or the failure by the Company to maintain  sales  levels of
the HARBOR products could adversely affect the Company's results of operations.

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

The  Company's  current  software  products  are  designed  for use with IBM and
IBM-compatible mainframe computers. Specifically, these software products target
users of the MVS  operating  system,  the Customer  Information  Control  System
communications  subsystem and the IMS and DB2 database  management systems. As a
result, future sales of the Company's existing products and associated recurring
maintenance  revenues are dependent  upon  continued use of mainframes and their
related systems software. In addition, because the Company's products operate in
conjunction  with IBM  systems  software,  changes to IBM systems  software  may
require the Company to adapt its products to these changes, and any inability to
do so, or delays in doing so,  may  adversely  affect  the  Company's  business,
financial  condition  and  results  of  operations.  Currently,  TCP/IP  is  the
communications   protocol  for  the  Internet  and  is  being  adopted  by  some
organizations as the communications  protocol for their client/server local area
networks and wide area  networks.  This  adoption has allowed IBM MVS  mainframe
computers to act as enterprise  servers on such networks.  The use of mainframes

                                       17

<PAGE>

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.

Competition

General.  The market in which the Company operates is intensely  competitive and
is characterized by extreme price  competition and rapid  technological  change.
The  competitive  factors  influencing  the markets for the  Company's  products
include  product  performance,   price,  reliability,   features,   scalability,
interoperability across multiple platforms, adherence to industry standards, and
the provision of support and maintenance  services.  The Company competes with 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  and Cisco have begun  jointly  marketing  with
IOS/390  product.  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 IOS/390  product.  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.

System Management Applications.

The primary competitors for the expected NetLOCK products based on the Company's
recently acquired  end-to-end  network security product,  is McAfee  Associates,
Inc.,  Security  Dynamics  Technologies,  Inc.,  Cylink,  Time  Step,  Red Creek
Communications  Inc., Pretty Good Privacy,  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 Company's HARBOR Backup and HARBOR  Distributed
Storage Server products are IBM,  Innovation  Data  Processing,  Inc.,  Panorama
Software  and  Storage  Technology.  The  Company's  competition  for the HARBOR
Distribution  product  includes  IBM and  Novadigm,  Inc.  ("Novadigm").  IBM is
aggressively  marketing its ADSM backup product, which is included in the System

                                       18

<PAGE>

View package on IBM's UNIX system,  AIX. There can be no assurance that IBM will
not include the ADSM backup products in a software "bundle" with the sale of its
mainframe  hardware  systems.  The bundling of competing  software products with
mainframe hardware systems could have a material adverse effect on the Company's
business,  financial  condition  and results of  operations.  The  Company  also
competes with a number of software  vendors who develop and market  products for
UNIX and Windows NT operating systems,  such as Microsoft,  Computer  Associates
International, Inc., EMC Corporation, Hewlett-Packard Company, Legato, Novadigm,
PLATINUM  Technology,  Inc., Seagate,  Sterling Software Inc., Sun Microsystems,
Inc. and Veritas Software. Although the Company has signed a strategic marketing
agreement  with  Legato,  the  Company  is still a  competitor  of Legato in the
storage management  market.  Competition from these companies could increase due
to an  expansion  of their  product  lines or a change  in their  approaches  to
enterprise  systems management or networking  products.  The bundling of network
transport  software with a network controller by these competitors could prevent
the  Company  from  selling  the  IOS/390  product  to the  customers  of  these
competitors,  which  would  have a  material  adverse  effect  on the  Company's
business, financial condition and results of operations.

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.

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 Company's Vice  President and Chief  Financial  Officer,  Gloria
Purdy,  tendered her  resignation  on October 17, 1997 and agreed to remain with
the Company until December 31, 1997.  Barbara Booth,  Vice President of Research
and  Development   and  Customer   Support  has  relocated  from  the  Company's
headquarters to Brea,  California to manage the Company's  NetLOCK  acquisition.
The Company's  Vice  President of Sales and Marketing,  Augustus  Berkeley,  was
promoted to President and Chief Executive  Officer in September 1997.  While the
Company  intends to fill these  positions,  experienced  executive-level  sales,
marketing,  finance, customer support and research and development professionals
in the  Company's  industry  are in high  demand  and may not be  attracted  and
retained on terms  advantageous  to the Company.  The  competition for qualified
personnel in the software industry (including engineers skilled in MVS operating
systems) is intense, and the loss of any such persons, as well as the failure to
recruit  additional  key  personnel  in a timely  manner,  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  There can be no assurance that the Company will be able to continue
to attract and retain the qualified  personnel  necessary for the development of
its  business.  The Company has  employment  agreements  with certain  executive
officers,  but such  agreements  do not ensure  their  continued  service to the
Company or prevent their competition with the Company following a termination of
employment. The Company does not maintain key man life insurance on the lives of
its key employees. 

                                       19

<PAGE>

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

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

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  NetLOCK the Company may detect errors or failures that delay or
prevent commercialization,  any of which could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company's license  agreements with customers  typically  contain  provisions
designed to limit the Company's  exposure to potential product liability claims.
The limitation of liability  provisions contained in such license agreements may
not be  effective  under  the laws of some  jurisdictions,  particularly  if the
Company in the future  relies on "shrink  wrap"  licenses that are not signed by
licensees.  The Company's products are generally used to

                                       20

<PAGE>

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
six months for the IOS/390 and TCPaccess products and six to nine months for the
HARBOR  products.  The  sales  cycle  for  the  IOS/390  product  has  not  been
established  due to limited  selling  and  revenue  experience  with the IOS/390
product, nor has the sales cycle for NetLOCK been established due to its lack of
commercialization.  There can be no assurance  that  customers will purchase the
Company's  products after a trial period or that the Company's  sales cycle will
not  lengthen,  exposing  it to  the  possibility  of  shortfalls  in  quarterly
revenues,  which could have a material adverse effect on the Company's business,
financial  condition  or results of  operations  and cause  results to vary from
period to period.  The Company's  operating  results may also be affected by the
seasonality on fluctuations of Cisco sales, if any, of the IOS/390 product.  The
Company's  maintenance  revenue  is  subject to  fluctuations  depending  on the
customers  choice in  installing  IOS/390  systems,  which will be  supported by
Cisco,  rather than TCPaccess  which is supported by the Company.  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.  The impact of
IOS/390 revenues,  if any, on this pattern is not certain.  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.


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

                                       21

<PAGE>

There can be no assurance that the Company will be successful in integrating the
operations and personnel  associated with its recent  acquisition of the NetLOCK
technology,  incorporating  the  NetLOCK  technology  into  its  product  lines,
successfully  commercializing the NetLOCK technology by the summer of 1998 or at
all, deriving  significant future sales therefrom,  establishing and maintaining
uniform  standards,  controls,  procedures  and policies,  or  overcoming  other
problems  that  may be  encountered  in  connection  with  the  acquisition  and
commercialization  of such technology.  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.  Further development
of the NetLOCK  technology is required,  and there can be no assurance  that the
Company can successfully  develop the NetLOCK technology.  In addition,  even if
successfully  developed there can be no assurance of customer  acceptance of the
products.

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. Specifically,  there can be no assurance that the
Company can successfully  commercialize NetLOCK by the summer of 1998 or at all.
An inability to acquire,  develop or commercialize new technologies would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results  of  operations.  The  Company  may also  seek to  acquire  or invest in
businesses, products or technologies that expand, complement or otherwise relate
to the Company's  current  business or product  line.  There can be no assurance
that such acquisitions will be successfully or cost-effectively  integrated into
the Company's current operations, or that the acquired technologies will provide
the  necessary  complement  to the Company's  current  products.  If the Company
consummates  additional  acquisitions  in the future that must be accounted  for
under the purchase method of accounting, such acquisitions would likely increase
the Company's amortization expenses. In addition, any such acquisitions would be
subject  to the risks of  integration  mentioned  above.  The  Company  does not
currently have any understandings, commitments or agreements with respect to any
potential acquisition or corporate partnering arrangements,  nor is it currently
engaged in any discussions or negotiations with respect to any such transaction.

Reliance on and Risks Associated with International Sales

During  the  three  months  ended  September  30,  1997 and  1996,  28% and 51%,
respectively,  of the  Company's  total  revenues  were  derived  from  sales to
international  customers.  Such a decrease in sales is  indicative  of the risks
associated  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.  Some of the Company's  international  subsidiaries have been
restructured  to act as  resellers  of the IOS/390  product.  To the extent this
restructuring  is  unsuccessful,  the Company's  results of operations  could be
adversely  affected.  Although  the Company  plans to focus its initial  NetLOCK
sales efforts on 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 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

                                       22

<PAGE>

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

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 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

                                       23

<PAGE>

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

                                       24

<PAGE>



                           PART II: OTHER INFORMATION

                                       25

<PAGE>


<TABLE>

<CAPTION>
ITEM 1.               Legal Proceedings
<S>                   <C>                                     <C>                               

                      Incorporated by reference from the Notes to Condensed Consolidated Financial
                      Statements provided in Part I hereto.



ITEM 6.               Exhibits and Reports on Form 8-K

                      (a) Exhibit 11.1                        Statement Regarding Computation of Net Income
                                                              (Loss) Per Share

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

                      (c) Reports on Form 8-K                 No reports on Form 8-K were filed during the quarter ended
                                                              September 30, 1997.
</TABLE>

                                       26

<PAGE>


SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date: November 7, 1997               INTERLINK COMPUTER SCIENCES INC.
                                     AND SUBSIDIARIES
                                     (Registrant)


                                     By: /s/ Gloria M. Purdy
                                         -------------------
                                         Gloria M. Purdy
                                         Chief Financial Officer and Secretary

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