<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
(MARK ONE)
              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                       OR
           [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT OF 1935 (NO FEE REQUIRED)
                         FOR THE TRANSITION PERIOD FROM
                            -------------------- TO
                              --------------------
                         COMMISSION FILE NUMBER 0-21138
                              BOCA RESEARCH, INC.
             (Exact name of registrant as specified in its charter)
 
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<S>                                                       <C>
                        FLORIDA                                            59-2479377
              (State or other jurisdiction                              (I.R.S. Employer
           of incorporation or organization)                          Identification No.)
</TABLE>
 
                             1377 CLINT MOORE ROAD
                           BOCA RATON, FLORIDA 33487
                                 (561) 997-6227
              (Address, including zip code, and telephone number,
              including area code, of principal executive offices)
 
     Securities registered pursuant to Section 12(b) of the Act: NONE
 
     Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
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<S>                <C>
Yes  X                 No
</TABLE>
 
 Aggregate market value of voting stock by non-affiliates as of March 25, 1998:
                                  $50,264,528
 
        COMMON STOCK OUTSTANDING AS OF MARCH 25, 1998: 8,741,657 SHARES
 
DOCUMENTS INCORPORATED BY REFERENCE:
 
     Specifically identified information in the definitive Proxy Statement for
the 1998 Annual Meeting of Shareholders to be held on May 18, 1998, is
incorporated by reference into Part III hereof.
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
 
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<PAGE>   2
 
                      BOCA RESEARCH, INC. ANNUAL REPORT ON
                 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
 
                                     INDEX
 
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                                                                        PAGE
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<S>       <C>                                                           <C>
PART I
ITEM 1.   BUSINESS....................................................    1
ITEM 2.   PROPERTIES..................................................   10
ITEM 3.   LEGAL PROCEEDINGS...........................................   10
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   10
ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT........................   10
PART II
ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS.........................................   11
ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA........................   12
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS.........................   13
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   22
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.........................   39
PART III
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........   39
ITEM 11.  EXECUTIVE COMPENSATION......................................   39
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT..................................................   39
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   39
PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
          8-K.........................................................   39
</TABLE>
<PAGE>   3
 
                                     PART I
 
ITEM 1:  BUSINESS
 
     Boca Research, Inc. ("Boca" or the "Company") designs, manufactures,
markets and supports data communications, videoconferencing, multimedia and
networking products to facilitate the transmission of information on personal
computers ("PCs") and computer networks. The Company also offers an Internet/TV
appliance which enables Internet access through a television. Boca is
manufacturing and marketing its own branded Internet/TV appliance and is also
manufacturing this product on a contract basis for an OEM customer. The Company
provides products for use in the corporate, consumer and small office/home
office ("SOHO") marketplaces. Boca's current product categories include: data
communications (fax/data/voice modems and ISDN terminal adapters);
videoconferencing; multimedia (telephony, sound, voice and data); networking;
video graphics; and I/0, IDE, and multiport products. The Company sells its
products worldwide to OEMs, wholesale distributors, retailers and catalog
companies. The Company markets its products under the "Boca Research" brand
name.
 
     In 1997, the Company began offering contract manufacturing services for
both Internet/TV appliances and other board-level products. For the year ended
December 31, 1997, approximately 12% of the Company's net sales were derived
from contract manufacturing.
 
     Historically, the Company has introduced new product categories and
enhanced its existing products to respond to market opportunities and to address
changing end user requirements. For example, accessing the Internet via a TV is
a new market opportunity that the Company is seeking to exploit. Market demand
for the Company's products has been driven by increases in requirements for
higher speed data communications products such as V.34 and 56 Kbps modems, the
growth in the installed base of PCs worldwide, the significant increase in the
use of the Internet and on-line services resulting in a need for speed,
increased telecommuting and developments in video and videoconferencing
capabilities. The market demand for networking products has increased because of
the need to link computers and peripherals enabling users and corporations to
share resources such as processing power, software and peripherals cost
effectively.
 
STRATEGY
 
     The Company's strategy is to design, manufacture, market and support data
communications, videoconferencing, multimedia and networking products that offer
a high degree of functionality at attractive prices. The Company primarily
utilizes third parties to develop new technologies for use in the Company's
products. Once the new technology is made available to the Company and the
Company believes that there is market demand for the technology, the Company
applies its design expertise to integrate the new technology in its products.
This strategy enables the Company to respond to technological advances and
changing end user requirements by introducing new products in a timely manner.
 
     The Company believes that through the use of new and proven product
technologies, a high level of parts commonality and manufacturing efficiencies,
it can provide data communications, videoconferencing, multimedia and networking
products with a superior combination of price and performance characteristics.
The Company intends to continue to be a leader in cost-effective engineering and
manufacturing to produce low cost, quality products as the Company adds new
products to its portfolio. In light of the uncertainties surrounding changing
industry conditions, the Company's sales derived from its core product lines
could continue to be adversely affected. Therefore, the Company recognizes the
need to evolve from its current position as a hardware provider with a heavy
concentration on modems. Key elements of the Company's strategy are to:
 
     Identify Attractive Markets.  The Company has historically sought to
identify markets with established demand and target these markets by delivering
products with a superior combination of price and performance characteristics.
In order to diversify its product categories, the Company has revised this
strategy to also target markets that the Company believes have potential but do
not yet have established demand. The Company also assesses the needs of PC users
and incorporates value-added features which are expected to appeal to the
majority of PC users.
 
     Develop New Products Quickly.  Once the Company selects an identified
market, it seeks to either develop or license from a third party a product for
introduction into that product's market generally within three to four months.
However, as the Company moves towards more advanced products, the lead time for
 
                                        1
<PAGE>   4
 
market introduction of the products may be longer. Also, in light of the rapid
evolution of the data communications industry, product life cycles have
shortened. The Company has integrated its engineering and manufacturing
functions to simplify the design and manufacture of new products. This approach
allows for the utilization of proven product technologies, a high level of parts
commonality and increased manufacturing efficiencies. As a result, the Company
can introduce cost competitive products in a timely manner.
 
     Pursue Strategic Partnerships and Acquisitions.  The Company's strategy is
to offer a broad range of data communications, videoconferencing, multimedia and
networking products that provide a high degree of functionality at attractive
prices. The Company seeks to enhance its products by entering into technology
partnerships or joint ventures with third parties. The Company believes that
establishing strategic relationships with third parties will enable it to gain
access to emerging technologies at an earlier date than otherwise possible and
expand its market penetration.
 
     Expand International Operations.  The Company's international strategy is
to focus on selected countries and to capitalize on increased international
demand for data communications, videoconferencing, multimedia and networking
products in those countries. The Company is focusing its international sales and
marketing efforts primarily in the European market and the emerging markets of
the Pacific Rim and Latin America/Caribbean.
 
     Continue Low Cost Manufacturing; Custom Manufacturing.  The Company has
invested in surface mount technology ("SMT") manufacturing operations which have
enabled the Company to reduce costs, increase capacity and improve the quality
of its products. The Company's manufacturing operations also provide the Company
with the flexibility to meet demanding customer delivery and quality
requirements and to seek to develop its custom/contract manufacturing services.
The Company is ISO 9002 certified. ISO 9002 certification is recognized
internationally under the guidelines of the 90-country International
Organization which requires the Company to meet stringent standards in all
activities related to product quality and reliability.
 
     Maintain Balance of Distribution Channels.  The Company continually seeks
to expand its distribution channels in order to reach a broad range of end users
and to minimize its reliance on any single channel. The Company's products are
currently sold through wholesale distributors, OEMs, retailers, and catalog
companies. The Company's strategy is to continue to sell its products through
these distribution channels.
 
     Provide Quality Customer Service.  The Company seeks to differentiate
itself, particularly from its Pacific Rim competitors, through the quality of
its products and the level of its technical support and customer service. The
Company designs its products for high reliability, compatibility with existing
and emerging industry standards, ease of use and support. In addition, the
Company believes its five-year limited warranty and technical support programs
provide a broad level of customer service.
 
PRODUCT DEVELOPMENT
 
     The Company believes that its ability to respond quickly to market demand,
technological advances and changes in industry standards is critical to its
success. Traditionally, the Company's strategy has been to develop products for
markets with established demand. During 1996 and 1997, the Company entered into
new markets where demand was not established but where the Company believed a
market could develop. In particular, the Company introduced its Internet/TV
appliance in 1997 in anticipation of increased market demand due to the growth
in the use of the Internet. Boca's engineering expertise has enabled it to bring
new products to market quickly and, through product redesign, reduce the
manufacturing costs of more mature products. Several of the Company's products
incorporate software which the Company licenses from third parties in exchange
for the payment of a royalty based on the number of units sold.
 
     The Company relies primarily on third parties to develop new technologies
for use in the Company's products. Boca believes it can continue to integrate
new technologies into new products rapidly and at a competitive cost. The
Company is focusing its development efforts primarily on expanding its product
offerings within existing product categories and developing new data
communications and Internet/TV appliances. The Company's design expertise has
enabled it to use fewer components in its products resulting in a high level of
parts commonality across the product lines and increased manufacturing
efficiencies.
 
                                        2
<PAGE>   5
 
PRODUCTS
 
     Boca believes that the diversification of its product lines is one of the
cornerstones of its success. The Company designs, manufacturers, markets and
supports multiple product categories that address most of the data
communications, videoconferencing, and multimedia needs of PC users. The Company
also provides a non-PC Internet access device enabling connectivity via a
standard telephone line and a TV. The following table lists a representative
sample of the Company's products.
 
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<CAPTION>
    PRODUCT CATEGORY                    DESCRIPTION                              PRODUCTS                 MARKET INTRODUCTION
    ----------------                    -----------                              --------                 -------------------
<S>                       <C>                                      <C>                                    <C>
Data Communications       Modems enable the end user to send and   112K DynamicDuo                         December 1997
(Fax/Data/Voice Modems)   receive data across standard telephone   International 56K Modems                November 1997
                          lines.                                   56K PC Card                             October 1997
                                                                   56K Macintosh Modem                     August 1997
                                                                   WebRamp M3                              August 1997
                                                                   Boca 56K Home/Office Modem              July 1997
                                                                   Boca 56K Multimedia Modem               February 1997
                                                                   33.6 Home/Fax Modem                     February 1997
                                                                   33.6 Macintosh External BocaModem       December 1996
                                                                   33.6 Multimedia Modem                   November 1996
                                                                   Boca Pro 16 Corporate Modems            June 1996
                                                                   Webglider-460(ISDN Adapter)             March 1996
                                                                   28.8 Online Express Modem               November 1995
                                                                   BOCACELLcards-PC                        April 1995
                                                                   BOCAMODEMcards-PC                       April 1995
                                                                   14.4Kbps Multimedia Voice Modem         April 1995
                                                                   V.34 Boca Office Communicator           January 1995
                                                                   V.34 28.8 BocaModem                     September 1994
                                                                   14.4 Data/Fax BocaModem                 March 1993
-----------------------------------------------------------------------------------------------------------------------------
Videoconferencing         H.324 compliant videoconferencing        Boca Video Communications Suite         September 1997
                          devices allow face to face desktop       Boca Video Phone Kit                    February 1997
                          videoconferencing over standard          Boca Video Phone Classic                October 1996
                          telephone lines.                         Boca Video Phone Elite                  July 1996
-----------------------------------------------------------------------------------------------------------------------------
Multimedia                Multimedia products convert ordinary     SoundExpression 28.8SVD                 September 1995
                          PCs into multimedia PCs by adding        SoundExpreission 28.8VD                 June 1995
                          sound, voice and data capabilities.
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Networking                Networking products for Ethernet         Boca Net-16 Networking Kit              June 1997
                          networks provide workstation and server  Boca Net-8 Networking Kit               June 1997
                          connectivity. The Company offers a full  Boca Networking Starter Kit             June 1997
                          range of Plug and Play Ethernet cards    Boca Net-24 Networking Hub              February 1997
                          as well as interfaces to ISA, VESA and   BOCALANcard 2000+ Combo                 June 1996
                          PCI Bus interfaces.                      BOCALANcard 2000 Plus                   June 1996
                                                                   BOCAHUB-24 Plus                         October 1994
                                                                   BOCAHUB-16 Plus                         February 1994
                                                                   BOCALANcard-PCI                         April 1994
                                                                   BOCALANcard-100/10                      April 1994
                                                                   BOCALANcard-Combo                       May 1994
                                                                   BOCALANcard-TP                          May 1994
                                                                   BOCAHUB-8                               March 1993
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Video                     Video graphics adapters provide          Voyager 64                              April 1995
                          enhanced resolution and increased        PCI-Bus SuperX VGA                      July 1994
                          performance within both Windows and      SuperX VGA                              September 1991
                          non-Windows-based environments as well   Super VGA                               October 1990
                          as advanced imaging capabilities.
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I/O, IDE, & Multiport     I/O devices allow additional ports to    Turbo 650                               October 1997
Products                  be added to a PC enabling the end user   Turbo 1x1 I/O Card                      August 1997
                          to connect peripheral equipment, such    Turbo 2x2 I/O Card                      August 1997
                          as modems and printers.                  1x2 I/O Card                            August 1997
                                                                   IDE Plus Controller-VL                  July 1994
                          IDE Products are used to control mass    IDE Plus Controller                     July 1994
                          storage devices such as hard and floppy  IOAT66                                  May 1993
                          disk drives.                             IOAT55                                  January 1993
                          Multiport products allow for the         Boca I/O2BY4                            March 1992 June
                          connection of multiple PCs and           BOCABOARD 8-port                        1994
                          terminals to a single host PC.           BOCABOARD 4-port                        June 1994
-----------------------------------------------------------------------------------------------------------------------------
Internet/TV Adapter       Internet/TV adapters allow end users to  BocaVision                              October 1997
                          surf the Internet and send and receive
                          e-mail using a TV and a regular
                          telephone line.
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Software                  Boca licenses software that adds value   Cast-a-Vision                           August 1997
                          to its products.                         Data Secure!                            April 1997
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</TABLE>
 
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<PAGE>   6
 
     Data Communications Products.  Modems are used to send and receive data
between PCs and other systems, and in the transmission of information in
facsimile format. In addition to traditional modems, Boca offers modems with
voicemail capability which allow the user to create an inexpensive message
handling system. The Company markets both internal and external versions of its
modem products. The Company has telephony modems with enhanced capabilities such
as data, fax, voice and speakerphone. The Company offers modems with such
functions as Plug and Play and Digital Simultaneous Voice over Data ("DSVD").
The Company's DSVD products enable the end user to interact with on-line
services on a standard telephone line, thereby delivering such services as
electronic merchandising, technical support/trouble shooting and interactive
games. The Company also markets, on a limited basis, its PCMCIA (credit card
size) modem products for laptop and notebook computers.
 
     The Company continues to adopt new data communications technologies such as
56Kbps, DSVD and Plug and Play. It appears that 56Kbps is the maximum analog
speed. In an effort to offer a faster analog modem, the Company has introduced
the 112K DynamicDuo, which combines two 56K modems onto a single ISA card. This
allows data transfer rates over regular telephone lines at near-ISDN speeds.
 
     Although there is significant publicity regarding digital technologies such
as ADSL and cable modems, the Company does not believe these technologies will
be a significant factor in 1998 because they require either the phone companies
(in the case of ADSL) or the cable companies to upgrade equipment in their
central sites requiring a financial investment in their infrastructures and
requiring additional time. The Company currently markets its modem products
worldwide and is certified in certain countries in Europe and the Pacific Rim,
including Germany, Holland, Denmark, Finland, Norway, Sweden, United Kingdom,
Japan, Singapore and South Korea, as well as in Canada and Israel.
 
     The Company's Webglider, the first in the Company's line of ISDN products,
was shipped in March 1996. The Webglider is an external terminal adapter
designed to provide users the option of connecting existing telephone-type
(phone, fax and modem) devices as well as computer equipment to ISDN networks.
The Webglider offers users network connect speeds of up to 128Kbps as compared
to speeds of 56Kbps and 33.6Kbps offered by the Company's analog modems. Net
sales were $250,000 in 1997 or less than 1% of net sales. The product family has
been discontinued for 1998.
 
     The Company introduced its first data communications products in 1991.
Sales of data communications products accounted for approximately 58%, 85% and
71%, respectively, of the Company's net sales in 1995, 1996 and 1997.
 
     Networking Products.  The use of networking products enables a variety of
computers to be linked and has increased with the growth of client-server
software. The Company's Ethernet adapter and hub products are designed to
provide high performance, cost effective connectivity solutions for small to
medium sized businesses. The Company's adapters support Industry Standard
Architecture ("ISA"), Peripheral Component Interconnect ("PCI") and local bus
systems. The Company has secured Novell certification for its networking
products which ensures its customers that its products will be compatible with
other Novell certified NetWare network operating system products. The Company's
products interface with other networking operating systems including Windows,
Windows NT, OS/2, Windows for Workgroups and Lantastic. The Company's product
line includes 8, 16 and 24-port hubs, as well as a range of plug and play
adapter cards. The Company intends to continue to expand its product line with
such offerings as 100 Mbps Ethernet cards. Sales of networking products
accounted for approximately 6%, 4% and 5%, respectively, of the Company's net
sales in 1995, 1996 and 1997.
 
     Sales within this category have declined in absolute dollars each of the
last three years. The Company anticipates that it will decrease its emphasis on
these products for the retail market in the future.
 
     Video Graphics Products.  Video graphics adapters afford the user a variety
of capabilities to enhance both Windows and non-Windows display performances.
These products range from basic VGA through 64-bit GUI accelerators for Windows,
CAD and DOS applications. This marketplace potentially will expand with new
applications for providing video processing capabilities to the desktop
computer, including 3D. Sales of this product category have declined due to the
increased video capability that PC manufacturers are building
 
                                        4
<PAGE>   7
 
onto the system's motherboards. Also, since this market is perceived as a niche
market with rapidly changing technology requirements, the Company has not placed
significant emphasis on this product category and will not do so in the future.
Sales of video graphics products accounted for approximately 10%, 4%, and 3%,
respectively, of the Company's net sales in 1995, 1996, and 1997, and have
declined in absolute dollars.
 
     I/O, IDE and Multiport Products.  I/O and multiport products allow
additional serial and parallel ports to be added to a single IBM-compatible PC.
These additional ports are used to connect peripheral computer equipment such as
modems, terminals, and printers to the PC. Boca offers a variety of I/O boards.
 
     Boca's IDE adapter products are used to control mass storage devices such
as hard and floppy disk drives. This product has been discontinued. Multiport
BocaBoards are available in 4 or 8 serial ports with driver support for SCO
UNIX, Xenix, and PC-MOS applications. These boards are typically used where
several terminals and printers are required such as a store point of sale
terminal.
 
     Sales of I/O, IDE, and multiport products are primarily to an installed
base and accounted for approximately 8%, 5%, and 8%, respectively, of the
Company's net sales in 1995, 1996, and 1997. The Company has not placed
significant emphasis on this product category, and sales have declined in
absolute dollars in each of the last three years.
 
     Multimedia Products.  Multimedia products convert ordinary PCs into
multimedia PCs by adding sound, voice and data communications capabilities. The
Company was one of the first companies to introduce a multimedia product with an
integrated speakerphone-sound modem when it introduced its SoundExpression
product in December 1994. Sales of multimedia products accounted for
approximately 18% of the Company's net sales in 1995 and declined in 1996 to
less than 1% of net sales or approximately $1,000,000 due to the increased use
by OEMs of chipsets incorporating sound and modem features which are integrated
onto the system board of the PC. In 1997 sales were approximately $1,000,000 and
this category is not expected to generate any significant revenue in 1998.
 
     VideoConferencing.  In 1996, the Company introduced the video phone,
desktop consumer oriented two-way videoconferencing, for video over regular
phone lines. The video phones feature real-time video with full duplex audio,
hands-free speakerphone operation, a self view window and simultaneous audio and
video. The video phone is compliant with the ITU H.324 international
videoconferencing standard. Initial sales of this product category were
recognized in the third quarter of 1996 and were approximately $1,000,000 for
the year or 1% of net sales. For 1997, product sales were $292,000. There were
also significant product returns and a write-down of inventory was recorded for
this category.
 
     Custom Manufacturing  In 1997, the Company entered into custom
manufacturing to increase the utilization of its manufacturing facilities. Also
included in this category is the manufacturing of an Internet/TV appliance for a
major consumer electronics company. Sales in this category in 1997 were
$8,509,000 and represented 12% of net sales.
 
     Internet/TV Appliance  In 1998, the Company introduced a Boca branded
Internet/TV appliance under the name "Boca Vision" which allows consumers to use
a regular phone line and a television to access the Internet for information
such as the latest news and weather updates, sport scores, business briefs and
entertainment and variety news as well as send and receive e-mail -- using a
standard remote control that displays the information on the TV screen. In
addition to the retail market application, the Company believes that similar
products have applications in vertical markets such as Internet service
providers, home shopping companies and banks. For example, consumer acceptance
of the Internet as a medium for commerce and access to information may drive the
banking industry to supply customers with Internet/TV appliances to support
at-home banking. The product incorporates a smart card, a credit-card-sized
accessory, that has a built-in memory chip to store Internet service provider
(ISP) and user information.
 
     In 1997, the Company signed a licensing agreement with Acorn Group, an
international leader in network computing and Internet/TV appliance technology,
to incorporate Acorn's technology into Boca branded set-top products. The
companies also agreed to initiate a customer referral program.
 
                                        5
<PAGE>   8
 
     The Company views this product category as a major opportunity for 1998.
Given the fact that the market and this product category are in the early stage
of development, there can be no assurance that this market will continue to
develop or that the Company's product will achieve market acceptance.
 
     New Products.  The Company continues to review opportunities for the
development and introduction of new products and new product categories that
meet changing end user requirements. Currently, the Company is developing
products to expand existing product categories.
 
     Boca continues to believe that the diversification of its product
categories is one of the cornerstones of its future success. The Company
believes that it is necessary to respond on a timely basis to market changes in
order to remain competitive. However, there can be no assurance that the Company
will be able to anticipate future market developments or develop products to
meet those needs on a timely basis with price and performance characteristics
which would permit those products to compete successfully. For example, past
initiatives such as the movie player, ISDN Webglider, Pro 16 high-end modems,
videoconferencing and Data Secure have all been below the Company's initial
expectations.
 
SALES CHANNELS
 
     The Company sells its products worldwide to OEMs, wholesale distributors,
retailers, and catalog companies.
 
     Original Equipment Manufacturers.  The Company markets to OEMs who purchase
the Company's products and typically incorporate them into their finished
products, PCs. The OEM channel of distribution is different from wholesale
distributors and retailers in terms of packaging, support, price and terms. The
Company generally targets specific products for the OEM marketplace and offers
specific marketing arrangements that enable private label packaging and sale of
the Company's products. Sales to OEMs accounted for approximately 46%, 56% and
45% of net sales in 1995, 1996 and 1997, respectively.
 
     Wholesale Distributors.  The Company also sells its products through
regional, national, and international wholesale distributors. Sales to wholesale
distributors accounted for approximately 42%, 34% and 36%, respectively, of the
Company's net sales in 1995, 1996 and 1997. The Company's U.S. distributors
include major microcomputer wholesale distributors such as Ingram Micro Inc.,
Tech Data Corporation, and Merisel, Inc., as well as regional wholesale
distributors. Net sales to wholesale distributors decreased in absolute dollars
from 1995 to 1996 and from 1996 to 1997.
 
     The Company has purchasing and marketing agreements with its principal
wholesale distributors. These agreements generally contain provisions relating
to stock rotation privileges and price protection. Wholesale distributors
typically purchase products from the Company by submitting purchase orders.
Returns of unsold products by wholesale distributors are permitted on a limited
basis in exchange for other Boca products on terms negotiated with the Company.
The Company works with wholesale distributors to monitor inventory levels. In
addition, in the event the Company reduces its prices, the Company credits its
wholesale distributors for the difference between the purchase price of products
remaining in their inventory and the Company's reduced price for such products
on terms negotiated with the Company. The Company has established reserves for
product returns, price protection and warranty claims which management believes
are adequate. The Company believes that its return and pricing policies are
consistent with general industry practices. There can be no assurance that
product returns, price protection or warranty claims will not have a material
adverse effect on the Company's future operating results.
 
     Retailers and Catalog Companies.  The Company also sells directly to
several retail chains and catalog companies. Similar to its arrangements with
wholesale distributors, the Company offers stock rotation privileges and price
protection to retailers. Sales to retailers and catalog companies accounted for
approximately 12%, 10% and 20%, respectively, of the Company's net sales in
1995, 1996 and 1997. The Company's U.S. retailers and catalog companies include
Micro Warehouse Inc., Best Buy Co., and Computer City. The Company intends to
continue to maintain a presence in the retail channel, although it may limit the
number of retail customers or sell to this channel through wholesale
distributors.
 
                                        6
<PAGE>   9
 
     International.  The Company sells its products through dealers and
distributors worldwide and supports marketing programs with local distributors
in certain countries. In 1995, 1996 and 1997, international sales comprised
approximately 21%, 28% and 23%, respectively, of the Company's net sales.
International sales are subject to risks, including various regulatory
requirements, political and economic changes and disruptions, tariffs or other
barriers, difficulties in staffing and managing foreign sales operations, and
potentially adverse tax consequences. In addition, fluctuations in exchange
rates may render the Company's products less competitive to local product
offerings or expose the Company to foreign currency exchange losses. In 1997,
the U.S. dollar has been strong against major currencies such as the German
mark, Japanese yen and many other Asian currencies which caused an increase in
the price of the Company's products in these markets. This required the Company
to reduce prices and accept lower gross profit margins.
 
     In support of the Company's strategy to expand its international
operations, in September 1995, the Company acquired fifty percent of the Common
Stock of MBf/Boca Asia Pacific Sdn Bhd, a Malaysian joint venture between the
Company and Hitechniaga Sdn Bhd which primarily distributed the Company's
products in the Pacific Rim. Due to the currency turmoil in Asia and the
economic problems of that region, the joint venture has experienced significant
operating losses. The Company anticipates that this joint venture will be
liquidated in 1998. In 1996, the Company formed a distribution partnership,
PowerTel BOCA, in India to facilitate product distribution into South Asia,
India and parts of Africa. The Company owns 20% of PowerTel BOCA.
 
SALES AND MARKETING
 
     The Company sells its products primarily through manufacturer's
representatives and its own sales force, which at December 31, 1997 consisted of
13 employees. The Company's domestic sales force is segregated by geographic
regions. The Company's international sales effort is managed by the Company's
Vice President and General Manager, International, with support from sales
managers in the Pacific Rim, Europe and Latin America.
 
     The Company generates brand recognition through trade advertising and
participation in international, national, and regional trade shows. The Company
allocates a percentage of the major wholesale distributors' net sales to a
cooperative advertising fund used by those distributors to promote the Company's
products. In connection with new product introductions, the Company may work
with a major wholesale distributor or retailer to tailor specific product
promotions. The Company also participates in the COMDEX and CEBIT trade shows,
as well as numerous other regional and international trade shows.
 
TECHNICAL SUPPORT AND CUSTOMER SERVICE
 
     The Company offers extensive user documentation and a technical support
hotline available Monday through Saturday to wholesale distributors, resellers,
and end users. The Company's technical analysts answer technical support calls
directly and generally provide same-day response to questions that cannot be
resolved in the initial phone call. The Company also provides a seven-day, 24
hour electronic bulletin board that makes available current software drivers,
technical tips and answers to hardware and software compatibility questions. In
addition, the technical support department has implemented a Quick Fax System
providing installation tips and technical documents to customers via fax. Boca
also provides a support forum on CompuServe and maintains a home page on the
Internet's World Wide Web to provide customer support and information. Although
the Company's technical support and customer service programs are available to
its international customers, the Company typically relies on its foreign
distributors to provide these programs. Many of these distributors are trained
by the Company's personnel and have direct access to the Company's programs.
 
     All products sold by the Company include a five-year limited warranty which
permits customers to return any product for repair or replacement if the product
does not perform as warranted. To date, the Company has not encountered material
warranty claims or liabilities. There can be no assurance, however, that
warranty claims will not have a material adverse effect on future operating
results.
 
                                        7
<PAGE>   10
 
MANUFACTURING
 
     The Company began its own manufacturing operation in 1992 to provide the
Company with assembly capabilities utilizing SMT. This technology allows
increased functional density and reduction in size of the circuit board. Such
reduction in size permits increasingly complex circuits to be packaged at closer
proximities, enhancing circuit processing speed and thus board and system
performance. SMT has enabled the Company to reduce costs, increase capacity,
increase production yields, and improve the quality of its products. All of the
Company's products are currently designed, manufactured, assembled, tested, and
packaged at the Company's manufacturing facility in Boca Raton, Florida using
seven high-volume SMT lines, which currently run on two shifts. The Company has
the ability to increase its monthly production capacity by updating some of its
manufacturing equipment, by adding additional SMT lines and/or by running a
third shift.
 
     Quality and reliability are emphasized in the design and manufacture of the
Company's products. Accordingly, each product undergoes quality inspection
throughout the manufacturing process as well as in-circuit and functional
testing. The Company utilizes automated/computerized test equipment for this
purpose, some of which has been designed by the Company.
 
PURCHASING
 
     The Company purchases substantially all of its components and subassemblies
from suppliers on a purchase order basis and does not maintain long-term supply
arrangements. The Company selects suppliers based on quality of product and
industry acceptance. Most of the components used in the Company's products are
available from multiple sources. However, certain components used in the
Company's products are currently obtained from single sources. Similar to others
in the electronics industry, the Company has, from time to time, experienced
difficulty in obtaining some components. The Company has no guaranteed supply
arrangements with any of its suppliers and there can be no assurance that these
suppliers will continue to meet the Company's requirements. Shortages of
components not only limit the Company's production capacity but also could
result in higher costs due to the higher costs of components in short supply or
the need to utilize higher cost substitute components. An extended interruption
in the supply of any of these components or a reduction in their quality or
reliability would have a material adverse effect on the Company's operating
results. While the Company believes that, with respect to its single source
components, it could obtain similar components from other sources, it could be
required to alter product designs to use alternative components. There can be no
assurance that severe component shortages will not occur in the future which
could increase the cost or delay the shipment of the Company's products, which
in turn could have a material adverse effect on the Company's operating results.
Government tariffs on imported components could also impact the Company's
ability to compete with foreign manufacturers. An increase in import tariffs on
such components would likely result in increases in the prices of these
components paid by the Company and other domestic manufacturers. Significant
tariffs could result in the Company seeking alternate sources of supply which
may not be as reliable as the Company's existing sources.
 
COMPETITION
 
     The markets for the Company's products are intensely competitive resulting
in constant price pressures. Competitive factors include price, product quality
and reliability, product availability, credit terms, name recognition, delivery
time and post-sale service and support. With respect to these factors, the
Company may be at a competitive disadvantage against companies with greater
financial, technical, product development, manufacturing or marketing resources.
A variety of companies currently offer products that compete directly with the
Company's products. The Company's primary U.S.-based competitors are Diamond
Multimedia, Global Village, Hayes Microcomputer Products, Motorola, U.S.
Robotics/3 Com and Zoom Telephonics. In addition to U.S.-based firms, the
Company faces competition from Pacific Rim suppliers, including CIS and GVC,
which generally offer these products at significantly lower prices. These
suppliers typically market their products through the same distribution channels
as the Company. The Company competes with these suppliers on the basis of
product quality, delivery times, freight costs, technical support and customer
service. In addition, as the Company enters new product markets, the Company
expects that it will encounter
 
                                        8
<PAGE>   11
 
competition from a number of well-established companies, many of which have
greater financial, technical, product development, manufacturing or marketing
resources and experience.
 
     There is a trend in original PC system manufacturing to integrate
additional functionality onto the system board or to utilize chipsets which
provide additional functionality. As PC manufacturers integrate more memory on
the system board as well as certain sound and video graphics functions and some
interface functions such as IDE controllers, or utilize chipsets which provide
such capabilities, the Company's strategy is to broaden its product offerings to
offset the decreasing opportunities for PC enhancement products. The Company has
relied on OEM opportunities in previous years for a significant percentage of
its revenue and has been successful in securing large orders in the past.
However, in 1997, the Company lost OEM opportunities to offshore manufacturers
who appeared to be pursuing market share by aggressive pricing to PC vendors who
integrate modems into their PC product lines. PC vendors also are aggressively
pricing systems in an attempt to meet a $1,000 price point which they believe
will significantly increase sales. Therefore, OEMs have put significant price
pressure on suppliers of PC peripherals, i.e., modems, in an attempt to achieve
their pricing goals. Due to excess worldwide manufacturing capacity and the
devaluation of many currencies outside the U.S., the PC vendors are better able
to achieve this goal of reducing their purchasing costs.
 
PROPRIETARY RIGHTS AND LICENSES
 
     The Company believes that its success depends primarily upon factors such
as its responsiveness to customer needs and changing markets, the technological
competence and innovative skill of its personnel and its marketing skills.
Although the Company has not historically been the subject of significant claims
of infringement by third parties, as is common in the industry, the Company from
time to time receives, and may in the future receive, communications from third
parties asserting intellectual property rights relating to the Company's
products and technologies. There can be no assurance that the Company will be
able to obtain licenses of any intellectual property rights claimed by third
parties in the future with respect to the Company's products or that any such
licenses can be obtained on terms favorable to the Company. If the Company is
unable to obtain licenses of protected technology, it could be prohibited from
marketing products incorporating that technology. The Company could also incur
substantial costs in redesigning its products or in defending any legal action
taken against it. Should the Company be found to infringe the proprietary rights
of others, the Company could be required to pay damages to the infringed party.
 
     The Company uses the Boca and Boca Research names as trademarks in
connection with its products. Each of the Boca and Boca Research names are
registered trademarks with the United States Patent and Trademark Office.
 
     In certain of its products, the Company includes software licensed from
third parties. These license arrangements are on a non-exclusive basis and
require the Company to pay the licensors a specified royalty based upon the
number of units sold by the Company. The Company's operating results could be
adversely affected by a number of factors relating to third party software,
including lack of market acceptance, failure by the licensors to promote or
support the software, delays in shipments of the Company's products as a result
of delays in the introduction of licensed software, or excess customer support
costs or product returns experienced by the Company due to errors in the
licensed software. Moreover, any impairment or termination of the Company's
relationship with any licensors of third party software or claims that such
software infringes the intellectual property rights of third parties could
adversely affect the Company's operating results.
 
     In 1997, the Company licensed Acorn Group's technology for its Internet/TV
appliance including hardware and software designs, TVcentric display, operating
system and Internet browser. The TVcentric open-architecture allows Boca's
customers to choose from over 4,000 ISPs who support direct Web access. The
Company believes this technology will enable the Internet/TV appliance to be
specifically tailored to meet an individual customer's needs and may be a
differentiating factor in establishing brand preference. However, sales of this
product category are unproven.
 
                                        9
<PAGE>   12
 
EMPLOYEES
 
     As of December 31, 1997, the Company had 249 full-time employees, including
157 in manufacturing and operations, 48 in sales, marketing and customer
support, 27 in finance and administration, and 17 in engineering and product
development. The Company's success will depend in part on its ability to attract
and retain highly qualified technical, marketing, engineering and management
personnel. The Company's employees are not covered by any collective bargaining
agreements and the Company has never experienced a work stoppage. The Company
believes that its employee relations are good. The Company uses part time
employees in its manufacturing operation to balance changes in production
levels. The number of part-time employees at December 31, 1997 is 55.
 
ITEM 2:  PROPERTIES
 
     The Company's headquarters are located in a 70,000 square feet facility in
Boca Raton, Florida. This facility accommodates corporate administration and
manufacturing, including final testing, assembly, packaging, and shipping of
products. The lease expires in September 2000. The Company leases another 25,000
square feet in a facility adjacent to the headquarters building which is used
for human resources, technical support, and warehousing. The lease expires in
July 2002. A third facility consisting of 32,000 square feet in Boca Raton is
subject to a lease which expires in July 2002. This facility is adjacent to the
Company's headquarters and is used for engineering, sales and marketing,
purchasing and final assembly and testing for set-top box production. A fourth
facility of 10,513 square feet in Boca Raton is subject to a lease which expires
on July 2000. This facility is used for product returns and repair.
 
ITEM 3:  LEGAL PROCEEDINGS
 
     The Company receives communications from time to time alleging that certain
of the Company's products infringe the patent rights of other third parties. The
Company has recently received communications from IBM Corporation ("IBM")
alleging that certain of the Company's products infringe the patent rights of
IBM. The Company is presently investigating this claim and is not yet in a
position to fully evaluate the merits of such claim. The Company cannot predict
the outcome of this claim or any similar claim which may arise in the future, or
the effect of any such claim on the Company's operating results or financial
condition. See "Certain Factors That May Affect Future Performance --
Proprietary Rights; Dependence on Software Licenses."
 
     A former shareholder of the Company has filed an action in the United
States District Court for the Southern District of Florida against the Company
and Anthony F. Zalenski, its President and Chief Executive Officer. The former
shareholder claims that he relied on certain statements made directly to him by
Mr. Zalenski and certain other statements in deciding not to sell his shares of
the Company's Common Stock. The former shareholder claims that such statements
were false and misleading and give rise to claims under the Federal securities
law and Florida common law. The former shareholder is seeking damages for his
trading losses, which are alleged to be in excess of $1 million. The Company
cannot predict the outcome of this claim or the effect, if any, of such claim on
the Company's operating results or financial condition.
 
ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matter was submitted to a vote of shareholders of the Company during the
fourth quarter of the fiscal year ended December 31, 1997.
 
ITEM 4A:  EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information required by Item 10 of Form 10-K with respect to executive
officers of the Company is set forth below. The executive officers of the
Company are elected annually by the Board of Directors and hold office until
their successors are elected and qualified, or until their earlier removal or
resignation.
 
     Anthony F. Zalenski, 54 years old, has served as President, Chief Executive
Officer and a member of the Board of Directors since September 1994. From 1988
to 1994, Mr. Zalenski was employed by Motorola, Inc., most recently as Executive
Vice President and Chief Operating Officer of Motorola UDS (Universal Data
 
                                       10
<PAGE>   13
 
Systems), a modem manufacturing subsidiary of Motorola, Inc. Prior to joining
Motorola UDS, Mr. Zalenski held various management positions with Comsat
Corporation, General Datacomm Industries and AT&T.
 
     R. Michael Brewer, 55 years old, has served as Senior Vice President of
Finance and Chief Financial Officer of the Company since February 1996. From
January 1994 to February 1996, Mr. Brewer served as Vice President of Finance of
the Company. From September 1978 to January 1994, Mr. Brewer served as Vice
President of Finance for the United States operations of Mitel Corporation, a
manufacturer of telecommunications equipment. Mr. Brewer is a Certified Public
Accountant.
 
     Michael A. Reale, 58 years old, has served as Senior Vice President of
Manufacturing since February 1996. From January 1995 to February 1996, Mr. Reale
served as Vice President of Manufacturing. From October 1992 to January 1995,
Mr. Reale served as President and Chief Operation Officer of MGV Manufacturing,
Inc., a provider of memory modules, manufacturer of proprietary PC designs and
contract electronic assembly. From February 1989 to June 1992, Mr. Reale served
as Senior Vice President of SCI Systems, Inc., a contract manufacturer.
 
     Larry L. Light, 42 years old, has served as Vice President of Engineering
since February 1995. From July 1981 to January 1995, Mr. Light was employed by
IBM Corporation, where he held a variety of management and engineering
positions, including Product Manager for several PC Systems.
 
     Martha A. Ritchason, 58 years old, has served as Vice President of Human
Resources of the Company since July 1995. From August 1991 to June 1995, Ms.
Ritchason served as Director of Human Resources of the Company. From December
1979 to July 1991, Ms. Ritchason served as Director of Human Resources for the
City of Delray Beach, Florida.
 
                                    PART II
 
ITEM 5:  MARKET FOR THE REGISTRANTS COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS
 
     The Common Stock of the Company has traded on the Nasdaq Stock Market under
the symbol BOCI. The following table sets forth the high and low last reported
sale prices for the Company's Common Stock for the period indicated as reported
by the Nasdaq National Market.
 
<TABLE>
<CAPTION>
YEAR                      FISCAL QUARTER ENDED               HIGH        LOW
----                      --------------------               ----        ---
<S>   <C>                                                   <C>         <C>
1996  March 31, 1996....................................    25         15 3/4
      June 30, 1996.....................................    25 1/2     16
      September 30, 1996................................    17 1/2      9 1/2
      December 31, 1996.................................    13 3/8     10 3/8

1997  March 31, 1997....................................    10 19/32    6 7/8
      June 30, 1997.....................................     8 3/4      5 1/8
      September 30, 1997................................     9 1/2      6 7/8
      December 31, 1997.................................     9          5 1/8

1998  March 31, 1998 (through March 25, 1998)...........     6 3/16     3 7/8
</TABLE>
 
     As of March 25, 1998, the Company had outstanding 8,741,657 shares of
Common Stock held by 328 shareholders of record. This number does not include
beneficial owners of the Common Stock whose shares are held in the names of
various dealers, clearing agencies, banks, brokers and other fiduciaries.
 
     The Company currently anticipates that it will retain all of its earnings
for use in the development of its business and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future. The covenants
contained in the Company's line of credit prohibit the Company from paying
dividends on the Common Stock without the prior approval of the bank.
 
                                       11
<PAGE>   14
 
ITEM 6:  SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial information for the years
ended December 31, 1993 through December 31, 1997 is derived from the Company's
consolidated financial statements, which have been audited by the Company's
independent auditors. The information set forth below is qualified by reference
to and should be read in conjunction with the Consolidated Financial Statements
and related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which are included elsewhere in this
report.
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                              ----------------------------------------------------
                                                1993       1994       1995       1996       1997
                                                ----       ----       ----       ----       ----
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>        <C>        <C>        <C>        <C>
STATEMENTS OF INCOME DATA:
Net sales...................................  $64,717    $83,594    $143,038   $153,524   $ 70,207
Cost of goods sold..........................   45,142     61,284     107,486    122,855     71,164
                                              -------    -------    --------   --------   --------
          Gross profit (loss)...............   19,575     22,310      35,552     30,669       (957)
                                              -------    -------    --------   --------   --------
Operating expenses:
     Research and development...............    1,493      1,438       2,679      3,073      2,808
     Selling, general and administrative....   12,526     12,391      18,469     18,551     18,366
     Impairment of goodwill.................    1,938          0           0          0          0
                                              -------    -------    --------   --------   --------
          Total operating expenses..........   15,957     13,829      21,148     21,624     21,174
                                              -------    -------    --------   --------   --------
Income (loss) from operations...............    3,618      8,481      14,404      9,045    (22,131)
Non-operating income, net...................      320        472         540        596        837
                                              -------    -------    --------   --------   --------
Income (loss) before income taxes...........    3,938      8,953      14,944      9,641    (21,294)
Income taxes (benefit)......................    1,205      3,217       5,402      3,191     (6,371)
                                              -------    -------    --------   --------   --------
Net income (loss)...........................  $ 2,733    $ 5,736       9,542      6,450    (14,923)
                                              =======    =======    ========   ========   ========
Basic earnings (loss) per share.............  $  0.34    $  0.68    $   1.13   $   0.75   $  (1.71)
                                              =======    =======    ========   ========   ========
Weighted average basic shares outstanding...    8,130      8,401       8,472      8,610      8,718
                                              =======    =======    ========   ========   ========
Diluted earnings (loss) per share...........  $  0.33    $  0.68    $   1.07   $   0.72   $  (1.71)
                                              =======    =======    ========   ========   ========
Weighted average diluted shares
  outstanding...............................    8,316      8,460       8,921      8,941      8,718
                                              =======    =======    ========   ========   ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                              ----------------------------------------------------
                                                1993       1994       1995       1996       1997
                                                ----       ----       ----       ----       ----
                                                                 (IN THOUSANDS)
<S>                                           <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Working capital.............................  $24,087    $27,801    $ 37,854   $ 47,248   $ 34,849
Total assets................................   36,410     41,340      57,678   $ 66,066   $ 50,219
Long-term obligations, net of current
  portion...................................    --         --          --         --         --
Total stockholders' equity..................  $30,004    $36,017    $ 46,607   $ 55,162   $ 40,580
</TABLE>
 
                                       12
<PAGE>   15
 
ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS
 
     The matters discussed in this Report contain 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 "Certain
Factors That May Affect Future Performance" as well as those discussed in this
section and elsewhere in this Report.
 
RESULTS OF OPERATIONS
 
     The following discussion of the Company's consolidated results of
operations for the years ended December 31, 1995, 1996 and 1997 is based upon
the consolidated statements of income data contained in the Company's selected
consolidated financial data appearing elsewhere in this Report. The following
discussion and analysis should be read in conjunction with the financial
information set forth under "Selected Consolidated Financial Data" and the
consolidated financial statements, including the notes thereto, included
elsewhere herein.
 
     The following table sets forth for the periods indicated the percentage of
net sales represented by each line item in the Company's consolidated statements
of income:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1995     1996     1997
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Net sales...................................................  100.0%   100.0%   100.0%
Cost of goods sold..........................................   75.1     80.0    101.4
                                                              -----    -----    -----
  Gross profit (loss).......................................   24.9     20.0     (1.4)
                                                              -----    -----    -----
Operating expenses:
  Research and development..................................    1.9      2.0      4.0
  Selling, general and administrative.......................   12.9     12.1     26.1
                                                              -----    -----    -----
  Total operating expenses..................................   14.8     14.1     30.1
                                                              -----    -----    -----
Income (loss) from operations...............................   10.1      5.9    (31.5)
Non-operating income........................................    0.4       .4      1.2
                                                              -----    -----    -----
Income (loss) before income taxes...........................   10.5      6.3    (30.3)
Income taxes (benefit)......................................    3.8      2.1     (9.0)
                                                              -----    -----    -----
Net income (loss)...........................................    6.7%     4.2%   (21.3)%
                                                              =====    =====    =====
</TABLE>
 
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
 
     Net Sales:  The Company's net sales decreased by 54.3% from $153,524,000 in
1996 to $70,207,000 in 1997. The decrease was attributable to decreased sales of
the Company's data communications products, decreased sales to OEMs and
decreased penetration of international markets. The decline in the Company's net
sales was due to weak industry conditions caused, in part, by market uncertainty
surrounding the competing technologies for the 56Kbps modem which delayed the
adoption of an industry standard until 1998 and resulted in consumers delaying
their purchasing decision. Sales to OEM customers decreased from $86,000,000 in
1996 to $31,000,000 in 1997 reflecting the inability of the Company to obtain
orders from large OEM customers as it had in previous years. The Company
believes that OEM opportunities are being lost to offshore manufacturers who are
seeking to increase market share by aggressive pricing to PC vendors who
integrate modems into their PC product line. The devaluation of many of the
Southeast Asia currencies has given this region a cost advantage. Net sales were
also adversely affected by a 22% decline in the average selling price of the
Company's products, which was more severe in the data communications product
category. The Company aggressively pursued increasing its sales through the
retail market in 1997 but sales were lower in this channel than in 1996.
 
     It is anticipated that the factors that adversely affected sales in 1997
will continue in 1998. Even though an industry standard was announced in
February 1998 for the 56Kbps modem, there are transitional issues that may delay
increases in market demand to the last half of 1998. Pricing pressures will
continue into 1998
 
                                       13
<PAGE>   16
 
and will be most dramatic in the OEM channel. In the third quarter of 1997, the
Company began manufacturing products on a contract basis for other companies,
and these sales are classified as OEM from a channel perspective and classified
below as custom manufacturing from a product perspective. In 1997 sales in the
custom manufacturing category were approximately $8,509,000 which comprised
approximately 27% of the OEM sales in 1997. The majority of these sales was
Internet access boxes that work in conjunction with television sets and were
derived from one customer.
 
     International sales increased by approximately 44% in 1996 as compared to
1995, but declined by 64% from 1996 to 1997. In 1995, 1996, and 1997,
international sales comprised approximately 21%, 29% and 23%, respectively, of
the Company's net sales. International sales declined in 1997 primarily because
of reduced sales to Hucom which was the Company's largest international customer
in 1996. Sales to Hucom declined by approximately $14,000,000 from 1996 to 1997.
International sales were also affected by a decline in sales to Boca's joint
venture in Asia. The currency turmoil in Asia affected the pricing
competitiveness of Boca's products and the economic turmoil in the region
reduced the demand for the Company's product.
 
     The Company's net sales increased by 7.3% from $143,038,000 in 1995 to
$153,524,000 in 1996. The increase was attributable to increased sales of the
Company's data communications products, increased sales to OEMs and increased
penetration of international markets. The Company's net sales declined in the
last six months of 1996 to $61,927,000 from $91,596,000 in the first six months
of 1996. This trend continued in 1997 because of weakened industry conditions
due in part to the anticipation of availability of 56Kbps analog modem
technology which has caused consumers to delay their purchasing decisions,
resulting in excess channel inventories. Also, several of the Company's OEM
customers entered the fourth quarter of 1996 with high inventories in
anticipation of the normally strong fourth quarter. Sales of PCs were weak in
the fourth quarter of 1996 which affected the Company's sales to OEM customers
as new orders were delayed and backlog was cancelled or rescheduled to a later
date.
 
     Sales to OEMs increased by approximately 32% in 1996 as compared to 1995,
but declined by 64% from 1996 to 1997. In 1996, OEM sales to AST Research were
$30,133,000 and to N.E.C./Packard Bell were $20,880,000. Sales to these two
customers in 1997 were approximately $1,900,000 in the aggregate and accounted
for the majority of the decline in OEM sales. Sales to OEMs comprised
approximately 46%, 56% and 45%, respectively, of the Company's net sales in
1995, 1996, and 1997.
 
     The following table presents the net sales for the Company's product
categories for the periods indicated. Net sales of Networking, I/O, IDE and
Multiport, and Video Graphics products have declined in each of the last four
years. This trend is expected to continue into 1998 as the Company places less
emphasis on these product categories.
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                --------------------------------------------------
                     PRODUCT CATEGORIES                           1995      %       1996      %       1997      %
                     ------------------                         --------   ---    --------   ---    --------   ---
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                             <C>        <C>    <C>        <C>    <C>        <C>
Data communications.........................................    $ 83,771    58%   $130,931    85%   $ 49,439    71%
Custom manufacturing........................................       --      --        --      --        8,509    12
Multimedia..................................................      25,189    18       1,016     1         968     1
Video graphics..............................................      13,965    10       6,225     4       1,628     3
Video conferencing..........................................       --      --        1,000     1         292   --
I/O, IDE and Multiport......................................      11,642     8       8,027     5       5,737     8
Networking..................................................       8,222     6       6,314     4       3,634     5
Other.......................................................         249   --           11   --        --      --
                                                                --------   ---    --------   ---    --------   ---
    Total net sales.........................................    $143,038   100%   $153,524   100%   $ 70,207   100%
                                                                ========   ===    ========   ===    ========   ===
</TABLE>
 
     Gross Profit.  Gross profit decreased from $30,669,000 in 1996 to a loss of
$957,000 in 1997, and decreased as a percentage of net sales from 20.0% in 1996
to (1.4%) in 1997. The Company's gross profit percentage has decreased in each
of the last five years. In previous years the impact was partially offset with
an increase in sales which did not occur in 1997. The gross profit percentage
was affected in 1997 by continued pricing pressure which showed a decline in
average selling price of 22%, underutilization of the Company's manufacturing
operations, the write off and reserves of inventory associated with older
generation product, in
 
                                       14
<PAGE>   17
 
particular video conferencing products, and higher than normal royalty payments
resulting from a settlement of litigation. The Company started to place emphasis
on the retail channel in the last quarter of 1996 and during the first six
months of 1997 and recognized that it was a difficult channel to achieve
acceptable margins. The Company experienced a high return rate and price
protection claims from this channel. Therefore, the Company is taking a more
cautious approach to this channel by being more selective and limiting the
number of customers.
 
     Gross profit decreased from $35,552,000 in 1995 to $30,669,000 in 1996, and
decreased as a percentage of net sales from 24.9% in 1995 to 20.0% in 1996. The
decrease is primarily the result of a decrease in selling prices not offset by a
corresponding decrease in cost. Entering 1996, the industry was experiencing a
shortage of a critical component for the 28.8Kbps modem which created a shortage
mentality resulting in customers and manufacturers over ordering and over
producing product. The component shortage problem was over by the end of the
second quarter of 1996 and, coupled with slower sales, industry pricing pressure
became severe as manufacturers attempted to increase sales by reducing prices.
 
     The gross profit margins for the Company's products depend upon a number of
factors, such as the degree of competition in the market for such products, the
product and channel mix (wholesale distributors and retailers versus OEMs),
component costs, and the level of utilization of manufacturing capacity. In
general, gross profit margins are higher on sales to wholesale distributors and
retailers than on sales to OEMs. In addition, gross profit margins on product
categories differ. Accordingly, the Company's gross profit margin has varied
substantially from quarter to quarter in the past, and can be expected to
continue to do so in the future, depending upon the product and channel mix.
Management believes that the lower operating expenses typically associated with
OEM sales generally offset their corresponding lower gross profit margins. There
could be circumstances, which the Company anticipates will occur during 1998, in
which the Company accepts lower gross profit margin sales for purposes such as
to phase-out inventory, to utilize manufacturing capacity or to respond to
competitive pricing pressures.
 
     The OEM channel has changed significantly in the last year and the Company
has a concern whether acceptable gross profit margins can be achieved if
offshore manufacturers continue to pursue an aggressive pricing strategy to
increase market share. There is a natural cost advantage that many offshore
manufacturers have because of the devaluations of currencies. The current excess
worldwide manufacturing capacity is enabling OEMs to negotiate lower prices for
data communications products, which they are currently aggressively pursuing.
 
     Research and Development Expenses.  Research and development expenses were
$2,679,000 in 1995, $3,073,000 in 1996 and $2,808,000 in 1997, and represented
1.9%, 2.0% and 4.0%, respectively, of net sales for each of those years. In
absolute dollars research and development expenses have not materially changed
over the last three years. The Company's research and development expenses are
focused on development of new products, international certification for the
Company's data communications products and prototyping the Company's current
product designs for OEM applications. As product life cycles shorten, there is
an increased need to recertify more product. Each increase in speed of modems
from 28.8Kbps to 33.6Kbps to 56Kbps requires recertification. It is anticipated
that research and development expenses in 1998 may be less than 1997.
 
     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses were $18,469,000 in 1995, 18,522,000 in 1996, and
18,366,000 in 1997, and represented 12.9%, 12.1%, and 26.1%, respectively, of
net sales for each of those years. Included in selling, general and
administrative expenses in 1997 was approximately $2,629,000 in provisions for
write off of uncollectible accounts which is substantially higher than the
company has experienced in previous years. The majority of this writeoff was one
customer, Creatix. The Company had entered into a letter of intent to purchase
Creatix in early 1997, but the definitive agreement was never executed because
certain conditions in the letter of intent were not met. Therefore the Company
did not complete the acquisition. The receivable that was written off was the
result of the Company selling modem chips to Creatix. Creatix continued to
experience operating losses throughout 1997 which impacted its ability to pay
the Company. Selling, general and administrative expenses include accounting and
legal fees in the amount of approximately $1,700,000, which is approximately
$500,000 higher than the previous year. This increase in expense was due to
legal costs associated with the possible acquisition of
 
                                       15
<PAGE>   18
 
Creatix and litigation regarding patent infringement and license fees. Also
there was a $375,000 expense related to the Company's share of the losses
incurred by MBf/Boca Asia Pacific Sdn Bhd, a joint venture in Malaysia in which
the Company has a 50% ownership interest. Due to the financial difficulties of
the joint venture, the Company has also recorded an additional reserve against
an outstanding receivable from the joint venture. Also included in selling,
general and administrative expenses is $260,000 for each of 1996 and 1997 for
consulting fees and expenses recorded for the October 4, 1996 Consulting
Agreement entered into by the Company with ArgoQuest, Inc.
 
     Selling, general and administrative expenses as a percentage of net sales
will continue to fluctuate and will be influenced by the level of sales to the
various distribution channels, and the particular sales and marketing
requirements of each of the channels. Certain selling, general, and
administrative expenses have a fixed nature, thus a reduction in net sales could
increase selling, general and administrative expenses as a percentage of net
sales. It is expected that for at least the first six months of 1998 net sales
will be lower than the comparable period in 1997 and selling, general and
administrative expenses as a percentage of net sales will increase.
 
     Provision for Income Taxes.  Federal and state income taxes have been
provided for at an effective rate of 36.1% in 1995 and 33.1% in 1996 and an
income tax benefit at the rate of 29.9% in 1997. The differences in the
Company's effective tax rate from the statutory rate are primarily due to the
operations of the Company's foreign sales corporation as well as in 1997 a
valuation allowance on deferred tax assets.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     As of December 31, 1997, the Company's working capital decreased by
$12,398,519 from December 31, 1996. This decrease was represented by a decrease
in trade receivables of $15,444,145, a decrease in inventories of $3,504,321, a
decrease in other current assets of $420,774, offset by an increase in cash and
cash equivalents of $378,837, an increase in prepaid and deferred income taxes
of $5,326,389, and a decrease in current liabilities of $1,265,495, consisting
of decreases in accounts payable of $768,105 and in accrued expenses and other
liabilities of $497,390 as detailed in Note 5 to the Consolidated Financial
Statements. The increase in cash and cash equivalents in 1997 primarily resulted
from cash provided by operations of $1,461,000 offset by capital expenditures of
$1,404,000.
 
     Accounts receivable decreased significantly in 1997 as a result of lower
sales and higher uncollectible accounts. Receivable days outstanding is 60 days
at December 31, 1997 which the Company believes is within the industry norm.
Accounts receivables are presented net of allowances for product returns, price
protection and doubtful accounts which are estimations by management of
receivables that will not be collected because of product returns, price
protection credits, customer disputes for short shipments, disputed claims and
bad debts. These allowances totaled 12.7% and 18.7% of gross receivables as of
December 31, 1996 and December 31, 1997, respectively. In making its estimation,
the Company's management considers the level of sales, the type of customers
(international or domestic), the channel mix (OEM, wholesale distributor or
retailer and catalog companies), product price changes and competitive price
protection requirements. Should the actual amounts of product returns, price
protection and uncollectible accounts exceed the estimated amounts used in
recording the allowances, additional charges to operations would be required.
Inventories decreased in 1997 as a result of lower sales. At the Company's
fourth quarter sales level, the inventory represents approximately four months
of sales. It is anticipated that sales may be lower in the first quarter of 1998
compared to the fourth quarter of 1997.
 
     The Company may from time to time experience periods of negative cash flow
from operations. The Company intends to borrow under its line of credit to the
extent necessary to finance cash needs. The Company has a secured $12,000,000
revolving line of credit with a commercial bank which expires on May 31, 1998.
The line of credit was amended as of December 31, 1997 to change the financial
covenants and to grant the bank a security interest in accounts receivable. As
of December 31, 1997, no borrowings were outstanding under this line of credit.
The line of credit permits borrowings of the lesser of $12,000,000 or 60% of
qualified receivables. Based on the current levels of customer receivables, the
maximum amount the Company could borrow under its secured credit line is
approximately $7,000,000. Under the terms of the loan agreement relating to the
line of credit, the Company may elect the interest rate to be either the bank's
prime rate or the London InterBank Offered Rate (LIBOR) plus 1 1/2%. The loan
agreement requires the Company to maintain
 
                                       16
<PAGE>   19
 
certain financial ratios, limit the incurrence of additional debt, and prohibits
payment of dividends without the bank's consent. The line of credit expires on
May 31, 1998 and there can be no assurance that the Company will be able to
renew the line on similar terms, if at all. If for any reason the Company is
unable to renew its existing line of credit, there can be no assurance that the
Company will be able to obtain a replacement facility on similar terms, if at
all.
 
     The Company currently believes that the combination of cash generated from
operations, the Company's existing cash balances and availability under its line
of credit or replacement facility will be sufficient to meet its liquidity and
capital requirements for the next twelve months. However, the Company's losses
were substantial in 1997 and sales in the first quarter of 1998 are anticipated
to be less than the fourth quarter of 1997. Therefore, the Company will record a
loss in the first quarter of 1998, which will result in the use of the cash
resources of the Company. If the Company can reduce inventories to a level which
is more in line with anticipated sales, this should improve cash generated from
operations and preserve the Company's cash resources.
 
     The Company regularly evaluates acquisitions of businesses, technologies or
products complementary to the Company's business. In the event that the Company
effects one or more acquisitions, the Company's cash balances may be utilized to
finance such acquisitions and additional sources of liquidity such as debt or
equity financing may be required to finance such acquisitions or to meet working
capital needs. There can be no assurance that additional capital beyond the
amounts currently forecasted by the Company will not be required nor that any
such required capital will be available on terms acceptable to the Company, if
at all, at such time or times as required by the Company.
 
YEAR 2000 MATTERS
 
     The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or other equipment or systems that have or rely on
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system or equipment failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
 
     The Company is in the process of identifying and assessing the systems that
could be affected by the Year 2000 Issue and is developing an implementation
plan to resolve the issue. The Company expects to complete the assessment,
formalize its plan for corrective action, and estimate the potential incremental
costs required to address this issue by December 1998. The Company presently
believes that the Year 2000 issue will not pose significant operational problems
for the Company's computer systems and the software or equipment incorporated
into the Company's products. The Company also believes that the Year 2000 issue
will not have a significant impact on the financial position or results of
operations, although there can be no assurance, at least until the Company
completes the assessment process.
 
CERTAIN FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
 
     In addition to the other information contained in this Report, the
following are important factors that should be considered carefully in
evaluating the Company and its business.
 
     New Products, Technological Changes And Inventory Management.  The markets
for the Company's products are characterized by rapidly changing technology,
evolving industry standards and short product life cycles. The Company's success
depends upon its ability to enhance its existing products and to introduce new
products with features that meet changing end user requirements. Moreover,
because of short product life cycles coupled with long lead times for many
components used in the Company's products, the Company may not be able to
quickly reduce its production or inventory levels in response to unexpected
shortfalls in sales or, conversely, to increase production or inventory levels
in response to unexpected demand. There can be no assurance that the Company
will be successful in identifying new markets, in developing, manufacturing and
marketing new products, or in enhancing its existing products, either internally
or through strategic relationships with third parties. The Company's business
would be adversely affected if the Company were to incur delays in developing
new products or enhancing existing products, if the Company experiences delays
in
                                       17
<PAGE>   20
 
obtaining any required regulatory approvals for its products or if any such new
products or enhancements did not gain market acceptance. In addition, there can
be no assurance that products or technologies developed by others will not
render the Company's products or technologies noncompetitive or obsolete. The
introduction of competing technologies for the 56Kbps modem and the marketing
activities to promote the advantages of such technology heightened the
competitive pressures in the industry. Each increase in speed in modem
technology has had transition issues; however, the Company believes that the
transition to 56Kbps technology is resulting in more extensive upgrade policies
which may result in lower gross margins. Moreover, price decreases have occurred
earlier in the 56Kbps product cycle than occurred with 14.4Kbps and 28.8Kbps
products.
 
     Sales of individual products and product lines are typically characterized
by rapid declines in sales, pricing and margins toward the end of the respective
product's life cycle, the precise timing of which may be difficult to predict.
As new products are planned and introduced, the Company attempts to monitor
closely the inventory of older products and to phase out their manufacture in a
controlled manner. Nevertheless, the Company could experience unexpected
reductions in sales of older generation products as customers anticipate the
availability of new products. These reductions could give rise to additional
charges for obsolete or excess inventory, returns of older generation products
by distributors or substantial price protection charges. To the extent that the
Company is unsuccessful in managing product transitions, its business and
operating results could be materially adversely affected.
 
     Because the majority of the Company's products are used in PCs and computer
networks, the Company's future operating results could be adversely affected by
changes in the PC and computer networking markets, including major technological
developments or fluctuations in the growth rate. In addition, there is a trend
in original PC system manufacturing to integrate additional functionality onto
the system board of the PC or to utilize chipsets which incorporate additional
functionality, thereby decreasing the market for PC enhancement products. In
this regard, demand for the Company's SoundExpression multimedia products
declined in the last six months of 1995 and throughout 1996 due to the increased
use by OEMs of chipsets incorporating sound and modem features which are
integrated into the system board of the PC. Moreover, it is a concern in the PC
industry that the penetration of PCs into the home has flattened at 40% and that
PC growth will slow as PCs become more of a replacement market. This could
impact modem sales to the Company's OEM customers in the future. Any decrease in
the markets for PC enhancement or networking products or reduction in the growth
rates in such markets could have a material adverse effect on the Company's
operating results.
 
     Potential Fluctuations in Quarterly Results.  The Company's quarterly
operating results have varied significantly, and may continue to vary
significantly, depending on a number of factors, some of which could adversely
affect the Company's operating results and the trading price of the Company's
Common Stock. These factors include the level of demand for the Company's
products, competitive pricing pressures, the timing of orders from and shipments
to major customers, the timing of new product introductions by the Company and
its competitors, the availability and pricing of components for the Company's
products, the timing of phase-outs of the Company's products, variations in the
Company's product mix and component costs, variations in the proportion of sales
made to wholesale distributors, OEMs and retailers, product returns or price
protection charges from customers, the timing of sales of the Company's products
to end users by the Company's customers, seasonal promotions by the Company, its
customers and competitors, economic conditions prevailing within the computer
industry and economic conditions generally. Quarterly sales depend on the volume
and timing of orders received during a quarter, which are difficult to forecast.
Customers generally order products on an as-needed basis, and accordingly the
Company has historically operated with a relatively small backlog. Moreover, as
is typical for companies in the PC industry, a disproportionate percentage of
the Company's net sales in any quarter are typically generated in the last month
of a quarter. As a result, a shortfall in net sales in any quarter as compared
to expectations may not be identifiable until the end of the quarter. In
addition, from time to time, a significant portion of the Company's sales are
derived from a limited number of customers, the loss of one or more of which
could adversely impact operating results. There can be no assurance that the
Company will be able to return to its growth in sales or profitability on a
quarterly or annual basis. The Company's expense levels are based, in part, on
its expectations as to future sales. If sales levels are below expectations,
operating results may be adversely affected, which would likely have an adverse
 
                                       18
<PAGE>   21
 
effect on the trading price of the Company's Common Stock. As a result of
declining sales and reduced margins, the Company will report a net loss for the
first quarter of 1998.
 
     Dependence on Custom Manufacturing Sales.  In the third quarter of 1997,
the Company began manufacturing products on a contract basis for other
companies. Custom manufacturing sales accounted for approximately 12% of the
Company's net sales for the year ended December 31, 1997. The Company has only
recently begun custom manufacturing and, accordingly, the Company has limited
experience in the management and operation of custom manufacturing services.
Moreover, the contract manufacturing industry is highly fragmented and intensely
competitive industry. In addition, the level and timing of orders placed by the
Company's contract manufacturing customers vary due to customer attempts to
manage inventory, changes in the customer's manufacturing strategy and variation
in demand for the customer's product. For all of these reasons, there can be no
assurance that the Company will be successful in developing its custom
manufacturing services. The inability of the Company to expand its custom
manufacturing services could adversely affect the Company's business, results of
operations or financial condition.
 
     Acquisitions.  The Company may from time to time pursue the acquisition of
other companies, assets, technologies or product lines that would complement or
expand its existing business. Certain of these acquisitions may involve
businesses in which the Company lacks experience. Acquisitions involve a number
of risks that could adversely affect the Company's operating results, including
the diversion of management's attention, the assimilation of the operations,
products and personnel of the acquired companies, the amortization of acquired
intangible assets and the potential loss of key employees of the acquired
companies. There can be no assurance that the Company will be able to identify
businesses that would complement or expand its existing business or complete
such acquisitions, manage one or more acquisitions successfully, or that the
Company will be able to integrate the operations, products or personnel gained
through such acquisition without a material adverse impact on the Company's
business, financial condition and results of operations, particularly in the
quarters immediately following such acquisitions.
 
     International Operations.  The Company's international sales are subject to
the risks inherent in international sales, including various regulatory
requirements (including the need to obtain certifications for the Company's data
communications products), political and economic changes and disruptions,
tariffs or other barriers, difficulties in staffing and managing foreign
operations, and potentially adverse tax consequences. In addition, fluctuations
in exchange rates may render the Company's products less competitive relative to
local product offerings or expose the Company to foreign currency exchange
losses. The strength of the U.S. dollar in early 1997 did have a negative impact
for 1997 which is expected to continue in 1998. One or more of these factors may
have a material adverse effect on the Company's future international sales and,
consequently, on the Company's operating results.
 
     Dependence on Suppliers.  The major components of the Company's products
include circuit boards, microprocessors, chipsets and memory components. Most of
the components used in the Company's products are available from multiple
sources. However, certain components used in the Company's products are
currently obtained from single sources. Certain modem chipsets used in the
Company's data communications products in the past have been in short supply and
are frequently on allocation by semiconductor manufacturers. Similar to others
in the computer industry, the Company has, from time to time, experienced
difficulty in obtaining certain components. The Company has no guaranteed supply
arrangements with any of its suppliers and there can be no assurance that these
suppliers will continue to meet the Company's requirements. Shortages of
components not only limit the Company's production capacity but also could
result in higher costs due to the higher costs of components in short supply or
the need to utilize higher cost substitute components. An extended interruption
in the supply of any of these components or a reduction in their quality or
reliability would have a material adverse effect on the Company's operating
results. While the Company believes that with respect to its single source
components it could obtain similar components from other sources, it could be
required to alter product designs to use alternative components. There can be no
assurance that severe shortages of components will not occur in the future which
could increase the cost or delay the shipment of the Company's products and have
a material adverse effect on the Company's operating results. Significant
increases in the prices of these components could also have a material adverse
effect on the Company's operating results since the Company may not be able to
adjust product pricing to reflect the
                                       19
<PAGE>   22
 
increases in component costs. Moreover, a number of components for the Company's
products are obtained from foreign suppliers. Increases in tariffs on such
components or fluctuations in exchange rates could result in increases in the
prices paid by the Company for these components, which could impact the
Company's ability to compete with foreign manufacturers and have a material
adverse effect on the Company's operating results.
 
     Sales Channel Risks.  The Company sells its products to OEMs, national,
regional and international wholesale distributors and retailers and catalog
companies. Sales to OEMs accounted for approximately 45% of net sales in 1997.
OEMs have significantly different requirements, and in most cases, more
stringent purchasing procedures and quality standards than wholesale
distributors and other resellers. There can be no assurance that the Company
will be successful in developing products for, and delivering products to, the
OEM market, or that it will be successful in establishing and maintaining an
effective distribution and customer support system for OEMs. The Company's
business could be adversely affected if it is unsuccessful in developing,
manufacturing and marketing products for sale to OEMs. In addition, OEMs may
require special distribution arrangements and product pricing, which could have
a material adverse effect on the Company's operating results. In 1996, the
Company's three largest OEM customers accounted for approximately 42% of the
Company's net sales; and in 1997, sales to these customers were approximately
4.4%. A decline in sales to large customers or a delay or default in payment by
one or more of such customers could have a material adverse effect on the
Company's results of operations or financial condition.
 
     The Company's three largest wholesale distributors accounted for
approximately 18% of the Company's net sales in 1997. The PC distribution
industry has been characterized by rapid change, including consolidations and
financial difficulties of wholesale distributors and the emergence of
alternative distribution channels. The Company is dependent upon the continued
viability and financial stability of its wholesale distributors. The loss or
ineffectiveness of any of the Company's three largest wholesale distributors or
a number of its smaller wholesale distributors could have a material adverse
effect on the Company's operating results. In addition, an increasing number of
vendors are competing for access to wholesale distributors which could adversely
affect the Company's ability to maintain its existing relationships with its
wholesale distributors or could negatively impact sales to such distributors.
The Company's sales to wholesale distributors declined in absolute dollars from
1995 to 1996 and from 1996 to 1997.
 
     During the second half of 1996 and the first half of 1997, the Company
focused on entering the retail channel. However due to the high cost of channel
entry as well as the sales promotions, advertising, and marketing expenses
required to maintain a direct relationship, the Company is limiting its number
of retail customers and may address this channel through wholesale distribution.
 
     Competition.  The markets for the Company's products are intensely
competitive resulting in constant pricing pressures. Some of the Company's
competitors have significantly greater financial, technical, product
development, manufacturing or marketing resources than the Company. The Company
believes that its ability to compete depends on a number of factors, including
price, product quality and reliability, product availability, credit terms, name
recognition, delivery time, and post-sale service and support. There can be no
assurance that the Company will be able to continue to compete successfully with
respect to these factors. A variety of companies currently offer products that
compete directly with the Company's products. These competitors could introduce
additional products or add features to their existing products that are superior
to the Company's products or that achieve greater market acceptance. In addition
to U.S.-based firms, the Company faces competition from Pacific Rim suppliers
which generally offer products at significantly lower prices. The introduction
of lower priced competitive products or significant price reductions by the
Company's competitors would result in price reductions in the Company's products
that could have a material adverse effect on the Company's operating results. In
addition, as the Company enters into new product markets, such as Internet TV
appliances, cable modems and videoconferencing, the Company anticipates that it
will encounter competition from a number of well-established companies, many of
which have greater financial, technical, product development, manufacturing or
marketing resources and experience.
 
     Proprietary Rights; Dependence on Software Licenses.  The Company receives
from time to time, and may receive in the future, communications from third
parties asserting intellectual property rights relating to the Company's
products and technologies. There can be no assurance that in the future the
Company will be able to obtain licenses of any intellectual property rights
owned by third parties with respect to the Company's
 
                                       20
<PAGE>   23
 
products or that any such licenses can be obtained on terms favorable to the
Company. If the Company is unable to obtain licenses of protected technology, it
could be prohibited from manufacturing and marketing products incorporating that
technology. The Company could also incur substantial costs in redesigning its
products or in defending any legal action taken against it. Should the Company
be found to infringe the proprietary rights of others, the Company could be
required to pay damages to the infringed party which could have a material
adverse effect on the Company's operating results.
 
     In certain of its products, the Company includes software licensed from
third parties. The Company's operating results could be adversely affected by a
number of factors relating to this third party software, including lack of
market acceptance, failure by the licensors to promote or support the software,
delays in shipment of the Company's products as a result of delays in the
introduction of licensed software or errors in the licensed software, or excess
customer support costs or product returns experienced by the Company due to
errors in the licensed software. Moreover, any impairment or termination of the
Company's relationship with any licensors of third party software could have a
material adverse effect on the Company's operating results.
 
     Reliance on Centralized Manufacturing.  All of the Company's manufacturing
occurs at its leased headquarters facility in Boca Raton, Florida. The Company's
manufacturing operations utilize certain equipment which, if damaged or
otherwise rendered inoperable, would result in the disruption of the Company's
manufacturing operations. Although the Company maintains business interruption
insurance which the Company believes is adequate, any extended interruption of
the operations at this facility would have a material adverse effect on the
Company's operating results.
 
     Product Returns, Price Protection and Warranty Claims.  Like other
manufacturers of computer products, the Company is exposed to the risk of
product returns from wholesale distributors and retailers, either through
contractual stock rotation privileges or as a result of the Company's interest
in assisting customers in balancing inventories. Although the Company attempts
to monitor and manage the volume of sales to wholesale distributors and
retailers, large shipments in anticipation of sales by wholesale distributors
and retailers can lead to substantial overstocking by the Company's wholesale
distributors and retailers and to higher than normal returns. Moreover, the risk
of product returns may increase if demand for the Company's products declines.
When the Company reduces its prices, the Company credits its wholesale
distributors and retailers for the difference between the purchase price of
products remaining in their inventory and the Company's reduced price for such
products on terms negotiated with the Company, the result of which could have a
material adverse effect on the Company's operating results. The Company's
limited five-year warranty permits customers to return any product for repair or
replacement if the product does not perform as warranted. The Company to date
has not encountered material warranty claims or liabilities. The Company seeks
to continually introduce new and enhanced products, which could result in higher
product returns and warranty claims due to the risks inherent in the
introduction of such products. The Company has established reserves for product
returns, price protection and warranty claims which management believes are
adequate. There can be no assurance that product returns, price protection and
warranty claims will not have a material adverse effect on future operating
results.
 
     Volatility of Stock Price.  The price of the Company's Common Stock
historically has been volatile due to fluctuations in operating results and
other factors relating to the Company's operations, the market's changing
expectations for the Company's growth, overall equity market conditions relating
to the market for technology stocks generally and other factors unrelated to the
Company's operations, including announcements by or relating to the Company's
competitors. Such fluctuations are expected to continue. In addition, stock
markets have experienced more price volatility in recent years. This volatility
has had a substantial effect on the market prices of securities issued by many
technology companies, often for reasons unrelated to the operating performance
of the specific companies.
 
                                       21
<PAGE>   24
 
ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
    <S>    <C>                                                             <C>
    (1)    Financial Statements
           Independent Auditors' Report of Deloitte & Touche LLP.......      23
           Consolidated Balance Sheets.................................      24
           Consolidated Statements of Income...........................      25
           Consolidated Statements of Stockholders' Equity.............      26
           Consolidated Statements of Cash Flows.......................      27
           Notes to Consolidated Financial Statements..................      28
    (2)    Financial Statement Schedules
           Schedule II -- Consolidated Valuation and Qualifying              38
           Accounts....................................................
</TABLE>
 
     Schedules other than those listed above have been omitted since they are
either not applicable, not required or the information is included elsewhere
herein.
 
                                       22
<PAGE>   25
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Stockholders of
Boca Research, Inc.
 
     We have audited the accompanying consolidated balance sheets of Boca
Research, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in the Index at Item 8.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Boca Research, Inc. and
subsidiaries at December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
 
DELOITTE & TOUCHE LLP
Certified Public Accountants
 
Fort Lauderdale, Florida
March 12, 1998
 
                                       23
<PAGE>   26
 
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                              -------------------------------------------
                                                                      1996                   1997
                                                                      ----                   ----
<S>                                                           <C>                    <C>
                                                 ASSETS
Current Assets:
     Cash and cash equivalents (Note 1).....................      $ 7,825,801            $ 8,204,638
     Trade receivables, net (Notes 1,10,11).................       27,167,474             11,723,329
     Inventory, net.........................................       18,380,520             14,876,199
     Prepaid expenses and other assets......................          890,297                469,523
     Refundable and deferred income taxes (Notes 1,4).......        3,887,608              9,213,997
                                                                  -----------            -----------
          Total current assets..............................       58,151,700             44,487,686
Property and equipment, net (Notes 1,3).....................        7,052,240              5,539,496
Non-current portion of deferred income taxes (Notes 1,4)....          274,792                     --
Other assets (Note 11)......................................          587,122                191,611
                                                                  -----------            -----------
TOTAL.......................................................      $66,065,854            $50,218,793
                                                                  ===========            ===========
                                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable.......................................      $ 7,314,472            $ 6,546,367
     Accrued expenses and other liabilities (Note 5)........        3,589,382              3,091,992
                                                                  -----------            -----------
          Total current liabilities.........................       10,903,854              9,638,359
                                                                  -----------            -----------
Commitments and contingencies (Notes 7,9)
Stockholders' equity (Note 8):
     Preferred stock, 5,000,000 $.01 par value shares
      authorized, none issued and outstanding at December
      31, 1996 and 1997.....................................
     Common stock, 25,000,000 $.01 par value shares
      authorized, 8,678,883 and 8,725,079 issued and
      outstanding at December 31, 1996 and 1997,
      respectively..........................................           86,789                 87,251
     Additional paid-in capital.............................       25,573,639             25,914,738
     Retained earnings......................................       29,501,572             14,578,445
                                                                  -----------            -----------
          Total stockholders' equity........................       55,162,000             40,580,434
                                                                  -----------            -----------
TOTAL.......................................................      $66,065,854            $50,218,793
                                                                  ===========            ===========
</TABLE>
 
                 See notes to consolidated financial statements
 
                                       24
<PAGE>   27
 
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                   --------------------------------------------------------------------
                                                           1995                    1996                    1997
                                                           ----                    ----                    ----
<S>                                                <C>                     <C>                     <C>
Net sales (Note 10)............................        $143,038,331            $153,523,545            $ 70,206,609
Cost of goods sold.............................         107,486,109             122,854,506              71,163,861
                                                       ------------            ------------            ------------
          Gross profit (loss)..................          35,552,222              30,669,039                (957,252)
                                                       ------------            ------------            ------------
Operating expenses:
     Research and development..................           2,679,114               3,072,755               2,808,023
     Selling, general and administrative.......          18,469,308              18,551,511              18,366,202
                                                       ------------            ------------            ------------
          Total operating expenses.............          21,148,422              21,624,266              21,174,225
                                                       ------------            ------------            ------------
Income (loss) from operations..................          14,403,800               9,044,773             (22,131,477)
                                                       ------------            ------------            ------------
Non-operating income (expense):
     Interest income...........................             167,820                 163,034                 508,108
     Other income..............................             394,370                 468,602                 345,652
     Interest expense..........................             (21,536)                (35,749)                (16,238)
                                                       ------------            ------------            ------------
          Total non-operating income, net......             540,654                 595,887                 837,522
                                                       ------------            ------------            ------------
Income (loss) before income taxes..............          14,944,454               9,640,660             (21,293,955)
Income taxes (benefit) (Notes 1,4).............           5,402,011               3,190,562              (6,370,828)
                                                       ------------            ------------            ------------
Net income (loss)..............................        $  9,542,443            $  6,450,098            $(14,923,127)
                                                       ============            ============            ============
Basic earnings (loss) per share................        $       1.13            $       0.75            $      (1.71)
                                                       ============            ============            ============
Weighted average basic shares outstanding......           8,471,750               8,610,081               8,718,090
                                                       ============            ============            ============
Diluted earnings (loss) per share..............        $       1.07            $       0.72            $      (1.71)
                                                       ============            ============            ============
Weighted average diluted shares outstanding....           8,920,552               8,940,622               8,718,090
                                                       ============            ============            ============
</TABLE>
 
                 See notes to consolidated financial statements
 
                                       25
<PAGE>   28
 
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                             COMMON STOCK
                                      --------------------------   ADDITIONAL                       TOTAL
                                           NUMBER                    PAID-IN       RETAINED     STOCKHOLDERS'
                                         OF SHARES       AMOUNT      CAPITAL       EARNINGS        EQUITY
                                         ---------       ------    ----------      --------     -------------
<S>                                   <C>                <C>       <C>           <C>            <C>
Balance at December 31, 1994........     8,424,685       $84,247   $22,424,118   $13,509,031     $36,017,396
Stock options exercised.............        98,074           981       609,216                       610,197
Tax benefit of options exercised....                                   436,641                       436,641
Net income..........................                                               9,542,443       9,542,443
                                         ---------       -------   -----------   -----------     -----------
Balance at December 31, 1995........     8,522,759        85,228    23,469,975    23,051,474      46,606,677
Stock options exercised.............       156,124         1,561     1,496,919                     1,498,480
Tax benefit of options exercised....                                   606,745                       606,745
Net income..........................                                               6,450,098       6,450,098
                                         ---------       -------   -----------   -----------     -----------
Balance at December 31, 1996........     8,678,883       $86,789   $25,573,639   $29,501,572     $55,162,000
Stock options exercised.............        46,196           462       321,159                       321,621
Tax benefit of options exercised....                                    19,940                        19,940
Net loss............................                                             (14,923,127)    (14,923,127)
                                         ---------       -------   -----------   -----------     -----------
Balance at December 31, 1997........     8,725,079       $87,251   $25,914,738   $14,578,445     $40,580,434
                                         =========       =======   ===========   ===========     ===========
</TABLE>
 
                 See notes to consolidated financial statements
 
                                       26
<PAGE>   29
 
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                      -------------------------------------------
                                                          1995           1996           1997
                                                          ----           ----           ----
<S>                                                   <C>            <C>            <C>
OPERATING ACTIVITIES
Net income (loss)...................................  $  9,542,443   $  6,450,098   $ (14,923,127)
  Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating
     activities:
     Depreciation and amortization..................     2,615,591      3,057,983       2,917,002
     Change in assets and liabilities:
     (Increase) decrease in:
       Receivables..................................    (9,880,326)    (4,296,105)     15,444,145
       Inventory....................................   (10,983,704)     4,076,245       3,504,321
       Prepaid expenses and other assets............      (635,359)        34,719         816,285
       Deferred income taxes........................    (1,314,259)      (649,855)        418,281
     Increase (decrease) in:
       Accounts payable.............................     2,772,264      1,477,143        (768,105)
       Accrued expenses and other liabilities.......     2,448,147     (1,038,102)       (497,390)
       Income taxes payable (refundable)............       965,570     (1,040,266)     (5,449,938)
                                                      ------------   ------------   -------------
       Net cash provided by (used in) operating
          activities................................    (4,469,633)     8,071,860       1,461,474
                                                      ------------   ------------   -------------
INVESTING ACTIVITIES
  Capital expenditures..............................    (2,623,476)    (2,222,033)     (1,404,258)
  Loan to related party.............................      (205,289)
  Loan repayment from related party.................       500,000
                                                      ------------   ------------   -------------
       Net cash used in investing activities........    (2,328,765)    (2,222,033)     (1,404,258)
                                                      ------------   ------------   -------------
FINANCING ACTIVITIES
  Exercise of stock options.........................       610,197      1,498,480         321,621
                                                      ------------   ------------   -------------
       Net cash provided by financing activities....       610,197      1,498,480         321,621
                                                      ------------   ------------   -------------
Net increase (decrease) in cash and cash
  equivalents.......................................    (6,188,201)     7,348,307         378,837
Cash and cash equivalents at beginning of year......     6,665,695        477,494       7,825,801
                                                      ------------   ------------   -------------
Cash and cash equivalents at end of year............  $    477,494   $  7,825,801   $   8,204,638
                                                      ============   ============   =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
       Income taxes (net of refunds)................  $  5,750,700   $  4,880,683   $  (1,339,171)
                                                      ============   ============   =============
       Interest.....................................  $     21,536   $     35,749   $      16,238
                                                      ============   ============   =============
</TABLE>
 
                 See notes to consolidated financial statements
 
                                       27
<PAGE>   30
 
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  SIGNIFICANT ACCOUNTING POLICIES
 
     Nature of Business.  Boca Research, Inc. (the "Company") designs,
manufactures, markets and supports data communications, videoconferencing,
multimedia and networking products to facilitate the transmission of information
on personal computers and computer networks. The Company sells its products
primarily to original equipment manufacturers, wholesale distributors and
retailers and catalog companies principally in the United States, Europe and the
Far East. In 1997, the Company began offering contract manufacturing services
for both Internet/TV appliances and other board-level products. The majority of
the Company's operations are located in Boca Raton, Florida.
 
     Principles of Consolidation.  The accompanying financial statements include
the Company and its wholly owned subsidiaries, Boca Research of Delaware, Inc.,
Boca Research International, Inc., Boca Research Holland B.V., Boca Research
(UK) Limited, Boca Research International Holdings Ltd. and Complete Acquisition
Corp. All material intercompany accounts and transactions have been eliminated
in consolidation. The Company accounts for its investments in MBf/Boca Asia
Pacific Sdn Bhd and Power Tel BOCA Private Ltd. using the equity method.
 
     Use of Estimates.  The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those
estimates.
 
     Cash and Cash Equivalents.  Cash and cash equivalents consist primarily of
cash, certificates of deposit, Treasury Bills, commercial paper and money market
funds purchased with maturities of 90 days or less.
 
     Inventory.  Inventory is stated at the lower of average cost or market.
Reserves are recorded to reduce excess, obsolete and slow moving inventory to
estimated net realizable value. The markets for the Company's products are
characterized by rapidly changing technology, evolving industry standards and
short product life cycles. The Company may experience rapid declines in sales,
selling prices and margins toward the end of the life cycle of a product or
product category. These declines, which may be difficult to predict, could
result in additional charges for excess, obsolete or slow moving inventory,
returns of older generation products from distributors or substantial price
protection charges, which would have an adverse effect on results of operations.
 
     The Company currently buys certain components used in its products from
single sources. In addition, certain modem chipsets used in the Company's data
communications products have in the past been in short supply and are frequently
on allocation by suppliers. Although there are a limited number of manufacturers
of these chipsets, management believes that other suppliers could provide
similar chipsets on comparable terms. However, a change in suppliers or
shortages in the availability of the chipsets, could cause a delay in
manufacturing and a possible loss of sales, which would affect operating results
adversely.
 
     Property and Equipment.  Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the lesser of the
estimated useful lives of five years or the lease term for leasehold
improvements.
 
     Long-Lived Assets.  Long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Measurement of an
impairment loss for such long-lived assets would be based on the fair value of
the asset. Long-lived assets to be disposed of are reported generally at the
lower of the carrying amount or fair value less cost to sell.
 
     Research and Development Costs.  Research and development costs are
expensed as incurred.
 
     Income Taxes.  The Company provides for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes." Deferred income tax assets and liabilities are
 
                                       28
<PAGE>   31
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
computed annually for differences between the financial statement and tax bases
of assets and liabilities and carryforwards that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount more likely than not to be realized. Income tax expense or
benefit is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
 
     Earnings (Loss) Per Share.  In the fourth quarter of 1997, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". SFAS No. 128, which supersedes Accounting Principles Board ("APB")
Opinion No. 15, requires a dual presentation of basic and diluted earnings per
share on the face of the income statement. Basic earnings per share excludes
dilution and is computed by dividing income or loss attributable to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. All prior-period earnings per share
data have been restated. For the years ended December 31, 1995 and 1996, primary
earnings per share was $1.07 and $0.72, respectively, and fully diluted earnings
per share was $1.06 and $0.72, respectively. The computation of diluted earnings
per share for the years ended December 31, 1995 and 1996 includes weighted
average shares of 448,802 and 330,541, respectively, for the effect of options.
As a result of the Company's net loss for the year ended December 31, 1997,
primary and fully diluted net loss per share would not differ from basic and
diluted loss per share, as computed under SFAS No. 128. Options to purchase
1,190,391 shares at a weighted average price of $7.97, which were outstanding at
December 31, 1997, have been excluded from the computation of net loss per share
for the year ended December 31, 1997 because their effect would have been
antidilutive.
 
     Revenue Recognition.  The Company recognizes revenue from product sales
upon shipment, when title passes. Under specified conditions, certain customers
are allowed to return products for credit. Also, under the terms of some of the
agreements, in the event the Company reduces its selling prices, the customers
receive credit for the difference between the original purchase price of product
remaining in specified levels of their inventories and the Company's reduced
price for such products. The Company records allowances for estimated returns
and price adjustments. The allowance for sales returns, allowances and price
protection was $2,625,000 and $1,300,000 at December 31, 1996 and 1997,
respectively, and is netted against accounts receivable. Reductions in selling
prices and product returns may result from events, such as actions by
competitors, technological changes and others, which may be difficult to predict
and may be beyond the Company's control. Accordingly, actual returns, allowances
and price protection may vary significantly in the near term from the estimates
used in recording the allowances.
 
     Trade receivables are presented net of an allowance for doubtful accounts
of $1,326,008 and $1,400,000 as of December 31, 1996 and 1997, respectively.
 
     Product Warranties.  Under the Company's five year limited warranty
program, it has agreed to repair or replace products during the designated
warranty period. Costs associated with the warranty program are determined on
the basis of estimated net future costs related to products sold.
 
     Advertising.  The Company participates in cooperative advertising programs
with certain customers. These programs are used by the Company to reimburse
customers for certain forms of advertising. In general, the programs allow
customers credits up to a specified percentage of net purchases. When the
products are sold to such customers, the Company accrues a liability for the
estimated amount to be reimbursed.
 
     Costs of advertising by the Company are expensed as incurred. Total
advertising expense for 1995, 1996 and 1997 was $4,132,602, $3,735,187 and
$2,227,531, respectively.
 
     Reclassifications.  Certain prior year amounts have been reclassified to
conform to the fiscal 1997 presentation.
 
                                       29
<PAGE>   32
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2.  INVENTORY
 
     Inventory consists of the following:
 
<TABLE>
<CAPTION>
                                                        AT DECEMBER 31,
                                                  ----------------------------
                                                     1996             1997
                                                     ----             ----
<S>                                               <C>              <C>
Raw materials...............................      $13,540,462      $11,075,213
Work-in-progress............................        5,779,063        4,924,500
Finished goods..............................        1,460,995        2,376,486
Inventory reserve...........................       (2,400,000)      (3,500,000)
                                                  -----------      -----------
                                                  $18,380,520      $14,876,199
                                                  ===========      ===========
</TABLE>
 
3.  PROPERTY AND EQUIPMENT
 
     Property and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                        AT DECEMBER 31,
                                                  ----------------------------
                                                     1996             1997
                                                     ----             ----
<S>                                               <C>              <C>
Machinery and equipment.....................      $13,328,709      $14,339,479
Furniture and fixtures......................          597,702          597,702
Leasehold improvements......................        1,121,586        1,236,905
Vehicles....................................           74,641           74,641
                                                  -----------      -----------
     Total cost.............................       15,122,638       16,248,727
Less accumulated depreciation...............       (8,070,398)     (10,709,231)
                                                  -----------      -----------
                                                  $ 7,052,240      $ 5,539,496
                                                  ===========      ===========
</TABLE>
 
     Depreciation expense for the years ended December 31, 1995, 1996 and 1997
was $2,398,557, $2,872,990 and $2,939,848.
 
4.  INCOME TAXES
 
     The net deferred tax asset in the accompanying balance sheets includes
deferred tax assets (liabilities) attributable to the following items:
 
<TABLE>
<CAPTION>
                                                         AT DECEMBER 31,
                                                    --------------------------
                                                       1996            1997
                                                       ----            ----
<S>                                                 <C>             <C>
Accounts receivable allowances................      $1,285,197         852,226
Accrued expenses..............................         648,174         621,372
Inventory reserve.............................         864,000       1,286,250
Goodwill......................................         628,365         585,317
Depreciation..................................        (410,034)       (500,939)
Allowance for product warranties..............         106,560         130,830
State net operating loss carryforward.........              --         599,388
AMT credit carryforward.......................              --         174,801
                                                    ----------      ----------
Gross deferred tax asset......................      $3,122,262       3,749,245
Valuation allowance...........................              --      (1,045,265)
                                                    ----------      ----------
                                                    $3,122,262      $2,703,980
                                                    ==========      ==========
</TABLE>
 
     The Company has a Florida net operating loss carryforward available to
offset future Florida taxable income of approximately $11 million which will
expire in 2012.
 
                                       30
<PAGE>   33
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The components of income taxes (benefit) in the accompanying statements of
income are as follows:
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                        --------------------------------------------------------------
                                                               1995                  1996                  1997
                                                               ----                  ----                  ----
<S>                                                     <C>                   <C>                   <C>
Federal:
     Current..........................................      $6,156,581            $3,527,431           $(6,804,109)
     Deferred.........................................      (1,204,737)             (595,700)              418,281
                                                            ----------            ----------           -----------
          Total.......................................       4,951,844             2,931,731            (6,385,828)
                                                            ----------            ----------           -----------
State:
     Current..........................................         559,689               312,986                15,000
     Deferred.........................................        (109,522)              (54,155)                    0
                                                            ----------            ----------           -----------
                                                               450,167               258,831                15,000
                                                            ----------            ----------           -----------
          Total.......................................      $5,402,011            $3,190,562           $(6,370,828)
                                                            ==========            ==========           ===========
</TABLE>
 
     The Company's effective income tax rate differed from the statutory federal
rate of 35% as follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                                ----------------------------
                                                                1995        1996        1997
                                                                ----        ----        ----
<S>                                                             <C>         <C>         <C>
Statutory rate applied to income before income taxes....        35.0%       35.0%       35.0%
Increase (decrease) in income taxes resulting from:
     Rate differential..................................         --         (1.0)       (1.0)
     Valuation allowance................................         --          --         (4.9)
     State income taxes.................................        2.0         1.8          2.5
     Exempt foreign trade income........................        (2.7)       (3.3)        0.5
     Other, net.........................................        1.8         0.6         (2.2)
                                                                ----        ----        ----
     Effective income tax rate..........................        36.1%       33.1%       29.9%
                                                                ====        ====        ====
</TABLE>
 
5.  ACCRUED EXPENSES AND OTHER LIABILITIES
 
     Accrued expenses consist of the following:
 
<TABLE>
<CAPTION>
                                                                        AT DECEMBER 31,
                                                          --------------------------------------------
                                                                 1996                      1997
                                                                 ----                      ----
<S>                                                       <C>                       <C>
Cooperative advertising.................................      $  733,157                $  250,000
Salaries, wages, benefits and bonuses...................       1,158,684                   836,812
Commissions.............................................          70,848                    58,150
Allowance for product warranties........................         296,000                   356,000
Other...................................................       1,333,693                 1,591,030
                                                              ----------                ----------
                                                              $3,589,382                $3,091,992
                                                              ==========                ==========
</TABLE>
 
6.  LINE OF CREDIT
 
     The Company has a secured revolving line of credit agreement expiring May
31, 1998, which permits borrowings of the lesser of $12,000,000 or 60% of
qualified accounts receivable. Based on the current level of customer
receivables, the maximum amount the Company could borrow under its secured line
of credit is $7,000,000. Under the terms of the loan agreement relating to the
line of credit, the Company may elect the interest rate to be either the bank's
prime rate or the London InterBank Offered Rate (LIBOR) plus 1 1/2%. The loan
agreement requires the Company to maintain certain financial ratios, limits the
incurrence of additional debt, and prohibits payment of dividends without the
bank's consent. The line of credit was amended as of December 31, 1997 to grant
the bank a security interest in all of the Company's accounts
 
                                       31
<PAGE>   34
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
receivable and to change the financial ratios. No borrowings were outstanding as
of December 31, 1996 and 1997.
 
7.  COMMITMENTS AND CONTINGENCIES
 
     Rent expense for the years ended December 31, 1995, 1996 and 1997 was
$1,171,872, $818,223 and $974,124, respectively. During 1995, the Company
incurred additional rent expense of approximately $269,000 to record the effect
of vacating two leased facilities.
 
     The Company is committed through 2002 for rents under noncancelable
operating leases for use of its offices, warehouses and manufacturing
facilities. The aggregate minimum annual payments under such leases for the
years ending December 31, 1998, 1999, 2000, 2001 and 2002 are $819,800,
$725,394, $560,988, $306,471 and $166,005, respectively.
 
     The Company receives communications from time to time alleging that certain
of the Company's products infringe the patent rights of other third parties. The
Company has recently received communications from IBM Corporation ("IBM")
alleging that certain of the Company's products infringe the patent rights of
IBM. The Company is presently investigating this claim and is not yet in a
position to fully evaluate the merits of such claim. The Company cannot predict
the outcome of this claim or any similar claim which may arise in the future, or
the effect of any such claim on the Company's operating results or financial
condition. No provision has been recorded for any loss that may result from the
ultimate resolution of this uncertainty.
 
     A former shareholder of the Company has filed an action in the United
States District Court for the Southern District of Florida against the Company
and Anthony F. Zalenski, its President and Chief Executive Officer. The former
shareholder claims that he relied on certain statements made directly to him by
Mr. Zalenski and certain other statements in deciding not to sell his shares of
the Company's Common Stock. The former shareholder claims that such statements
were false and misleading and give rise to claims under the Federal securities
law and Florida common law. The former shareholder is seeking damages for his
trading losses, which are alleged to be in excess of $1 million. The Company
cannot predict the outcome of this claim or the effect, if any, of such claim on
the Company's operating results or financial condition.
 
     On October 4, 1996, the Company entered into a Consulting Agreement with
ARGOQUEST, Inc., a California corporation ("ArgoQuest") pursuant to which
ArgoQuest was retained to serve as a consultant to the Company with respect to
sales to retail accounts, wholesale distributors and original equipment
manufacturers. The Consulting Agreement provides ArgoQuest with the right to be
granted options to purchase shares of Common Stock of the Company, subject to
the Company achieving specified net sales, as defined in the Consulting
Agreement, during certain periods, in addition to receiving monthly consulting
fees. For the years ended December 31, 1996 and 1997, the Company recorded
$256,000 and $260,000 of expense, respectively, representing the monthly
consulting fees and expenses due under the Consulting Agreement. Since none of
the specified net sales targets were achieved by ArgoQuest, no options were
granted pursuant to the Consulting Agreement during the year ended December 31,
1997. In accordance with the terms of the Consulting Agreement, the Company has
notified ArgoQuest that it will terminate the Agreement, effective March 31,
1998.
 
8.  STOCK OPTION AND PURCHASE PLANS
 
     On June 9, 1992, the Board of Directors with the approval of the Company's
shareholders adopted a Non-Qualified Stock Option Plan (the "Plan") pursuant to
which a maximum of 200,000 shares of common stock were reserved for grant to key
employees. The options granted under the Plan expire six years from the date of
grant and, except as otherwise determined from time to time by the Board of
Directors, are not exercisable during the first 12 months after the date of
grant. The options become exercisable as to 20% of the shares covered thereby
upon the expiration of 12 months after the date of grant and as to an additional
20%
 
                                       32
<PAGE>   35
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
upon the expiration of each of the next four succeeding twelve month periods. As
of December 31, 1997 these options have been cancelled.
 
     The Board of Directors and shareholders adopted the 1992 Stock Option Plan
(the "1992 Plan") pursuant to which, as subsequently amended, a maximum of
1,700,000 shares of common stock are reserved for grant. The 1992 Plan also
provides that no more than 250,000 shares of Common Stock may be issued to any
employee in any one calendar year. Under the 1992 Plan, incentive stock options
may be granted to employees and officers of the Company and non-qualified stock
options may be granted to consultants, employees and officers of the Company.
The exercise price of the options (which in the case of an incentive stock
option cannot be less than the fair market value of the common stock on the date
of grant or less than 110% of fair market value in the case of employees or
officers holding 10% or more of the voting stock of the Company) shall be as
determined by the Compensation Committee of the Board of Directors.
 
     The Board of Directors and shareholders adopted the 1992 Non-Employee
Director Stock Option Plan (the "Director Stock Option Plan") pursuant to which,
as subsequently amended, a maximum of 60,000 shares of common stock are reserved
for grant. Under this plan, each non-employee director first elected to the
Board of Directors after January 1, 1993 will receive an option for 10,000
shares on the date of his or her election. The exercise price per share for all
options granted under the plan will be equal to the fair market value of the
common stock at the date of grant. All options vest in three equal installments
beginning on the first anniversary of the date of grant. The term of each option
will be for a period of ten years from the date of grant.
 
     In 1996, the Board of Directors and shareholders approved the 1996
Non-Employee Director Stock Option Plan (the "1996 Director Plan"). The 1996
Director Plan provided that on the date the Plan was approved by the Company's
shareholders each non-employee director received an option to purchase 15,000
shares of common stock. The exercise price per share for all options granted
under the plan is equal to the fair market value of the common stock on the date
of grant. All options vest in three equal annual installments beginning on the
first anniversary of the date of grant. A maximum of 200,000 shares of common
stock have been reserved for grant under the plan. In January 1998, the Board of
Directors approved an amendment to the 1996 Director Plan pursuant to which each
non-employee director will be entitled to be granted an option to purchase
10,000 shares of common stock on the date of his initial election to the Board
and on the date of each annual meeting of the Company's shareholders at which
such director is reelected. In addition, the Chairman of the Board of Directors
is entitled to be granted an option to purchase 5,000 shares of common stock on
the date of his election as Chairman and on the date of each reelection. All
options will vest immediately on the date of grant. The amendment is subject to
the approval of shareholders at the next annual meeting of shareholders.
 
     In April 1997, the Company offered the holders of options to purchase an
aggregate of 715,097 shares of the Company's Common Stock with exercise prices
ranging from $7.125 to $27.50, the opportunity to exchange such options for
options to purchase a fewer number of shares at an exercise price of $6.75 per
share, the market value of the Common Stock on the date of such offer. The newly
issued options vest in three equal annual installments, commencing in April
1998. This offer was made as a result of the decline in the market price of the
Company's Common Stock in order to more effectively retain and motivate the
Company's key employees. As a result of this offer, options to purchase 465,689
shares were canceled in exchange for the issuance of options to purchase 314,416
shares priced at $6.75 per share. The holders of options representing 249,408
shares declined the offer to exchange their options.
 
                                       33
<PAGE>   36
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     A summary of the status of the Company's stock options as of December 31,
1995, 1996 and 1997 and changes during the years ended on those dates is
presented below:
 
<TABLE>
<CAPTION>
                                               1995                  1996                   1997
                                        ------------------   --------------------   --------------------
                                                  WEIGHTED               WEIGHTED               WEIGHTED
                                                  AVERAGE                AVERAGE                AVERAGE
                                                  EXERCISE               EXERCISE               EXERCISE
                                        SHARES     PRICE      SHARES      PRICE      SHARES      PRICE
                                        -------   --------   ---------   --------   ---------   --------
<S>                                     <C>       <C>        <C>         <C>        <C>         <C>
Outstanding at beginning of year......  600,000    $6.18       876,000    $ 9.44    1,153,165    $13.37
Granted...............................  403,000    13.31       543,408     18.17      996,716      7.30
Exercised.............................   79,332     6.15       135,379      8.17       22,167      6.10
Cancelled.............................   47,668     6.55       130,864     12.35      937,323     13.95
                                        -------              ---------              ---------
Outstanding at end of year............  876,000     9.44     1,153,165     13.37    1,190,391      7.97
                                        =======              =========              =========
Exercisable at end of year............  195,332     6.43       331,167      8.58      396,801      7.71
                                        =======              =========              =========
</TABLE>
 
     The following table summarizes information about stock options outstanding
at December 31, 1997:
 
<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                 -------------------------------------------------   ------------------------------
                   NUMBER      WEIGHTED-AVERAGE                        NUMBER
   RANGE OF      OUTSTANDING      REMAINING       WEIGHTED-AVERAGE   EXERCISABLE   WEIGHTED-AVERAGE
EXERCISE PRICE   AT 12/31/97   CONTRACTUAL LIFE    EXERCISE PRICE    AT 12/31/97    EXERCISE PRICE
--------------   -----------   ----------------   ----------------   -----------   ----------------
<S>              <C>           <C>                <C>                <C>           <C>
$ 5.25 -  7.90       847,682         9.4               $ 6.33          294,665          $ 5.63
  7.91 - 11.85       216,300         8.9                 9.11           43,333           11.12
 11.86 - 17.80        65,000         8.0                12.21           38,333           12.17
 17.81 - 25.00        61,409         8.2                22.19           20,470           22.19
                 -----------                                           -------
                   1,190,391         9.2                 7.97          396,801            7.71
                 ===========                                           =======
</TABLE>
 
     The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for the
Company's stock-based compensation plans. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's pro forma net income for 1995 and 1996 would have been $9,285,804 and
$4,563,456, respectively and the Company's pro forma net loss for 1997 would
have been $16,625,691. Pro forma earnings per share for 1995 and 1996 would have
been $1.10 and $0.53, respectively, for basic shares outstanding and $1.04 and
$0.51, respectively, for diluted shares outstanding. Pro forma loss per share
for 1997 would have been $1.91. The weighted average fair value of the options
granted during 1995, 1996 and 1997 was estimated at $8.37, $11.12 and $4.61,
respectively, based upon the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: no
dividend yield, expected volatility of 60%, risk-free interest rate of 7.22%,
5.69% and 6.09%, respectively, and expected lives of six years.
 
     Subsequent to December 31, 1997, the Company granted options to purchase
159,133 shares at a price range of $3.97 to $5.38 to both new and existing
employees. Subsequent to December 31, 1997, 202,845 options were cancelled.
 
     The Board of Directors and shareholders adopted a 1992 Employee Stock
Purchase Plan (the "1992 Purchase Plan"). The 1992 Purchase Plan authorizes the
issuance of a maximum of 250,000 shares of common stock pursuant to the exercise
of nontransferable options granted to participating employees. The exercise
price of the options is the lesser of 85% of the fair market value of the common
stock on the first and last day of the purchase period which commences on
January 1 and July 1 of each year. During 1996 and
 
                                       34
<PAGE>   37
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
1997, there were 20,745 and 24,029 shares issued in connection with this plan,
respectively. At December 31, 1997, there were options to purchase 16,578 shares
at a price of $4.46 granted and exercisable under this plan.
 
9.  SAVINGS PLAN
 
     In January 1992, the Board of Directors adopted a Savings Incentive Plan
(the "Savings Plan") pursuant to Section 401(k) of the Internal Revenue Code.
All employees are eligible to participate in the Savings Plan upon completion of
six months of employment. Each employee may elect to contribute to the Savings
Plan through payroll deductions in an amount not to exceed the amount permitted
under the Internal Revenue Code. The Company has the discretion to make matching
contributions on behalf of the participants. Employees are fully vested in their
contributions. Company contributions vest at a rate of 33% on each anniversary
date of employment. Amounts credited to an employee's account may be distributed
to the employee at the earliest of (a) the termination of the employee's
employment with the Company; (b) the termination of the Plan, or (c) a
withdrawal due to financial hardship. Under the Internal Revenue Code, neither
the employee nor Company contributions to the Savings Plan are taxable to the
employee until such amounts are distributed to the employee. However,
contributions made by the Company are tax deductible. During the years ended
December 31, 1995, 1996 and 1997 the Company's contribution expense to the
Savings Plan aggregated $127,306, $155,944 and $119,319, respectively.
 
10.  MAJOR CUSTOMERS AND GEOGRAPHIC DATA
 
     The Company sells its products primarily to national, regional and
international wholesale distributors and OEM customers. Sales to distributors
accounted for 42%, 34% and 36% of the Company's net sales in 1995, 1996 and
1997, respectively. Sales to OEM customers accounted for 46%, 56%, and 45% of
the Company's net sales in 1995, 1996, and 1997, respectively.
 
     Sales to customers who contributed 10% or more of net sales during the
years ended December 31, 1995, 1996 and 1997 and the related receivable balances
at the end of each year were as follows:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                    -------------------------------------------
                                                        1995            1996           1997
                                                        ----            ----           ----
<S>                                                 <C>             <C>             <C>
Net sales
     Customer A.................................    $ 14,682,577    $  9,394,212    $ 7,197,475
     Customer B.................................       6,685,332       3,225,686      1,983,663
     Customer C.................................      10,955,818       8,511,577      3,711,120
     Customer D.................................      24,582,391      20,879,575             --
     Customer E.................................          39,741      30,133,475      2,876,023
     Customer F.................................       5,581,633      13,893,362        229,804
</TABLE>
 
<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                    -------------------------------------------
                                                        1995            1996           1997
                                                        ----            ----           ----
<S>                                                 <C>             <C>             <C>
Accounts receivable
     Customer A.................................    $  1,826,643    $  3,504,586    $ 1,428,217
     Customer B.................................       1,565,644         498,899        211,872
     Customer C.................................       2,059,405       1,983,285        980,991
     Customer D.................................       4,030,380       8,621,035          1,957
     Customer E.................................          39,741       2,527,423         12,925
     Customer F.................................       2,867,133       2,477,051         15,577
</TABLE>
 
     In 1997 only customer A contributed more than 10% of net sales.
 
     Customers A, B and C are wholesale distributors; customers D, E and F are
OEMs.
 
                                       35
<PAGE>   38
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company sells its products in the United States and in foreign
countries primarily through its own sales force and independent manufacturer
representative organizations. Net sales by geographic region for the years ended
December 31, 1995, 1996 and 1997 is as follows:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                    -------------------------------------------
                                                        1995            1996           1997
                                                        ----            ----           ----
<S>                                                 <C>             <C>             <C>
United States...................................    $112,733,264    $109,934,462    $54,694,921
Asia/Pacific Rim................................       7,380,104      25,409,366      3,288,453
Canada..........................................       2,248,742       1,291,998      1,511,942
Europe..........................................      13,135,457      11,989,946      7,624,891
Other...........................................       7,540,764       4,897,773      3,086,402
                                                    ------------    ------------    -----------
                                                    $143,038,331    $153,523,545    $70,206,609
                                                    ============    ============    ===========
</TABLE>
 
     The Company's identifiable assets located in foreign countries are not
significant.
 
11.  RELATED PARTY TRANSACTIONS
 
     In September 1995, the Company acquired 50% of the Common Stock of Mbf/Boca
Asia Pacific Sdn Bhd, a joint venture in Malaysia which distributes primarily
the Company's products in the Pacific Rim. The investment of $375,000 in this
joint venture as of December 31, 1996 was included in other assets in the
consolidated balance sheet. In 1997 the joint venture experienced significant
operating losses which reduced its book value to a minimal amount. Therefore the
Company's investment in this joint venture was written down to zero in 1997. The
Company anticipates that the joint venture will be liquidated in 1998. In 1997
sales to this joint venture were approximately $1,874,000 compared to $4,423,000
in 1996. The accounts receivable balance due from the joint venture at December
31, 1997 was $633,251 which was all over the 90 day terms that the Company had
granted to the joint venture. Due to the poor operating results of the joint
venture and the past due accounts receivable balance, the Company has an
allowance of $400,000 against the receivable. In 1996 the Company acquired in
India a 20% equity interest in PowerTel Boca Pvt., Ltd. ("PowerTel"). PowerTel
distributes Boca Research products and services in India, South Asia, and
certain markets in Africa. PowerTel is headquartered in Bangalore and has
offices in Bombay and Delhi. The investment of $84,000 in this joint venture as
of December 31, 1996 and 1997 is included in other assets in the consolidated
balance sheet. In 1997, sales to PowerTel were approximately $710,000 compared
to $602,000 in 1996. The accounts receivable balance due from PowerTel at
December 31, 1997 was $332,812. The Company has granted 180 day payment terms to
PowerTel. The financial position and results of operations of these joint
ventures in 1996 and 1997 were insignificant in relation to the company's
consolidated financial statements.
 
12.  QUARTERLY FINANCIAL DATA (UNAUDITED)
 
     Unaudited summarized financial data by quarter for 1996 and 1997 is as
follows (in thousands except for per share data):
 
<TABLE>
<CAPTION>
           THREE MONTHS ENDED             MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
           ------------------             --------    -------    ------------    -----------
<S>                                       <C>         <C>        <C>             <C>
1996
     Net sales..........................   $44,935    $46,661       $32,966        $28,961
     Gross profit.......................     9,367      9,859         6,168          5,276
     Income (loss) from operations......     3,920      4,197         1,419           (492)
     Net income.........................     2,602      2,761         1,022             65
     Basic earnings per share...........      0.30       0.32          0.12           0.01
     Diluted earnings per share.........      0.29       0.31          0.12           0.01
</TABLE>
 
                                       36
<PAGE>   39
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
           THREE MONTHS ENDED             MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
           ------------------             --------    -------    ------------    -----------
<S>                                       <C>         <C>        <C>             <C>
1997
     Net sales..........................   $18,758    $16,352       $18,549        $16,547
     Gross profit (loss)................        95        834         1,411         (3,297)
     Income (loss) from operations......    (5,282)    (4,157)       (2,710)        (9,982)
     Net income (loss)..................    (3,342)    (2,558)       (1,605)        (7,418)
     Basic earnings (loss) per share....     (0.38)     (0.29)        (0.18)         (0.85)
     Diluted earnings (loss) per
       share............................     (0.38)     (0.29)        (0.18)         (0.85)
</TABLE>
 
                                       37
<PAGE>   40
 
                      BOCA RESEARCH, INC. AND SUBSIDIARIES
 
         SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                            YEAR ENDED DECEMBER 31,
 
<TABLE>
<CAPTION>
                                                    ADDITIONS
                                      BALANCE      CHARGED TO    CHARGED TO                   BALANCE
                                   AT BEGINNING     COSTS AND       OTHER                      AT END
           DESCRIPTION                OF YEAR       EXPENSES      ACCOUNTS     DEDUCTIONS     OF YEAR
-------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>           <C>           <C>           <C>
              1995
-------------------------------------------------------------------------------------------------------
Allowance for Sales Returns,
  Allowances and Price Protection   $  820,484     $1,792,664        --            --        $2,613,148
Allowance for Doubtful Accounts        313,535        951,593        --           265,128     1,000,000
Allowance for Inventory Reserve        550,000      1,248,103        --           718,103     1,080,000
Allowance for Product Warranties       176,000         60,000        --            --           236,000
              1996
-------------------------------------------------------------------------------------------------------
Allowance for Sales Returns,
  Allowances and Price Protection   $2,613,148     $   11,852        --            --        $2,625,000
Allowance for Doubtful Accounts      1,000,000        602,584        --           276,576     1,326,008
Allowance for Inventory Reserve      1,080,000      2,657,267        --         1,337,267     2,400,000
Allowance for Product Warranties       236,000         60,000        --            --           296,000
              1997
-------------------------------------------------------------------------------------------------------
Allowance for Sales Returns,
  Allowances and Price Protection   $2,625,000         --            --         1,325,000     1,300,000
Allowance for Doubtful Accounts      1,326,008      2,628,601        --         2,554,609     1,400,000
Allowance for Inventory Reserve      2,400,000      2,886,000        --         1,786,000     3,500,000
Allowance for Product Warranties       296,000         60,000        --            --           356,000
</TABLE>
 
--------------------------------------------------------------------------------
 
                                       38
<PAGE>   41
 
ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
     In accordance with General Instruction G(3) to Form 10-K, except as
indicated in the following sentence, the information called for by Items 10, 11,
12 and 13 is incorporated by reference from the registrant's definitive proxy
statement pursuant to Regulation 14A for the Annual Meeting of Shareholders to
be held on May 18, 1998. As permitted by General Instruction G(3) to Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K, the information on executive
officers called for by Item 10 is included in Part I of this Annual Report on
Form 10-K.
 
                                    PART IV
 
ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) Financial Statements and Schedules
 
        The Financial Statements and Schedules filed as part of this Annual
        Report on Form 10-K are listed in the index under Item 8.
 
     (b) Reports on Form 8-K
 
        No current reports on Form 8-K were filed by the Company during the
        quarter ended December 31, 1997.
 
     (c) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                  TITLE
-----------                                  -----
<C>          <S>  <C>
   (1)2.1    --   Agreement of Merger dated March 2, 1992 between the Company
                  and Boca Research Holding, Inc.
   (1)2.2    --   Agreement of Merger dated December 22, 1992 between the
                  Company and Boca Research Incorporated Manufacturing, Inc.
   (2)2.3    --   Asset Purchase Agreement dated July 2, 1993 between Complete
                  Acquisition Corp. and The Complete PC, Inc.
   (1)3.1    --   Amended and Restated Articles of Incorporation of the
                  Company.
   (1)3.2    --   By-Laws of the Company.
  (1)10.1    --   Non-Qualified Stock Option Plan.
  (1)10.2    --   1992 Stock Option Plan.
  (1)10.3    --   1992 Employee Stock Purchase Plan.
  (1)10.4    --   1992 Non-Employee Director Stock Option Plan.
  (1)10.5    --   Lease Agreement between the Company and Catexor Limited
                  Partnership I dated October 4, 1990, as amended and
                  supplemented pursuant to the First Addendum to Lease dated
                  October 4, 1990, Second Addendum to Lease dated October 4,
                  1990, Third Addendum to Lease dated December 1, 1991 and
                  Fourth Addendum to Lease dated January 9, 1992.
  (1)10.10   --   Distributor Contract dated August 16, 1991 between Tech Data
                  Corporation and the Company.
  (1)10.11   --   Form of Indemnification Agreement between the Company and
                  its directors and officers.
  (3)10.12   --   Standard Commercial Lease between Equitable Pacific Partners
                  Limited Partnership and the Company.
  (3)10.13   --   Employment Agreement, dated as of April 24, 1995, between
                  Anthony F. Zalenski and the Company.
  (5)10.15   --   Joint Venture Agreement dated September 25, 1995 between
                  Hitechniaga Sdn Bhd and the Company.
</TABLE>
 
                                       39
<PAGE>   42
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                  TITLE
-----------                                  -----
<C>          <S>  <C>
  (6)10.16   --   Amended Revolving Credit Agreement between the Company, Boca
                  Research International, Inc., Boca Research Holland B.V.,
                  Inc., Complete Acquisition Corp., Boca Research of Delaware,
                  Inc. and First Union National Bank of Florida dated as of
                  December 31, 1997.
  (6)10.17   --   1996 Non-Employee Director Stock Option Plan.
  (7)10.18   --   Consulting Agreement dated October 4, 1996 by and among the
                  Company, ArgoQuest, Inc. and Jason Barzilay.
     21.1    --   Subsidiaries of the Company.
     23.1    --   Consent of Deloitte & Touche LLP
     27.1    --   Financial Data Schedule for fiscal year ended 1997
     27.2    --   Financial Data Schedule for fiscal year ended 1996
     27.3    --   Financial Data Schedule for three months ended June 30, 1996
     27.4    --   Financial Data Schedule for three months ended September 30,
                  1996
     27.5    --   Financial Data Schedule for three months ended March 31,
                  1997
     27.6    --   Financial Data Schedule for three months ended June 30, 1997
     27.7    --   Financial Data Schedule for three months ended September 30,
                  1997
</TABLE>
 
---------------
 
     (1) Incorporated by reference to the exhibits to the Registration Statement
         No. 33-56530 filed with the Securities and Exchange Commission.
 
     (2) Incorporated by reference to Exhibit 2.1 to the registrant's Current
         Report on Form 8-K filed with the Securities and Exchange Commission on
         July 22, 1993.
 
     (3) Incorporated by reference to exhibits to the registrant's Quarterly
         Report on Form 10-Q for the quarter ended March 31, 1995.
 
     (4) Incorporated by reference to Exhibit 10.2 to the registrant's Quarterly
         Report on Form 10-Q for the quarter ended June 30, 1995.
 
     (5) Incorporated by reference to Exhibit 10 to the registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1995.
 
     (6) Incorporated by reference to the exhibits to the registrant's Annual
         Report on Form 10-K for the year ended December 31, 1995.
 
     (7) Incorporated by reference to Exhibit 10 to the registrant's Current
         Report on Form 8-K filed with the Securities and Exchange Commission on
         October 15, 1996.
 
                                       40
<PAGE>   43
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                            BOCA RESEARCH, INC.
 
                                            By: /S/ ANTHONY F. ZALENSKI
                                          ......................................
                                              NAME: ANTHONY F. ZALENSKI
                                              TITLE: PRESIDENT AND CHIEF
                                                EXECUTIVE OFFICER
 
Date:  March 25, 1998
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<C>                                                  <S>                                <C>
              /S/ ANTHONY F. ZALENSKI                President, Chief Executive         March 25, 1998
     ........................................        Officer and a Director (Principal
                ANTHONY F. ZALENSKI                  Executive Officer)
 
               /S/ R. MICHAEL BREWER                 Senior Vice President of Finance   March 25, 1998
     ........................................        and Chief Financial Officer
                 R. MICHAEL BREWER                   (Principal Financial Officer and 
                                                     Principal Accounting Officer)
 
              /S/ ROBERT W. FERGUSON                 Director                           March 25, 1998
     ........................................
                ROBERT W. FERGUSON
 
              /S/ GEORGE GAN CHEE WAI                Director                           March 25, 1998
     ........................................
                GEORGE GAN CHEE WAI
 
               /S/ PATRICK J. KEENAN                 Director                           March 25, 1998
     ........................................
                 PATRICK J. KEENAN
 
              /S/ JOSEPH M. O'DONNELL                Director                           March 25, 1998
     ........................................
                JOSEPH M. O'DONNELL
 
                /S/ W. JAMES PRICE                   Director                           March 25, 1998
     ........................................
                  W. JAMES PRICE
 
                /S/ ARTHUR R. WYATT                  Director                           March 25, 1998
     ........................................
                  ARTHUR R. WYATT
 
     ........................................        Director                           March 25, 1998
                   BLAINE DAVIS
</TABLE>
 
                                       41