Ener1 Inc · 10-K · For 12/31/98

Filed On 3/31/99   ·   SEC File 0-21138   ·   Accession Number 89041-99-12

Annual Report   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Boca Research, Inc. Form 10-K                         45    302K 
 2: EX-10.19    Employment Agreement                                   2±     9K 
 3: EX-21.1     List of Subsidaries                                    1      4K 
 4: EX-23.1     Consent of Deliotte and Touche Llp                     1      5K 
 5: EX-27.1     FDS for Fiscal Year Ended 31-Dec-1998                  1      8K 

10-K   ·   Boca Research, Inc. Form 10-K
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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, 1998

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)

FLORIDA                                       59-2479377
(State or other jurisdiction                           (I.R.S. Employer         
of incorporation or organization)                     Identification No.)       

 1377 Clint Moore Road
Boca Raton, Florida 33487-2722
(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.                                       

Yes  X   No                                                                     
---     ---                                                             

Aggregate market value of voting stock by non-affiliates as of
 March 29, 1999: $30,743,111

 Common stock outstanding as of March 29, 1999: 8,783,746 shares

Documents Incorporated by Reference:                                            

 Specifically identified information in the definitive Proxy Statement for
the 1999 Annual Meeting of Shareholders to be held on May 17, 1999, 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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BOCA RESEARCH, INC. ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998

 INDEX

                                                                      Page
PART I                                                                   ----   

ITEM 1.  BUSINESS.......................................................... 3   
ITEM 2.  PROPERTIES........................................................11   
ITEM 3.  LEGAL PROCEEDINGS.................................................11   
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............12   
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT..............................12   

PART II                                                                         

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED                  
      STOCKHOLDER MATTERS...............................................13
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA..............................14   
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                      
      CONDITION AND RESULTS OF OPERATIONS...............................15
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................26   
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                       
      ACCOUNTING AND FINANCIAL DISCLOSURE...............................43

PART III                                                                        

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................43   
ITEM 11. EXECUTIVE COMPENSATION............................................43   
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....43   
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................43   

PART IV                                                                         

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...43   

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PART I

Item 1:  Business                                                               

  Boca Research, Inc.(R) and subsidiaries ("Boca Research" or the "Company")
is a leading provider of hardware and software technology. The Company provides 
communications solutions that enable data transmission, connectivity of devices,
and access to applications and information via the Internet, personal computers,
and/or server-based environments. The Company designs, manufactures, markets,   
and supports quality, innovative products that have a cost, performance, and    
time-to-market advantage.                                                       

  The Company provides products for use in the corporate, consumer and small
office/home office ("SOHO") marketplaces. Boca Research markets modems, thin    
client products, information appliance products, I/O (input/output) cards,      
multiport products, and networking products under the Boca Research brand name. 
The Company also markets data communications products, such as modems and       
software, under the Global Village(R) brand name. The Boca Research and Global  
Village brands have been recognized leaders in the integrated data              
communications market for years. Boca Research's products combine excellence in 
design, ISO-certified manufacturing, full features, and attractive prices.      
Backed by technical support, the hardware products carry an industry-competitive
limited warranty.                                                               

From its headquarters in Boca Raton, Florida, the Company has positioned
itself to compete globally. Its products are sold worldwide to original         
equipment manufacturers (OEMs), wholesale microcomputer distributors, retailers,
and value-added resellers (VARs). Boca Research has formed strong alliances with
strategic partners and resellers worldwide.                                     

    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, as well as the       
server-based computing market. Market demand for the Company's traditional data 
communications products has been driven by increases in requirements for higher 
speed data communications products such as 56 Kbps modems, the resurgence of the
Apple(R) Macintosh(R) computing market, 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, and increased telecommuting.            

Strategy                                                                        

The Company's strategy is to leverage its superior hardware and software
design expertise with technology from recognized alliance partners to design    
devices, services, and system solutions that will enable data access,           
transmission and connectivity. This design will include a cost, performance,    
and/or time-to-market advantage. 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 will concentrate on geographic markets 
where Boca Research or strategic alliances have access to the most effective    
distribution channels to reach a critical mass of targeted end users.           

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, thin clients, information appliances, I/O   
cards, and multiport products with a superior combination of price and          
performance characteristics. In light of the uncertainties surrounding changing 
industry conditions, the Company's sales derived from its traditional 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 to a technology/marketing company. 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 significant potential but do 
not yet have established demand. The Company also assesses the needs of personal
computer users and incorporates value-added features that are expected to appeal
to the majority.                                                                

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    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 
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, thin clients, information           
appliances, I/O cards, and multiport 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 access to emerging technologies at an earlier date than otherwise   
possible and expand its market penetration. The Company will consider           
acquisitions, as well, in support of the Company's strategic and business plans.

   Expand International Operations. The Company's international strategy is to
focus on selected countries and to capitalize on increased international demand 
for data communications, thin clients, information appliances, I/O cards, and   
multiport 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 Reduction in Cost of Goods Sold. 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.   
The Company is ISO 9002 certified. ISO 9002 certification is recognized         
internationally under the guidelines of the 90-country international            
organization that requires the Company to meet stringent standards in all       
activities related to product quality and reliability. The Company constantly   
evaluates its options in regards to outsourcing versus manufacturing internally 
and will continue to do so in the future.                                       

   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/catalog          
companies, and VARs. 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
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. Also, the Company believes its five-year limited warranty for the      
majority of products, in addition to technical support programs, provides 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 1997 and 1998, 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 information         
appliance and thin client products in anticipation of increased market demand   
due to the growth in the use of the Internet and server-based computing. Boca   
Research'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 that the
Company licenses from third parties in exchange for the payment of a royalty    
based on the number of units sold.                                              

The Company utilizes the expertise of third parties to develop new      
technologies for use in the Company's products. Boca Research 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, such as data
communications, and developing new products for the thin client and information 
appliance categories. 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.                     

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Products                                                                        

Boca Research designs, manufactures, markets, and supports quality,     
innovative products that have a cost, performance, and time-to-market advantage.
The Company markets modems, thin clients, information appliances, I/O           
(input/output) cards, multiport products, and networking products under the Boca
Research brand name. The Company also markets data communications products, such
as modems and software, under the Global Village brand name. The following table
lists a representative sample of the Company's products.                        

                                                        · Enlarge/Download Table


      Product Category              Description                               Products                        Market Introduction   
      ----------------              -----------                               --------                        -------------------   
                                                                                                                                    
Data Communications                                                                                                                 

  Windows(R)-based         Modems enable the end user to send    Boca Research 56K WinStorm(TM) Modem             July 1998         
  Voice Modems             and receive data across standard      Boca Research 56K Tidalwave(TM) Modems           March 1998        
                           telephone lines.                      International 56K Modems                         November 1997     
                                                                 Boca Research 33.6 Home/Office Modem             February 1997     
                                                                 Boca Research V.32bis 14.4 Kbps BOCAMODEM(R)     March 1993        
                                                                 Boca Research 2400 Modem                         September 1991    

  Macintosh-based                                                Global Village TelePort(TM)USB 56K               Q2 1999           
  Modems                                                         Global Village TelePort Internal 56K             February 1999     
                                                                 Global Village PC Card                           September 1998    
                                                                 Global Village TelePort 56K                      March 1998        

  Software                 Boca Research licenses software       Global Village GlobalFax(TM)                     October 1998      
                           that adds value to modem products.                                                                       
------------------------------------------------------------------------------------------------------------------------------------
Thin Client                Thin clients are low-cost computing   BocaVision(TM) WT120                             February 1999     
                           devices used in a server-based        BocaVision STB121                                March 1998        
                           computing network.                                                                                       
------------------------------------------------------------------------------------------------------------------------------------
Information Appliance      Information appliances allow end      BocaVision ST2001                                Q2 1999           
                           users to surf the Internet and                                                                           
                           send and receive e-mail using a                                                                          
                           TV and a regular telephone line.                                                                         
------------------------------------------------------------------------------------------------------------------------------------
I/O & Multiport            I/O devices allow additional          Turbo Parallel                                   April 1998        
Products                   ports to be added to a PC enabling    Turbo 650                                        October 1997      
                           the end user to connect peripheral    Turbo 1x1                                        August 1997       
                           equipment, such as modems and         Turbo 2x2                                        August 1997       
                           printers.                             1x2                                              January 1996      

                           Multiport products allow for the      BOCABOARD(TM) 8-port                             June 1994         
                           connection of multiple PCs and        BOCABOARD 4-port                                 June 1994         
                           terminals to a single host PC.        IOAT66                                           May 1993          
------------------------------------------------------------------------------------------------------------------------------------
Networking                 Networking products for Ethernet      HAN(TM)Card                                      February 1999     
                           networks provide workstation and      HAN Kit                                          February 1999     
                           server connectivity.  The Company     BOCALANcard 100(TM)                              March 1998        
                           offers a full range of Plug and       Boca NET-16(TM                                   August 1997       
                           Play Ethernet cards with ISA and      Boca NET-16 Networking Kit(TM)                   June 1997         
                           PCI Bus interfaces.                   Boca NET-8 Networking Kit(TM)                    June 1997         
                                                                 Boca NET-24(TM)                                  June 1997         
                                                                 Boca NET-8(TM)                                   January 1997      
                                                                 BOCALANcard(TM)                                  May 1994          
                                                                 BOCALANcard Combo(TM)                            May 1994          
------------------------------------------------------------------------------------------------------------------------------------

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 Research 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 PC Card (credit card   
size) modems for laptop computers.                                              

Boca Research markets Windows-based modems under the Boca Research brand
name. The Company also markets Macintosh-based modems and software under the    
Global Village brand name. The Boca Research and Global Village brands have been
recognized leaders in the integrated data communications market for years.      

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In early 1998, Boca Research launched its ITU-standard V.90 modem, which
received awards and accolades from various trade publications, including the    
Editor's Choice award from Network Computing magazine. In mid-1998, Boca        
Research acquired the Global Village Communication, Inc. modem business. The    
addition of the Global Village brand extended Boca Research's customer base in  
the Macintosh market with the #1-selling modems for Macs(R). In October, Boca   
Research introduced the award-winning GlobalFax software as a stand-alone       
product. In 1999, Macworld magazine gave the Editor's Choice award to Boca      
Research's Global Village TelePort 56K modem.                                   

    Boca Research introduced its first data communications products in 1991. The
Company continues to adopt new data communications technologies such as 56 Kbps,
DSVD, Plug and Play, and xDSL. The Company is actively pursuing leading-edge    
modem technology, such as xDSL and cable in preparation for new emerging        
markets. The Company currently markets its modem products worldwide. Sales of   
data communications products accounted for approximately 85%, 71%, and 70%      
of the Company's net sales in 1996, 1997 and 1998, respectively.                

Thin Client Products. A thin client is a low-cost computing device that 
works in a server-centric computing model. Thin client devices typically do not 
require state-of-the-art, powerful processors and large amounts of RAM and ROM  
because they access applications from a central server or network. The          
BocaVision thin client products, which incorporate Citrix(R) Systems'           
Independent Computing Architecture (ICA(R)) technology, provide access to       
Windows applications and the Internet at acquisition and maintenance costs      
dramatically lower than conventional personal computers. The BocaVision thin    
client family allows corporate users access to the latest versions of their     
business-critical applications, while lowering their total cost of ownership    
(TCO). In late 1998, the Company introduced the first product in the BocaVision 
family of thin clients, but this did not result in revenue for 1998.            

The BocaVision family of products builds on the Company's manufacturing 
expertise and excellence in providing cost-effective, quality products with high
margins. Additional BocaVision thin client products are planned for 1999. The   
trend towards server-based computing is still emerging and the market is in its 
infancy. Therefore, the Company does not expect any material revenue            
contribution from this business until the second half of the year. Longer-term, 
however, the Company believes that the business potential for the thin client   
market is tremendous. For example, Forrester Research, Inc., a leading provider 
of strategic technology research, projects that 10.9 million thin client units  
will ship by 2002.                                                              

Information Appliance Products. In 1998, the Company introduced an      
information appliance/set-top box under the BocaVision brand name which allowed 
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 information 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 began a licensing agreement with Acorn Group, an   
international leader in network computing and Internet/TV appliance technology, 
to incorporate Acorn's technology into Boca Research-branded set-top and thin   
client products. In 1998, the Company began a licensing agreement with Network  
Computer, Inc. (NCI(TM)), a subsidiary of Oracle(R) Corporation and Netscape(R) 
Communications Corporation. Under the terms of this agreement, NCI's Internet   
access device software and technology will be used to enable a range of         
information appliance devices designed and manufactured by Boca Research. NCI's 
feature-rich, open Internet standards-based TV-Navigator(TM) will support the   
BocaVision ST2001 that Boca Research will ship in 1999. In addition, the Company
has an alliance with Cyrix(R) Corporation, a subsidiary of National             
Semiconductor(R) Corporation. The BocaVision ST2001 set-top box features a      
high-speed Cyrix MediaGX processor that, together with NCI's software, has      
enabled Boca Research to develop a cost-effective, high-powered information     
appliance and simplified computing device.                                      

  In 1998, sales of information appliances, including Internet/TV appliances
were approximately 3%. This included the STB120, which is no longer being       
marketed; additionally, it included the STB121 that is also categorized as a    
thin client for remote use by business users who are away from the office. The  
sales revenues for 1998 also included a custom information appliance device for 
LocalNet Communications Inc., now known as e.TV Commerce, Inc., a subsidiary of 
Compu-DAWN, Inc. The future for this market is expected to be significant.      
International Data Corporation (IDC) estimates that the information appliance   
will expand to over 55 million units by the year 2002, a 78 percent increase in 
growth from 1998.                                                               

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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 Research offers a variety of I/O
boards. Multiport BOCABOARDs are available in 4- or 8-serial-port versions with 
driver support for Windows 95/98, Windows NT, 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. The IDE products  
are no longer being marketed.                                                   

I/O, IDE, and multiport products are primarily sold to an installed base
and accounted for approximately 5%, 8%, and 6% of the Company's net sales in    
1996, 1997, and 1998, respectively.  This category generally has high gross     
margins, so the Company plans to continue to market these products.             

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") and Peripheral Component Interconnect ("PCI") 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. In 
late 1998, the Company introduced a new line of HAN(TM) (Home Area Network)     
products, which uses existing phone wiring to network PCs in a home or small    
business environment.                                                           

 Sales of networking products accounted for approximately 4%, 5%, and 2%
of the Company's net sales in 1996, 1997 and 1998, respectively. Sales within   
this category have declined in absolute dollars each of the last three years.   
The Company intends to decrease its emphasis on these products in the future.   

Custom Manufacturing. In 1998, the Company continued to provide custom  
manufacturing to increase the utilization of its manufacturing facilities.      
Because the gross margin for custom manufacturing has historically been low, the
Company plans to decrease its emphasis on this area. Sales in this category in  
1998 were $12,311,248 and represented 18% of net sales.                         

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. Boca Research 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.                                                                   

Sales Channels                                                                  

The Company sells its products worldwide to OEMs (original equipment    
manufacturers), wholesale microcomputer distributors, retailers and catalog     
companies, and VARs (value-added resellers).                                    

Original Equipment Manufacturers. The Company provides products to OEM  
companies in several markets: consumer electronics, computer peripherals, system
integrators, and build to order (BTO) PC factories. In addition, Boca Research's
technology products are found in a variety of custom devices that require       
high-quality communication products, like automatic teller machines (ATMs) and  
Internet-based information appliances. The OEM channel of distribution is       
different from wholesale distributors and retailers in terms of packaging,      
support, price and terms. Working closely with OEM partners, Boca Research      
satisfies their product needs by providing products in packaging configurations 
that range from bulk packaging, to white box for OEM private label, to full     
retail packaging under the OEM's brand name. Boca Research's many years of      
experience in selling white box products through distribution has allowed this  
portion of our sales to grow in 1998 due to the new focus on BTO by national    
distributors.                                                                   

 Both Compaq Computer Corporation and Sprint are significant OEMs for Boca
Research. Hewlett-Packard is a key OEM for the international market. Sales to   
OEMs accounted for approximately 56%, 45%, and 49% of net sales in 1996, 1997   
and 1998, respectively. In 1999, we anticipate that OEM revenues will come      
increasingly from the information appliance market.                             

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Wholesale Distributors. The Company also sells its products through     
regional, national, and international wholesale distributors. Sales to wholesale
distributors accounted for approximately 34%, 36%, and 44% of the Company's net 
sales in 1996, 1997 and 1998, respectively. The Company's U.S. distributors     
include major microcomputer wholesale distributors such as Ingram Micro Inc.;   
Pinacor, Inc.; Merisel, Inc.; and Tech Data Corporation, 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 Research 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 directly to retailers and catalog companies accounted for   
approximately 10%, 20%, and 7%, respectively, of the Company's net sales in     
1996, 1997 and 1998. The lower percentage in 1998 of direct sales to retailers  
was due to some retailers obtaining product from distributors instead of        
directly from Boca Research. The Company's U.S. retailers and catalog companies 
include CompUSA(R); Fry's Electronics, Inc.; Micro Center; and MicroWarehouse,  
Inc.                                                                            

   Value-Added Resellers. The Company plans to market the BocaVision family of
thin client products through VARs, beginning in 1999. VAR recruitment will begin
in the second quarter, with the goal to contract a significant number of VARs by
the end of the year. A special comprehensive VAR program is currently under     
development to provide support in marketing, sales, and technical applications. 
These VARs will be our partners in the delivery of thin client enterprise       
solutions in vertical markets.                                                  

International. The Company sells its products through dealers and       
distributors worldwide and supports marketing programs with local distributors  
in certain countries. In 1996, 1997 and 1998, international sales comprised     
approximately 28%, 23%, and 19%, 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 1998,   
the U.S. dollar was strong against Asian currencies which caused an increase in 
the price of the Company's products in those markets. In addition, there is     
increased competition from Asian manufacturers which has affected sales.        

Sales and Marketing                                                             

The Company sells its products primarily through manufacturer's         
representatives and its own sales force. 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 of 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, Macworld Expo, and     
RetailVision(R), as well as numerous other regional and international trade     
shows.                                                                          

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Technical Support and Customer Service                                          

The Company offers extensive user documentation and a technical support 
hotline available Monday through Friday 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 fax-on-demand      
system providing installation tips and technical documents to customers via fax.
Boca Research also 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.                     

Most of the products sold by the Company include a five-year limited    
warranty that 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.                                                              

In 1999, Macworld magazine gave the Editor's Choice award to the Global 
Village TelePort 56K modem and cited Boca Research as having the highest rating 
for Mac-oriented service.                                                       

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
proximity, 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. The        
Company's products are currently designed, manufactured, assembled, tested, and 
packaged at the Company's manufacturing facility in Boca Raton, Florida. In     
addition, data communications products are designed at the Sunnyvale, California
location. The manufacturing process uses six high-volume SMT lines with         
supporting test equipment, running 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 that may
not be as reliable as the Company's existing sources.                           

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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 for modems are 
ActionTec Electronics, Inc., Diamond Multimedia, U.S. Robotics/3Com(R) and Zoom 
Telephonics. In addition to U.S.-based firms, the Company faces competition from
Pacific Rim suppliers, which generally offer modem 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 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 past years. In  
1998, the Company continued to lose 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 that 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 foreign currencies, the PC vendors are better able to       
achieve this goal of reducing their purchasing costs outside the U.S.           

For the thin client market, the competitors are Wyse, Network Computing 
Devices (NCD), and Boundless Technologies, Inc. For the information appliance   
market, WebTV Networks, Inc., Sony Corporation, Matsushita Electric (Panasonic),
and other consumer electronics companies are potential competitors.             

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 has numerous  product  trademarks,  including the house marks
Boca Research Inc., Boca, and Global Village, together with product trademarks  
such as BOCABOARD, BOCAMODEM, BocaVision, HAN, and GlobalFax. The trademarks    
Boca Research Inc., Boca, and Global Village are registered with the United     
States Patent and Trademark Office for the products the Company provides, as are
several other U.S. and foreign product trademarks; other trademark applications 
are pending.                                                                    

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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 began licensing Acorn Group's technology for its   
Internet/TV-based appliance including hardware and software designs, TVcentric  
display, operating system and Internet browser. The TVcentric open-architecture 
allows Boca Research'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.                                                                     

    In 1998, the Company began a licensing agreement with Network Computer, Inc.
(NCI), a subsidiary of Oracle Corporation and Netscape Communications           
Corporation. Under the terms of this agreement, NCI's Internet access device    
software and technology will be used to enable a range of information appliance 
devices designed and manufactured by Boca Research. NCI's feature-rich, open    
Internet standards-based TV-Navigator(TM) will support the BocaVision ST2001    
which Boca Research will ship in 1999.                                          

Employees                                                                       

    As of December 31, 1998, the Company had 265 full-time employees, including:
137 in manufacturing and operations; 68 in sales, marketing, purchasing, and    
customer support; 30 in finance and administration; and 30 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         
temporary employees in its manufacturing operation to balance changes in        
production levels. The number of temporary employees at December 31, 1998 was   
50.                                                                             

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 32,673 square feet in Boca Raton is   
subject to a lease that 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 that expires 
on July 2000. This facility is used for product returns and repair. Also, in    
connection with the acquisition of the modem business of Global Village         
Communication, Inc., the Company leases space in California to accommodate      
additional research and development, technical support and administrative       
functions. The lease for the 45,647 square foot facility in Sunnyvale,          
California expires in September 2005. During the first quarter of 1999, the     
Company subleased approximately 29,500 square feet of this facility. The        
sublease expires in September 2002.                                             

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 cannot predict the outcome of any such claim that may arise in the      
future, or the effect of any such claim on the Company's operating results or   
financial condition.                                                            

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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, 1998.                      

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, 55 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's ISG (Information       
Systems Group), a data communications manufacturing division of Motorola, Inc.  
Prior to joining Motorola ISG, Mr. Zalenski held various management positions   
with Comsat Corporation, General Datacomm Industries, and AT&T.                 

  Navroze S. Mehta, 40 years old, has served as Executive Vice President and
General Manager since December 1998; he was Executive Vice President of         
Strategic Planning and Chief Financial Officer from October 1998 to December    
1998. From 1987 to 1998, Mr. Mehta was employed by Comark Communications, a     
subsidiary of Thomson CSF, most recently as President and Chief Executive       
Officer. Prior to joining Comark, he worked for Carrier Corporation from 1983 to
1987 in a variety of management and financial positions.                        

Alex S. Oprescu, 54 years old, has served as Vice President and General 
Manager of International since June 1998. From July 1997 to June 1998, he served
as general manager of European Operations. Prior to joining Boca Research, Mr.  
Oprescu was employed by Philips BV as Vice President for Worldwide Sales and    
Marketing for one of their business electronics divisions. Before his           
association with Philips, Mr. Oprescu held various management positions with    
Seagate and Control Data Corporation.                                           

   Michael A. Reale, 58 years old, has served as Chief Operating Officer since
July 1998, and 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, 43 years old, was promoted to Senior Vice President of  
Engineering in 1998. Prior to that, he 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, 59 years old, has served as Vice President of Human
Resources since July 1995, responsible for the areas of human resources,        
training, safety/environmental, and security/facilities. From August 1991 to    
June 1995, Ms. Ritchason served as Director of Human Resources. From December   
1979 to July 1991, Ms. Ritchason served as Director of Human Resources for the  
City of Delray Beach, Florida. In this capacity, she was responsible for        
overseeing all aspects of the City's human resources, risk management, grants,  
and public relations functions, as well as serving as the City's Chief Labor    
Negotiator for all collective bargaining matters. Prior to the City of Delray   
Beach position, Ms. Ritchason held management positions with Burdines and the   
Upjohn Company.                                                                 

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 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(R)
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.                                         

Year    Fiscal Quarter Ended                           High          Low  
----    --------------------                           ----          ---  
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...........................     6 3/16        3 7/8 
       June 30, 1998............................     6 1/8         4 1/4
   September 30, 1998.......................     4 11/16       2
       December 31, 1998........................     5 17/32       1 3/8

1999    March 31, 1999 (through March 29, 1999)..     4 7/8         3     

    As of March 29, 1999, the Company had outstanding 8,783,746 shares of Common
Stock held by 337 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 lender.         

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ITEM 6:  SELECTED CONSOLIDATED FINANCIAL DATA                                   

The following selected consolidated financial information for the years 
ended December 31, 1994 through December 31, 1998 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.                                                                         

                                                        · Enlarge/Download Table

                                                                                   Year Ended December 31,                    
                                                                   -----------------------------------------------------------
                                                                     1994        1995        1996         1997        1998    
                                                                    ------      ------      ------       ------      ------   
                                                                            (In Thousands, except per share data)             
                                                                                                                              
Statements of Income Data:                                                                                                    
Net sales.........................................................  $83,594    $ 143,038   $ 153,524    $  70,207   $  70,042 
Cost of goods sold................................................   61,284      107,486     122,855       71,164      64,165 
                                                                    -------    ---------   ---------    ---------   --------- 
       Gross profit (loss)........................................   22,310       35,552      30,669         (957)      5,877 
                                                                    -------    ---------   ---------    ---------   --------- 
Operating expenses:                                                                                                           
  Research and development........................................    1,438        2,679       3,073        2,808       2,992 
  Selling, general and administrative.............................   12,391       18,469      18,551       18,366      15,389 
  In-process research and development.............................        0            0           0            0       2,800 
                                                                    -------    ---------   ---------    ---------   --------- 
       Total operating expenses...................................   13,829       21,148      21,624       21,174      21,181 
                                                                    -------    ---------   ---------    ---------   --------- 
Income (loss) from operations.....................................    8,481       14,404       9,045      (22,131)    (15,304)
Non-operating income, net.........................................      472          540         596          837         694 
                                                                    -------    ---------   ---------    ---------   --------- 
Income (loss) before income taxes.................................    8,953       14,944       9,641      (21,294)    (14,610)
Income taxes (benefit)............................................    3,217        5,402       3,191       (6,371)         -- 
                                                                    -------    ---------   ---------    ---------   --------- 
Net income (loss).................................................  $ 5,736    $   9,542   $   6,450     $(14,923)   $(14,610)
                                                                    =======     ========   =========     =========   =========
Basic earnings (loss) per share...................................  $  0.68    $    1.13   $    0.75    $   (1.71)  $   (1.67)
                                                                    =======    =========   =========    ==========  ==========
Weighted average basic shares outstanding.........................    8,401        8,472       8,610        8,718       8,749 
                                                                    =======    =========   =========    =========   ========= 
Diluted earnings (loss) per share.................................  $  0.68    $    1.07   $    0.72    $   (1.71)  $   (1.67)
                                                                    =======    =========   =========    ==========  ==========
Weighted average diluted shares outstanding.......................    8,460        8,921       8,941        8,718       8,766 
                                                                    =======    =========   =========    =========   ========= 

                                                                                              December 31,                    
                                                                    ----------------------------------------------------------
                                                                      1994        1995        1996         1997        1998   
                                                                     ------      ------      ------       ------      ------  
                                                                                         (In Thousands)                       
Balance Sheet Data:                                                                                                           
Working capital...................................................  $27,801    $  37,854   $  47,248    $  34,849   $ 16,802  
Total assets......................................................   41,340       57,678   $  66,066    $  50,219   $ 39,742  
Long-term obligations, net of current portion.....................       --           --          --           --         --  
Total stockholders' equity........................................  $36,017    $  46,607   $  55,162    $  40,580   $ 26,101  


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ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                      
CONDITION AND RESULTS OF OPERATIONS                   

   The matters discussed in this Report contain forward-looking statements and
information that is based on management's belief and assumptions, as well as    
information currently available to management. When used in this document, the  
words "anticipate," "estimate," "expect," and similar expressions are intended  
to identify forward-looking statements. Although the Company believes that the  
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Such         
statements are subject to certain uncertainties, assumptions, and risks, which  
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. Should one or more of these risks or uncertainties materialize, or   
should the underlying assumptions prove incorrect, actual results may vary      
materially from those anticipated, estimated or expected.                       

Results of Operations                                                           

    The following discussion of the Company's consolidated results of operations
for the years ended December 31, 1996, 1997 and 1998 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:                                                                      

                                                        · Enlarge/Download Table

                                                                                 Year Ended December 31,   
                                                                               --------------------------  
                                                                                1996      1997      1998   
                                                                               ------    ------    ------  
                                                                                                           

Net sales..................................................................... 100.0%    100.0%     100.0% 
Cost of goods sold............................................................  80.0     101.4       91.6  
                                                                               -----     -----      -----  
 Gross profit (loss)..........................................................  20.0      (1.4)       8.4  
                                                                               -----     -----      -----  
Operating expenses:                                                                                        
 Research and development.....................................................   2.0       4.0        4.3  
 Selling, general and administrative..........................................  12.1      26.1       22.0  
 In-process research and development..........................................   ---       ---        4.0  
                                                                               -----     -----      -----  
 Total operating expenses.....................................................  14.1      30.1       30.3  
                                                                               -----     -----      -----  
Income (loss) from operations.................................................   5.9     (31.5)     (21.9) 
Non-operating income..........................................................    .4       1.2        1.0  
                                                                               -----     -----      -----  
Income (loss) before income taxes.............................................   6.3     (30.3)     (20.9) 
Income taxes (benefit)........................................................   2.1      (9.0)       ---  
                                                                               -----     -----      -----  
Net income (loss).............................................................   4.2%    (21.3)%    (20.9)%
                                                                               =====     =====      =====  

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Years Ended December 31, 1996, 1997, and 1998                                   

Net Sales: The Company's net sales decreased by 0.2% from $70,207,000 in
1997 to $70,042,000 in 1998. Included in the data communications product        
category below for 1998 is net sales of $22,588,000 of Global Village branded   
product for the period from June 18 to December 31, 1998. The Company acquired  
the modem business of Global Village as of June 18, 1998. The addition of the   
Global Village brand extended Boca Research's customer base in the Macintosh    
market with the #1-selling modems for Macs. Excluding the net sales associated  
with the acquisition of the modem business of Global Village, the sales decrease
in 1998 compared to 1997 was primarily attributable to a decrease in sales of   
data communications products, however the product categories of multimedia,     
networking, video graphics, I/O, IDE, and Multiport also experienced a decline  
in sales. The decrease in sales in these categories was partially offset by an  
increase in sales in the category of custom manufacturing and Internet access   
devices. Sales of data communication products were adversely affected by several
factors, including pricing pressure on all modem products, excess industry-wide 
channel inventories of pre-standard 56 Kbps product, and the slow adoption of   
56 Kbps technology by consumers who realize that the 56 Kbps product does not   
significantly increase Internet downloading speed capability over the 33.6 Kbps 
product. It is anticipated that the factors that adversely affected sales in    
1998 will continue in 1999.                                                     

 International sales decreased by approximately 22% in 1998 as compared to
1997, and decreased by approximately 64% in 1997 as compared to 1996. In 1996,  
1997, and 1998, international sales comprised approximately 29%, 23% and 19%,   
respectively, of the Company's net sales. International sales declined in 1998  
primarily because of the strength of the U.S. dollar which affected the pricing 
competitiveness of Boca Research's products, particularly in the Asia/Pacific   
Rim region. 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 Research's 
joint venture in Asia.                                                          

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 56 Kbps 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.        

     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.            

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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. Management expects this trend to continue into 1999 as the Company places
less emphasis on these product categories.                                      

                                                        · Enlarge/Download Table


                                                     Year Ended December 31,           
                                        -----------------------------------------------
           Product Categories            1996     %      1997      %      1998     %   
        ------------------------        ------ -------  ------  -------  ------ -------
                                                     (Dollars in thousands)            
                                                                                       
Data communications................ $ 130,942    85%  $ 49,439    71% $ 48,649   70%   
Custom manufacturing...............        --    --      8,509    12    12,311   18    
Multimedia.........................     1,016     1        968     1        36   --    
Video graphics.....................     6,225     4      1,628     3       770    1    
Video conferencing.................     1,000     1        292    --       257   --    
I/O, IDE and Multiport.............     8,027     5      5,737     8     4,491    6    
Networking.........................     6,314     4      3,634     5     1,570    2    
Internet Access Device.............        --    --         --    --     1,958    3    
                                     --------   ----  --------   ---- --------  ----   

   Total net sales.............      $153,524   100%  $ 70,207   100% $ 70,042  100%   
                                     ========   ====  ========   ==== ========  ===    


   Gross Profit. Gross profit (loss) increased from a loss of $957,000 in 1997
to a profit of $5,877,000 in 1998, and increased as a percentage of net sales   
from (1.4%) in 1997 to 8.4% in 1998. The gross profit percentage for 1998 is    
being affected by several factors including low utilization of the Company's    
manufacturing facilities, aggressive channel pricing to reduce channel          
inventories of 33.6 Kbps product and pre-standard 56 Kbps product, competitive  
pressure in the OEM channel and the custom manufacturing product category       
requiring the Company to compete with offshore manufactures which the Company   
believes have a cost advantage because of currency devaluations and better      
purchasing power because of their larger volumes. Most of the above factors have
been adversely affecting the Company's gross profit percentage since January 1, 
1997. In the period from June 18 to December 31, 1998, the Company's gross      
profit was also impacted favorably by net sales of $22,588,000 of the Global    
Village branded product, which have higher gross margins associated with them as
compared to sales of Boca Research branded products. This is the primary reason 
for the improved gross margins reported in the third and fourth quarters of 1998
as compared to the first and second quarters of 1998. For the year ended        
December 31, 1998 the Company recorded write downs of inventory and increases in
the inventory reserve as a charge to cost of goods sold in the amount of        
$4,340,000. This was the result of excess inventories in the Company of older   
technology product that has been determined to have limited sales value. In     
particular, the Company has seen a significant slow down in sales of 33.6 Kbps  
product and pre-standard 56 Kbps product along with significant price erosion.  
This has resulted in additional price protection, rebates and other allowances  
to the distribution channel in order to reduce channel inventories which has a  
negative impact on gross margins.                                               

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 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 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.      

   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 1999, 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.                                                  

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The OEM channel has changed significantly in the past two years 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
$3,073,000 in 1996, $2,808,000 in 1997 and $2,992,000 in 1998, and represented  
2.0%, 4.0% and 4.3%, 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 28.8 Kbps to 33.6 Kbps to 56 Kbps requires recertification. It is          
anticipated that research and development expenses in 1999 may be greater than  
such expenses in 1998.                                                          

Selling, General and Administrative Expenses. Selling, general and      
administrative expenses were $18,522,000 in 1996, $18,366,000 in 1997, and      
$15,389,000 in 1998, and represented 12.1%, 26.1%, and 22.0%, respectively, of  
net sales for each of those years. Management of the Company has focused on     
reducing expenses during 1998. Included in selling, general and administrative  
expenses in 1997 and 1998 were approximately $2,629,000 and $985,000,           
respectively, in provisions for write off of uncollectible accounts. The amount 
in 1997 is substantially higher than the Company has experienced in recent      
years. The majority of this write-off 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 in 1997, which is approximately $500,000 higher than in
1996. This increase in expense was due to legal costs associated with the       
possible acquisition of Creatix and litigation regarding patent infringement and
license fees.                                                                   

 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.                                                                          

   In-Process Research and Development Expenses. On June 18, 1998, the Company
completed its acquisition of the modem business of Global Village in exchange   
for $9,855,026 in cash and notes. The Company purchased certain Global Village's
assets, technology, operations and assumed certain of its liabilities. This     
transaction was accounted for using the purchase method of accounting with the  
purchase price being partially allocated to purchased technologies and          
intangible assets. $2,800,000 of the total purchase price represented the value 
of in-process research and development that had not yet reached technological   
feasibility and had no alternative future use and, as such, was recorded as a   
non-recurring charge for in-process research and development. The value         
attributed to the in-process research and development was determined by an      
independent appraisal. See Note 8 to the consolidated financial statements.     

Provision for Income Taxes. Federal and state income taxes have been    
provided for at an effective rate of 33.1% in 1996 and an income tax benefit at 
the rate of 29.9% in 1997. The effective tax rate in 1998 was zero. 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 and 1998, a valuation allowance on deferred tax assets.         

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Liquidity and Capital Resources                                                 

As of December 31, 1998, the Company's working capital decreased by     
$18,047,319 from December 31, 1997. This decrease was represented by a decrease 
in cash and cash equivalents of $1,245,631, a decrease in trade receivables of  
$174,170, a decrease in inventories of $5,630,214, a decrease in refundable and 
deferred income taxes of $7,162,438 and an increase in current liabilities of   
$4,002,420, offset by an increase in prepaid expenses and other assets of       
$167,554.                                                                       

Inventory decreased by approximately $5.6 million during 1998 due to the
concerted effort by the Company to reduce the inventory level and the number of 
product SKU's offered.                                                          

  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 collateralized        
$5,000,000 revolving line of credit agreement with a lender which expires on    
November 9, 2000. As of December 31, 1998, no borrowings were outstanding under 
this line of credit. The line of credit permits borrowings of the lesser of     
$5,000,000 or 60% of qualified accounts receivable and 20% of eligible          
inventory. The interest rate during the first year of the agreement is 1% in    
excess of the prime rate. The loan agreement requires the Company to maintain   
certain financial ratios, limit the incurrence of additional debt, and prohibits
payment of dividends without the lender's consent.                              

    The Company incurred substantial operating losses in 1997 and 1998. However,
operations improved in the second half of 1998 due partly to management's       
efforts to bring the Company's expense structure in line with the reduced       
revenue levels being achieved, and due partly to the additional product         
offerings and manufacturing efficiencies resulting from the business acquisition
described in Note 8 to the consolidated financial statements. Although there can
be no assurances that the Company will return to profitable operations in 1999, 
management believes that existing cash balances, availability of funds under the
credit line described in Note 6 to the consolidated financial statements and    
cash generated from operations will be sufficient to meet its liquidity and     
capital needs for the next twelve months. However, net sales in the first       
quarter of 1999 will be significantly lower than net sales in the fourth quarter
of 1998. Therefore, the Company anticipates reporting a net loss in the first   
quarter of 1999.                                                                

   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 Problem" refers to the fact that many currently installed
computer systems and software products are coded to accept only two-digit       
entries in the date code field and are unable to distinguish 21st Century dates 
from 20th Century dates. These date code fields are required to distinguish     
21st Century dates from 20th Century dates and, as a result, many companies'    
software and computer systems may need to be upgraded or replaced in order to   
comply with such "Year 2000" requirements.                                      

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 State of Readiness. The Company's efforts to address year 2000 compliance
issues include (a) the evaluation of the Company's operational information      
technology systems ("IT Systems"), (b) a review of the Company's internal       
financial and accounting software, (c) an investigation of year 2000            
preparedness of third parties with whom the Company maintains a material        
business relationship, and (d) an analysis of the Company's products. The       
Company's efforts in these respects are underway and have reached varying levels
of completion.                                                                  

The Company has completed its evaluation of its current financial and   
accounting software. The supplier has informed the Company that it has undergone
an independent year 2000 compliance audit and the Company has received a copy of
their year 2000 compliant certification. The Company's employees have also      
successfully tested this software and agree that it is year 2000 compliant.     

In relationship to the Company's other operating systems the Company may
rely, both domestically and internationally, upon various vendors, governmental 
agencies, utility companies, telecommunications service companies, delivery     
service companies and other service providers who are outside of the Company's  
control. The Company is in the process of circulating a questionnaire to vendors
and customers with whom the Company has material relationships to obtain        
information about their year 2000 compliance. Until such information is         
obtained, the Company will not be able to effectively evaluate whether any      
remediation efforts will be required with respect to its IT Systems or non-IT   
Systems. There is no assurance that such parties will not suffer a year 2000    
business disruption, which could have a material adverse effect on the Company's
financial condition and results of operations.                                  

 The Company continues the testing and evaluation process of products sold
since 1995 and introduced on an on-going basis to determine which products may  
have operational concerns associated with year 2000 compliance. The assessment  
of whether a complete system or device in which a Product is embedded will      
operate correctly for an end-user depends in part on the year 2000 compliance of
the system's other components, most of which are supplied by parties, other than
the Company, over which the Company has no control. As we proceed through the   
evaluation phase, it is possible that the Company will identify products that do
present a year 2000 issue. Those products will be reviewed for remediation or   
other appropriate action. We are unable to determine the financial impact on the
Company at this time.                                                           

 Costs. To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating year 2000 compliance issues. However, 
in some instances, the installation of new software and hardware in the normal  
course of business is being accelerated to also afford a solution to year 2000  
capability issues. At this time, the Company does not possess all the           
information necessary to estimate the potential financial impact of year 2000   
compliance issues relating to its IT-Systems, non-IT Systems, its vendors, its  
customers, other parties and its products. The Year 2000 Team has completed its 
inventory phase of the Company's Operating Systems and is now in the process of 
evaluating the year 2000 readiness of those systems by soliciting year 2000     
compliance information from relevant vendors, suppliers and third parties. To   
identify year 2000 product compliance issues, the Company is conducting         
technology audits of its products and obtaining year 2000 readiness information 
from relevant vendors, suppliers and third parties. There can be no assurance   
that product year 2000 performance issues, of products or operating systems,    
including the effect of a year 2000 business disruption, will not have a        
material adverse effect on the Company's financial condition and results of     
operations.                                                                     

Contingency Plan. The Company has not yet developed a year 2000-specific
contingency plan. The Company expects to prepare a contingency plan with respect
to internal operating systems by the end of the third quarter 1999. In addition,
if further year 2000 compliance issues are discovered, the Company then will    
evaluate the need for one or more contingency plans relating to such issues.    

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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 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 56 Kbps 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 56 Kbps technology is resulting in more extensive upgrade policies
which has resulted in lower gross margins. Moreover, price decreases have       
occurred earlier in the 56 Kbps product cycle than occurred with 14.4 Kbps and  
28.8 Kbps 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.       
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.                   

Technological Change and Development of Thin Client Products Market. The
market for thin client products is characterized by rapidly developing          
technology, evolving industry standards and customer demands, and frequent      
product introductions. These market characteristics are exacerbated by the      
emerging nature of this market and the fact that many companies are expected to 
introduce thin client products into the market. A key element of the Company's  
business strategy is to introduce products that capitalize on the growth in the 
thin client products market. The Company's success in exploiting the growth in  
this market will depend in significant part upon the ability of the Company to  
continually improve the performance and features of its thin client products.   
There can be no assurance that the Company will be successful in developing or  
marketing products that will meet with market acceptance. Failure by the Company
to successfully market thin client products could result in a material adverse  
effect on the Company's business, results of operations and financial condition.

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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 
effect on the trading price of the Company's Common Stock. Net sales in the     
first quarter of 1999 will be significantly lower than net sales in the fourth  
quarter of 1998. Therefore, the Company anticipates reporting a net loss for the
first quarter of 1999.                                                          

 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 has had a negative impact for 1998 which
is expected to continue in 1999. 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.                               

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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 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   
and 49% of net sales in 1998. 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. 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 and 32% of net sales in    
1998. 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.                                              

      During the third quarter of 1998, the Company improved the distribution of
Boca Research branded products by leveraging the strong retail position of its  
Global Village line of modems. Direct sales to the retail channel were 7% of net
sales in 1998.                                                                  

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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 and thin client devices, 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 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.                                                    

   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% and 18% of the       
Company's net sales for the year ended December 31, 1997 and 1998, respectively.
The contract manufacturing industry is intensely competitive and the level and  
timing of orders placed by the Company's contract manufacturing customers is    
highly variable. As a result, there can be no assurance that the Company will   
continue to successfully provide custom manufacturing services. The inability of
the Company to successfully maintain its custom manufacturing services could    
adversely affect the Company's business, results of operations or financial     
condition.                                                                      

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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.                                                      

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ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                            

                                                                          Page
   (1)  Financial Statements                                              ----
       Independent Auditors' Report of Deloitte & Touche LLP.........     27
       Consolidated Balance Sheets...................................     28
       Consolidated Statements of Income.............................     29
       Consolidated Statements of Stockholders' Equity...............     30
       Consolidated Statements of Cash Flows.........................     31
       Notes to Consolidated Financial Statements....................     32
(2)  Financial Statement Schedules                                      
       Schedule II-- Consolidated Valuation and Qualifying Accounts..     42

Schedules other than those listed above have been omitted since they are
either not applicable, not required or the information is included elsewhere    
herein.                                                                         

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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, 1997 and 1998, and the related         
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. 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, 1997 and 1998, and the results of their operations 
and their cash flows for each of the three years in the period ended December   
31, 1998 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 5, 1999                                                                   

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BOCA RESEARCH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

                                                        · Enlarge/Download Table

                                                                             DECEMBER 31,                
                                                              -------------------------------------------
                                                                      1997                   1998        
                                                                      ----                   ----        
                                                                                                         
                                                 ASSETS                                                  

Current Assets:                                                                                          
     Cash and cash equivalents (Note 1).....................      $ 8,204,638            $ 6,959,007     
     Trade receivables, net (Notes 1,11,12).................       11,723,329             11,549,159     
     Inventory, net (Notes 1,2).............................       14,876,199              9,245,985     
     Prepaid expenses and other assets......................          469,523                637,077     
     Refundable and deferred income taxes (Notes 1,4).......        9,213,997              2,051,559     
                                                                  -----------            -----------     
          Total current assets..............................       44,487,686             30,442,787     
Property and equipment, net (Notes 1,3).....................        5,539,496              3,873,726     
Goodwill and other intangible assets (Notes 1,8)............               --              4,803,749     
Other assets (Note 11)......................................          191,611                622,015     
                                                                  -----------            -----------     
TOTAL.......................................................      $50,218,793            $39,742,277     
                                                                  ===========            ===========     

                                  LIABILITIES AND STOCKHOLDERS' EQUITY                                   

Current liabilities:                                                                                     
     Accounts payable.......................................      $ 6,546,367            $ 6,804,017     
     Notes payable (Note 8).................................               --              2,800,000     
     Accrued expenses and other liabilities (Note 5)........        3,091,992              4,036,762     
                                                                  -----------            -----------     
          Total current liabilities.........................        9,638,359             13,640,779     
                                                                  -----------            -----------     
Commitments and contingencies (Notes 7,10)                                                               
Stockholders' equity (Note 9):                                                                           
     Preferred stock, 5,000,000 $.01 par value shares                                                    
      authorized, none issued and outstanding at December                                                
      31, 1997 and 1998.....................................                                             
     Common stock, 25,000,000 $.01 par value shares                                                      
      authorized, 8,725,079 and 8,756,487 issued and                                                     
      outstanding at December 31, 1997 and 1998,                                                         
      respectively..........................................           87,251                 87,565     
     Additional paid-in capital.............................       25,914,738             26,045,128     
     Retained earnings (deficit)............................       14,578,445                (31,195)    
                                                                  -----------            -----------     
          Total stockholders' equity........................       40,580,434             26,101,498     
                                                                  -----------            -----------     
TOTAL.......................................................      $50,218,793            $39,742,277     
                                                                  ===========            ===========     

See notes to consolidated financial statements

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BOCA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME 

                                                        · Enlarge/Download Table

                                                                           Year Ended December 31,                       
                                                     --------------------------------------------------------------------
                                                             1996                    1997                    1998        
                                                             ----                    ----                    ----        
                                                                                                                         
Net sales (Note 11).................................     $153,523,545            $ 70,206,609            $ 70,042,371    
Cost of goods sold..................................      122,854,506              71,163,861              64,164,809    
                                                         ------------            ------------            ------------    
          Gross profit (loss).......................       30,669,039                (957,252)              5,877,562    
                                                         ------------            ------------            ------------    
Operating expenses:                                                                                                      
     Research and development (Note 1)..............        3,072,755               2,808,023               2,992,252    
     Selling, general and administrative............       18,551,511              18,366,202              15,388,644    
     In-process research and development (Note 8)...               --                      --               2,800,000    
                                                         ------------            ------------            ------------    
          Total operating expenses..................       21,624,266              21,174,225              21,180,896    
                                                         ------------            ------------            ------------    
Income (loss) from operations.......................        9,044,773             (22,131,477)            (15,303,334)   
                                                         ------------            ------------            ------------    
Non-operating income (expense):                                                                                          
     Interest income................................          163,034                 508,108                 398,364    
     Other income...................................          468,602                 345,652                 450,935    
     Interest expense...............................          (35,749)                (16,238)               (155,605)   
                                                         ------------            ------------            ------------    
          Total non-operating income, net...........          595,887                 837,522                 693,694    
                                                         ------------            ------------            ------------    
Income (loss) before income taxes (benefit).........        9,640,660             (21,293,955)            (14,609,640)   
Income taxes (benefit) (Notes 1,4)..................        3,190,562              (6,370,828)                     --    
                                                         ------------            ------------            ------------    
Net income (loss)...................................     $  6,450,098            $(14,923,127)           $(14,609,640)   
                                                         ============            ============            ============    
Basic earnings (loss) per share (Note 1)............     $       0.75            $      (1.71)           $      (1.67)   
                                                         ============            ============            ============    
Weighted average basic shares outstanding...........        8,610,081               8,718,090               8,749,072    
                                                         ============            ============            ============    
Diluted earnings (loss) per share (Note 1)..........     $       0.72            $      (1.71)           $      (1.67)   
                                                         ============            ============            ============    
Weighted average diluted shares outstanding.........        8,940,622               8,718,090               8,765,917    
                                                         ============            ============            ============    

See notes to consolidated financial statements

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BOCA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

                                                        · Enlarge/Download Table

                                            Common Stock                                                 
                                     --------------------------  Additional     Retained       Total     
                                          Number                   Paid-in      Earnings    Stockholders'
                                        of Shares       Amount     Capital      (Deficit)      Equity    
                                        ---------       ------   ----------     --------    -------------
                                                                                                         
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 
Stock options exercised.............       31,408           314      130,390                     130,704 
Net loss............................                                          (14,609,640)   (14,609,640)
                                        ---------       -------  -----------  -----------    ----------- 
Balance at December 31, 1998........    8,756,487       $87,565  $26,045,128  $   (31,195)   $26,101,498 
                                        =========       =======  ===========  ===========    =========== 

See notes to consolidated financial statements

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BOCA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        · Enlarge/Download Table

                                                                Year Ended December 31,           
                                                      ------------------------------------------- 
                                                          1996           1997           1998      
                                                          ----           ----           ----      
                                                                                                  
OPERATING ACTIVITIES                                                                              
Net income (loss)...................................  $  6,450,098   $(14,923,127)   $(14,609,640)
  Adjustments to reconcile net income (loss) to net                                               
    cash provided by (used in) operating                                                          
    activities:                                                                                   
     Depreciation and amortization..................     3,057,983      2,917,002       3,854,343 
     In-process research and development............                                    2,800,000 
     Change in assets and liabilities (net of effect                                              
      of acquisition in 1998):                                                                    
     (Increase) decrease in:                                                                      
       Receivables..................................    (4,296,105)    15,444,145       8,914,913 
       Inventory....................................     4,076,245      3,504,321       7,762,036 
       Prepaid expenses and other assets............        34,719        816,285        (501,565)
       Deferred income taxes........................      (649,855)       418,281       2,703,980 
     Increase (decrease) in:                                                                      
       Accounts payable.............................     1,477,143       (768,105)     (7,518,350)
       Accrued expenses and other liabilities.......    (1,038,102)      (497,390)     (1,113,230)
       Income taxes payable (refundable)............    (1,040,266)    (5,449,938)      4,458,458 
                                                      ------------   ------------   ------------- 
       Net cash provided by operating                                                             
         activities.................................     8,071,860      1,461,474       6,750,945 
                                                      ------------   ------------   ------------- 
INVESTING ACTIVITIES                                                                              
  Cash paid for acquisition.........................                                   (7,580,000)
  Capital expenditures..............................    (2,222,033)    (1,404,258)       (547,280)
                                                      ------------   ------------   ------------- 
       Net cash used in investing activities........    (2,222,033)    (1,404,258)     (8,127,280)
                                                      ------------   ------------   ------------- 
FINANCING ACTIVITIES                                                                              
  Exercise of stock options.........................     1,498,480        321,621         130,704 
                                                      ------------   ------------   ------------- 
       Net cash provided by financing activities....     1,498,480        321,621         130,704 
                                                      ------------   ------------   ------------- 
Net increase (decrease) in cash and cash                                                          
  equivalents.......................................     7,348,307        378,837      (1,245,631)
Cash and cash equivalents at beginning of year......       477,494      7,825,801       8,204,638 
                                                      ------------   ------------   ------------- 
Cash and cash equivalents at end of year............  $  7,825,801   $  8,204,638   $   6,959,007 
                                                      ============   ============   ============= 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                 
  Cash paid during the year for:                                                                  
       Income taxes (net of refunds)................  $  4,880,683   $ (1,339,171)  $  (7,162,438)
                                                      ============   ============   ============= 
       Interest.....................................  $     35,749   $     16,238   $      10,811 
                                                      ============   ============   ============= 

See notes to consolidated financial statements

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BOCA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SIGNIFICANT ACCOUNTING POLICIES                                             

   Nature of Business. Boca Research, Inc. and subsidiaries (the "Company") is
a leading provider of hardware and software technology, which provides          
communications solutions that enable data transmission, connectivity of devices,
and access to applications and information via the Internet, personal computers,
and/or server-based environments. The Company designs, manufactures, markets,   
and supports quality, innovative products that have a cost, performance, and    
time-to-market advantage. The Company sells its products primarily to wholesale 
microcomputer distributors, retailers, value-added resellers (VARs), and        
original equipment manufacturers (OEMs) 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.        

Business Operations and Liquidity. The Company incurred substantial     
operating losses in 1997 and 1998. However, operations improved in the second   
half of 1998 due partly to management's efforts to bring the Company's expense  
structure in line with the reduced revenue levels being achieved, and due partly
to the additional product offerings and manufacturing efficiencies resulting    
from the business acquisition described in Note 8 to the consolidated financial 
statements. Although there can be no assurances that the Company will return to 
profitable operations in 1999, management believes that existing cash balances, 
availability of funds under the credit line described in Note 6 to the          
consolidated financial statements and cash generated from operations will be    
sufficient to meet its liquidity and capital needs for the next twelve months.  

Principles of Consolidation. The accompanying consolidated financial    
statements include Boca Research, Inc. 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., Boca Global, Inc. and Complete Acquisition Corp. All material intercompany
accounts and transactions have been eliminated in consolidation. The Company    
accounts for its investment in Power Tel BOCA Private Ltd. using the equity     
method.                                                                         

 Use of Estimates. The preparation of consolidated 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.                                                                      

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Property and Equipment. Property and equipment are recorded at cost.    
Depreciation is computed using the straight-line method over the estimated      
useful lives of three to five years or the lease term for leasehold             
improvements.                                                                   

  Intangible Assets. The Company accounts for the impairment and disposition
of long-lived assets in accordance with Statement of Financial Accounting       
Standard ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets   
and for Long-Lived Assets To Be Disposed Of. In accordance with SFAS No. 121,   
long-lived assets to be held are reviewed for events or changes in circumstances
which indicate that their carrying value may not be recoverable. The Company    
periodically evaluates the carrying value of the intangible assets versus the   
cash benefit expected to be realized and adjusts for any impairment of value.   

    Research and Development Costs.  Research and development costs are expensed
as incurred.                                                                    

   Income Taxes. The Company provides for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." Deferred income tax assets and          
liabilities are 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. 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. Diluted earnings per share is computed by        
dividing income or loss available to common stockholders by the weighted average
number of common shares outstanding for the period and dilutive potential common
shares outstanding (all related to outstanding stock options discussed in Note  
9).                                                                             

   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 $1,300,000 and $2,161,055 at December 31, 1997 and 1998,         
respectively, and is netted against trade receivables. 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
$1,400,008 and $2,531,257 as of December 31, 1997 and 1998, respectively.       

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   Product Warranties. Under a five year limited warranty program, the Company
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 1996, 1997 and 1998 was $3,735,187, $2,227,531 and      
$1,031,849 respectively.                                                        

Reclassifications. Certain prior year amounts have been reclassified to 
conform to the fiscal 1998 presentation.                                        

2.  INVENTORY                                                                   

Inventory consists of the following:                                    

                                                 At December 31,
                                                   ---------------------------
                                                  1997            1998
                                                   --------------  -----------
        Raw materials........................      $11,075,213     $ 8,024,248
        Work-in-progress.....................        4,924,500       3,133,016
        Finished goods.......................        2,376,486       1,338,721
         Inventory reserve....................       (3,500,000)     (3,250,000)
                                                     -----------     -----------
                                                   $14,876,199     $ 9,245,985
                                                   ===========     ===========

3.  PROPERTY AND EQUIPMENT                                                      

Property and equipment consists of the following:                       

                                                 At December 31,
                                                  ----------------------------
                                                  1997            1998
                                                  ------------    ------------
        Machinery and equipment.................. $ 14,339,479    $ 14,472,946
        Furniture and fixtures...................      597,702         994,159
        Leasehold improvements...................    1,236,905       1,489,027
        Vehicles.................................       74,641          78,794
                                                  ------------    ------------
          Total cost.............................   16,248,727      17,034,926
         Less accumulated depreciation............  (10,709,231)    (13,161,200)
                                                  ------------    ------------
                                                  $  5,539,496    $  3,873,726
                                                  ============    ============

 Depreciation expense for the years ended December 31, 1996, 1997 and 1998
was $2,872,990, $2,939,848 and $2,815,554.                                      

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4.  INCOME TAXES                                                                

  Refundable and deferred income taxes in the accompanying balance sheets as
of December 31, 1997 and 1998 includes estimated tax refunds of $6,510,017 and  
$2,051,559, respectively, and deferred tax assets (liabilities) attributable to 
the following items:                                                            

                                               At December 31,
                                               -------------------------
                                              1997          1998
                                               ----------     ----------
     Accounts receivable allowances........... $  852,226     $1,020,000
     Accrued expenses.........................    621,372        583,964
     Inventory reserve........................  1,286,250      1,105,000
     Goodwill.................................    585,317      1,669,239
     Depreciation.............................   (500,939)        76,009
     Allowance for product warranties.........    130,830        502,180
Federal and state net operating loss                          
      carryforward............................    599,388      2,038,410
     AMT credit carryforward..................    174,801        306,145
                                               ----------     ----------
     Gross deferred tax asset.................  3,749,245      7,300,947
      Valuation allowance...................... (1,045,265)    (7,300,947)
                                                -----------    -----------
                                               $2,703,980     $        0
                                               ==========     ==========

The Company has a Federal and Florida net operating loss carryforward   
available to offset future Federal and Florida taxable income of approximately  
$3 million and $16.5 million, respectively. The Federal net operating loss      
carryforward will expire in 2018. Approximately $11 million of the Florida net  
operating loss carryforward expires in 2012 and the balance of $5.5 million     
expires in 2018.                                                                

  The components of income taxes (benefit) in the accompanying statements of
income are as follows:                                                          

                                   Year Ended December 31,
                                    ----------------------------------------
                                  1996           1997           1998
                                    -----------   ------------   -----------
Federal:                                                    
           Current...........        $3,527,431    $(6,804,109)   $(2,703,980)
          Deferred..........          (595,700)       418,281      2,703,980
                                    ----------    -----------    -----------
            Total...........         2,931,731     (6,385,828)             0
                                    ----------    -----------    -----------
State:                                                      
          Current...........           312,986         15,000              0
          Deferred..........           (54,155)             0              0
                                     ----------    -----------   -----------
                                       258,831         15,000              0
                                     ----------    -----------   -----------
            Total...........        $3,190,562    $(6,370,828)   $         0
                                    ==========    ===========    ===========

   The Company's effective income tax rate differed from the statutory federal
rate of 35% as follows:                                                         

                                                        · Enlarge/Download Table

                                                                         Year Ended December 31,     
                                                                         -----------------------     
                                                                      1996        1997        1998   
                                                                   ----------  ----------  ----------
                                                                                                     
Statutory  rate applied to income (loss) before income taxes......    35.0%       35.0%       35.0%  
Increase (decrease) in income taxes (benefit) resulting from:                                        
  Rate differential...............................................    (1.0)       (1.0)       (1.0)  
  Valuation allowance.............................................      --        (4.9)      (34.0)  
  State income taxes..............................................     1.8         2.5         0.0   
  Exempt foreign trade income.....................................    (3.3)        0.5         0.0   
  Other, net......................................................     0.6        (2.2)        0.0   
                                                                      ----        ----        ----   
  Effective income tax rate.......................................    33.1%       29.9%        0.0%  
                                                                      ====        ====        ====   

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5.  ACCRUED EXPENSES AND OTHER LIABILITIES                                      

Accrued expenses and other liabilities consist of the following:        

                                                     At December 31,
                                                     -------------------------
                                                     1997           1998
                                                     ----------      ---------
        Cooperative advertising..................    $  250,000      $ 635,162
        Salaries, wages, benefits and bonuses....       836,812        626,913
        Commissions..............................        58,150        163,546
        Allowance for product warranties.........       356,000      1,477,000
        Other....................................     1,591,030      1,134,141
                                                      ---------      ---------
                                                     $3,091,992     $4,036,762
                                                     ==========     ==========

6.  LINE OF CREDIT                                                              

The Company has entered into a two year collateralized revolving line of
credit agreement expiring November 9, 2000, which permits borrowings of the     
lesser of $5,000,000 or 60% of qualified accounts receivable and 20% of eligible
inventory. The interest rate during the first year of the agreement is 1% in    
excess of the prime rate. The loan agreement requires the Company to maintain   
certain financial ratios, limits the incurrence of additional debt, and         
prohibits payment of dividends without the lender's consent. No borrowings were 
outstanding as of December 31, 1997 and 1998.                                   

7.  COMMITMENTS AND CONTINGENCIES                                               

Rent expense for the years ended December 31, 1996, 1997 and 1998 was   
$818,223, $974,124 and $1,576,130, respectively.                                

The Company is committed through 2003 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, 1999, 2000, 2001, 2002, 2003 and thereafter are       
$1,692,955, $1,528,549, $1,274,032, $1,133,566, $967,561 and $1,693,232,        
respectively. During the first quarter of 1999, the Company subleased           
approximately 29,500 sq. ft. of a 45,647 sq. ft. building it leases in          
Sunnyvale, California. Minimum payments have not been reduced by the minimum    
sublease rentals of $2,102,667 due in the future through September 30, 2002,    
under noncancelable subleases.                                                  

   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 cannot predict the outcome of any such claim which may arise in the     
future, or the effect of any such claim on the Company's operating results or   
financial condition.                                                            

8.  ACQUISITION                                                                 

On June 18, 1998, the Company consummated, through a wholly-owned       
subsidiary, the acquisition of the modem business of Global Village             
Communication, Inc. ("Global Village"), in exchange for $9,855,206 in cash and  
notes. A $4,000,000 cash payment was made at closing and two additional payments
of $3,000,000 each were due Global Village on September 30, 1998 and on December
31, 1998. The notes payable relating to the two $3,000,000 payments were        
non-interest bearing and interest on these notes had been imputed at the rate of
6%. The $3,000,000 payment due on September 30, 1998 was paid on October 2,     
1998. On December 23, 1998, an amendment to the promissory note was executed    
which reduced the payment due on December 31, 1998 by $200,000 and extended the 
payment date of the remaining $2,800,000 balance. $2,000,000 of this amount was 
paid on January 4, 1999 and the remaining $800,000 was paid on February 2, 1999.
Goodwill was reduced by $200,000 to reflect the reduction in the purchase price.
The Company purchased intellectual property, including the Global Village name, 
logo, and trademarks, as well as the modem hardware and software products, and  
the inventory, receivables, and other assets of the modem business. The Company 
also assumed the liabilities of the modem business, including responsibilitiy   
for product warranty, technical support, product returns, ongoing marketing and 
sales programs, and certain accounts payable and accrued liabilities. The       
Company also received a warrant to purchase up to 425,000 shares of Global      
Village common stock at an exercise price of $1.0003 per share. Subsequent to   
the closing of the transaction, Global Village changed its corporate name to    
OneWorld Systems, Inc.                                                          

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    The acquisition was recorded as a purchase with the purchase price allocated
to the acquired assets, assumed liabilities and in-process research and         
development as follows:                                                         

       Accounts receivable, net............................       $8,740,743
       Inventory...........................................        2,131,822
       Other current assets................................           62,000
       Property, plant and equipment.......................          589,435
       Tradename/marketing intangible asset................        2,300,000
       Existing technology intangible asset................        1,500,000
       Goodwill............................................        1,225,206
       Warrants............................................          140,000
        Account payable.....................................       (7,776,000)
        Accrued expenses....................................       (2,058,000)
       In-process research and development.................        2,800,000
                                                                  ----------
                                                                  $9,655,206

Direct acquisition costs associated with this transaction, totalling    
$580,000, have also been capitalized to goodwill. Goodwill is being amortized   
over a five year period. Existing technology is being amortized over a two year 
period. The tradename/marketing intangible asset is being amortized over a seven
year period. Amortization expense for the year ending December 31, 1998 was     
$801,457.                                                                       

Upon consummation of the acquisition, the Company immediately expensed  
$2,800,000 representing purchased in-process technology that had not yet reached
technological feasability and has no alternative future use. The value was      
determined by estimating the costs to develop the purchased in-process          
technology into commercially viable products, estimating the resulting net cash 
flows from such projects, and discounting the net cash flows back to their      
present value. The discount rate included a factor that took into account the   
uncertainty surrounding the successful development of the purchased in-process  
technology. The in-process projects were expected to be commercially viable on  
dates ranging from the end of the calendar year 1998 through calendar year 2000.
Expenditures to complete these projects were expected to total approximately    
$1,800,000. These estimates are subject to change, given the uncertainties of   
the development process, and no assurance can be given that deviations from     
these estimates will not occur. Additionally, these projects will require       
maintenance research and development after they have reached a state of         
technological and commercial feasibility.                                       

At the time of its acquisition by Boca Research, the modem division of  
Global Village was working on several significant research and development      
projects that, if successful, would meet tomorrow's market needs. These efforts 
involved new analog and digital modem transmission platforms, speeds,           
interfaces, technologies, form factors, which were intended to insure the       
long-term success and survival of the organization. The nature of the efforts   
required to complete the research and development projects involved, to varying 
degrees, the completion of all planning, designing, prototyping, verification,  
and testing activities that are necessary to establish that the proposed        
technologies meet their design specifications including functional, technical,  
and economic performance requirements.                                          

  The net cash flows resulting from the projects underway at Global Village,
which were used to value the purchased research and development, were based on  
Company management's estimates of revenues, cost of revenues, research and      
development costs, selling, general, and administrative costs, and income taxes 
from such projects.                                                             

    Estimated total revenues from the purchased in-process product areas peak in
calendar years 2000-2001 and decline rapidly thereafter as other new products   
are expected to enter the market. In addition, a portion of the anticipated     
revenues has been attributed to enhancements of the base technology under       
development, and has been excluded from net cash flow calculations. Existing    
technology was valued at $1,500,000 related to the acquisition. There can be no 
assurances that these assumptions will prove accurate, or that the Company will 
realize the anticipated benefit of this acquisition.                            

   The discount applied to the net cash flows to calculate their present value
was based on the weighted average cost of capital ("WACC"). The WACC calculation
produces the average required rate of return on an investment in an operating   
enterprise. The discount rate used to discount the net cash flows from purchased
in-process technology ranged between 35% to 50%. This discount rate is sometimes
higher than the WACC due to the inherent uncertainties in the estimates,        
including the uncertainty surrounding the successful development of the         
purchased in-process technology, the useful life of such technology, the        
profitability levels of such technology, if any, and the uncertainty of         
technological advances, all of which are unknown at this time.                  

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 If these projects are not successfully developed, the Company's business,
operating results, and financial condition may be adversely affected in future  
periods. In addition, the value of other intangible assets acquired may become  
impaired.                                                                       

  The following is unaudited pro forma information as if the acquisition had
occurred as of the beginning of 1997. The unaudited pro forma information is not
necessarily indicative of the results which would have occurred had the         
companies actually been combined during the periods nor the future results after
the acquisition.                                                                

                                                   Year Ended December 31,
                                                   -----------------------------
                                                 1997           1998
                                                   --------------  -------------
        Net Sales................................ $ 128,732,000   $ 94,135,000
         Net Loss................................. $ ( 9,640,000)  $(13,747,000)
         Net Loss per Share (Basic and Diluted)....$       (1.11)  $      (1.57)

9.  STOCK OPTION AND PURCHASE PLANS                                             

  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.                       

The Board of Directors and shareholders approved the 1996 Non-Employee  
Director Stock Option Plan (the "1996 Director Plan") pursuant to which, as     
subsequently amended, a maximum of 200,000 shares of common stock are reserved  
for grant. Under this plan, 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. 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. 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. 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 will vest immediately on the date of grant.                             

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.                            

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 A summary of the status of the Company's stock options as of December 31,
1996, 1997 and 1998 and changes during the years ended on those dates is        
presented below:                                                                

                                                        · Enlarge/Download Table

                                                                       1996                  1997                 1998        
                                                               --------------------  -------------------- --------------------
                                                                           Weighted              Weighted             Weighted
                                                                            Average               Average              Average
                                                                           Exercise              Exercise             Exercise
                                                                 Shares      Price     Shares      Price    Shares      Price 
                                                                 ------    --------  ---------   -------- ---------   --------
                                                                                                                              
Outstanding at beginning of year..............................   876,000    $  9.44  1,153,165    $ 13.37 1,190,391    $  7.97
Granted.......................................................   543,408      18.17    996,716       7.30   942,461       3.97
Exercised.....................................................   135,379       8.17     22,167       6.10        --        -- 
Cancelled.....................................................   130,864      12.35    937,323      13.95   553,380       7.61
                                                                --------              --------             --------           
Outstanding at end of year....................................  1,153,165     13.37   1,190,391      7.97  1,579,472      5.71
                                                                =========             =========            =========          
Exercisable at end of year....................................   331,167       8.58    396,801       7.71   875,588       6.25
                                                                ========              ========             ========           

  The following table summarizes information about stock options outstanding
at December 31, 1998:                                                           

                                                        · Enlarge/Download Table

                             Options Outstanding                   Options Exercisable                  

                  Number      Weighted-Average                            Number                        
   Range of     Outstanding       Remaining       Weighted-Average      Exercisable     Weighted-Average
Exercise Price  at 12/31/98   Contractual Life     Exercise Price       at 12/31/98      Exercise Price 
--------------  -----------   ----------------     --------------       -----------     --------------- 
                                                                                                        
 $1.59 -  3.19    322,827           9.7               $  1.94             145,077           $  1.86     
  3.20 -  6.38    670,854           9.2                  5.14             397,500              5.42     
  6.39 - 12.75    570,791           8.3                  8.00             323,011              8.66     
 12.76 - 25.00     15,000           7.4                 25.00              10,000             25.00     
                 ---------                                                -------                       
                 1,579,472          9.0                  5.71             875,588              6.25     
                 =========                                                =======                       


   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 1996 would have been $4,563,456, and the     
Company's pro forma net loss for 1997 and 1998 would have been $16,625,691 and  
$16,707,953, respectively. Pro forma earnings per share for 1996 would have been
$0.53 for basic shares outstanding and $0.51 for diluted shares outstanding. Pro
forma loss per share for 1997 and 1998 would have been $1.91 and $1.91,         
respectively. The weighted average fair value of the options granted during     
1996, 1997 and 1998 was estimated at $11.12, $4.61 and $2.68, 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%, 60%, and 75%, respectively, risk-free interest rate of 5.69%,
6.09% and 5.33%, respectively, and expected lives of six years.                 

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 1997 and 1998, there were 24,029 and  
31,408 shares issued in connection with this plan, respectively. At December 31,
1998, there were options to purchase 20,643 shares at a price of $2.66 granted  
and exercisable under this plan.                                                

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10.  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, 1996, 1997 and 1998 the Company's contribution expense to the      
Savings Plan aggregated $155,944, $119,319 and $158,444, respectively.          

11.  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 34%, 36% and 44% of the Company's net sales in 1996, 1997 and     
1998, respectively. Sales to OEM customers accounted for 56%, 45%, and 49% of   
the Company's net sales in 1996, 1997, and 1998, respectively.                  

    Sales to customers who contributed 10% or more of net sales during the years
ended December 31, 1996, 1997 and 1998 and the related receivable balances at   
the end of each year were as follows:                                           

                                                        · Enlarge/Download Table

                                                       Year Ended December 31,         
                                           --------------------------------------------
                                                1996            1997            1998   
                                           --------------  --------------  ------------
                                                                                       
Net sales                                                                              
     Customer A...........................   $9,394,212      $7,197,475     $13,249,187
     Customer B...........................    3,225,686       1,983,663       2,902,139
     Customer C...........................    8,511,577       3,711,120       6,513,920
     Customer D...........................   20,879,575              --          61,283
     Customer E...........................   30,133,475       2,876,023          28,732
     Customer F...........................   13,893,362         229,804           9,008

                                                         As of December 31,            
                                            -------------------------------------------
                                                 1996           1997            1998   
                                            -------------  -------------   ------------
Accounts receivable                                                                    
     Customer A...........................    $3,504,586     $1,428,217      $3,015,188
     Customer B...........................       498,899        211,872         765,158
     Customer C...........................     1,983,285        980,991       2,250,565
     Customer D...........................     8,621,035          1,957              --
     Customer E...........................     2,527,423         12,925              --
     Customer F...........................     2,477,051         15,577              --


In 1997 and 1998 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.                                                                           

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    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, 1996, 1997 and 1998 is as follows:                                 

                                                        · Enlarge/Download Table

                                                       Year Ended December 31,         
                                           --------------------------------------------
                                                1996           1997            1998    
                                           -------------- --------------  -------------
                                                                                       
United States.............................  $109,934,462    $54,694,921     $53,388,233
Asia/Pacific Rim..........................    25,409,366      3,288,453         611,090
Canada....................................     1,291,998      1,511,942       1,069,265
Europe....................................    11,989,946      7,624,891       9,081,509
Other.....................................     4,897,773      3,086,402       5,892,274
                                            ------------    -----------     -----------
                                            $153,523,545    $70,206,609     $70,042,371
                                            ============    ===========     ===========

The Company's identifiable assets located in foreign countries are not  
significant.                                                                    

12.  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. In 1998 sales to this joint venture  
were approximately $633,000 compared to $1,874,000 in 1997. During the first    
half of 1999, the Company plans on reducing its ownership interest in this joint
venture to zero. 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 and $79,183 in this joint venture as of December 31, 1997 
and 1998, respectively, is included in other assets in the consolidated balance 
sheet. In 1998, sales to PowerTel were approximately $315,000 compared to       
$710,000 in 1997. The accounts receivable balance due from PowerTel at December 
31, 1998 was $184,995. The Company has granted 180 day payment terms to         
PowerTel. The financial position and results of operations of these joint       
ventures in 1997 and 1998 were insignificant in relation to the Company's       
consolidated financial statements.                                              

13.  QUARTERLY FINANCIAL DATA (UNAUDITED)                                       

Unaudited summarized financial data by quarter for 1997 and 1998 is as  
follows (in thousands except for per share data):                               

                                                        · Enlarge/Download Table

Three months ended                                March 31   June 30  September 30  December 31
------------------                               ---------  --------  ------------  -----------
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)  

Three months ended                                March 31   June 30  September 30  December 31
------------------                               ---------  --------  ------------  -----------
1998                                                                                           
     Net sales.................................. $15,616    $13,210    $22,789       $18,428   
     Gross profit (loss)........................    (150)    (3,029)     3,568         5,490   
     Income (loss) from operations..............  (3,707)    (9,428)    (2,184)           17   
     Net income (loss)..........................  (3,504)    (9,260)    (2,015)          170   
     Basic earnings (loss) per share............   (0.40)     (1.06)     (0.23)         0.02   
     Diluted earnings (loss) per share..........   (0.40)     (1.06)     (0.23)         0.02   


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BOCA RESEARCH, INC. AND SUBSIDIARIES
 SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
 YEAR ENDED DECEMBER 31,

                                                        · Enlarge/Download Table

                                                                            Additions                                            
                                                            Balance        Charged to      Charged to                    Balance 
                                                         at Beginning       Costs and         Other                      at End  
              Description                                   of Year         Expenses        Accounts     Deductions      of Year 
---------------------------------------------------------------------------------------------------------------------------------

                   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

                   1998                                                                                                          
---------------------------------------------------------------------------------------------------------------------------------
Allowance for Sales Returns,                                                                                                     
  Allowances and Price Protection                         $1,300,000           27,055       834,000 (1)          --    $2,161,055
Allowance for Doubtful Accounts                            1,400,000          985,399       931,257 (1)     785,399     2,531,257
Allowance for Inventory Reserve                            3,500,000        1,618,042            --       1,868,042     3,250,000
Allowance for Product Warranties                             356,000           10,000     1,111,000 (1)          --     1,477,000

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

(1) Includes the balances relating to the acquisition of the modem business of Global Village Communications, Inc.               


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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 17, 1999. 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, 1998.                                                

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(c)      Exhibits                                                               

Exhibit No.                         Title                         
-----------                         -----                         
   (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.
 (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.
           10.19   --    Employment  agreement,  dated as of October 16, 1998,
               between Robert W. Ferguson and the Company.
21.1    --    Subsidiaries of the Company.              
23.1    --    Consent of Deloitte & Touche LLP          
27.1    --    Financial Data Schedule                   

----------                                                                      

(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.                                                                   

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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 30, 1999                                                           

 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.                    

                                                        · Enlarge/Download Table

              Signature                         Title                         Date     
              ---------                         -----                         ----     
                                                                                       
     /S/ ANTHONY F. ZALENSKI       President, Chief Executive Officer    March 30, 1999
---------------------------------  and a Director (Principal Executive                 
         Anthony F. Zalenski       Officer)                                            

     /S/ NAVROZE S. MEHTA          Executive Vice President and General  March 30, 1999
---------------------------------  Manager (Principal Financial Officer                
         Navroze S. Mehta          and Principal Accounting Officer)                   

     /S/ ROBERT W. FERGUSON        Director                              March 30, 1999
---------------------------------                                                      
         Robert W. Ferguson                                                            

     /S/ H. RIC LUHRS              Director                              March 30, 1999
---------------------------------                                                      
         H. Ric Luhrs                                                                  

     /S/ DOUGLAS K. RABORN         Director                              March 30, 1999
---------------------------------                                                      
         Douglas K. Raborn                                                             

     /S/ JOSEPH M. O'DONNELL       Director                              March 30, 1999
---------------------------------                                                      
         Joseph M. O'Donnell                                                           

     /S/ GERALD W. STANLEY         Director                              March 30, 1999
---------------------------------                                                      
         Gerald W. Stanley                                                             

     /S/ ARTHUR R. WYATT           Director                              March 30, 1999
---------------------------------                                                      
         Arthur R. Wyatt                                                               

     /S/ BLAINE DAVIS              Director                              March 30, 1999
---------------------------------                                                      
         Blaine Davis                                                                  


45

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K Filing		Date		First		Last			Other Filings
		1/9/92		44
		3/2/92		44
		12/22/92		44
		1/1/93		38
		7/2/93		44
		7/22/93		44
		12/31/94		14
		3/31/95		44
		4/24/95		44
		6/30/95		44
		9/25/95		44
		9/30/95		44
		12/31/95		30		44
		10/4/96		44					8-K
		10/15/96		44					8-K
		12/31/96		15		41			10-K
		1/1/97		17
		3/31/97		13					10-K, 10-Q
		6/30/97		13					10-Q
		9/30/97		13					10-Q
		12/31/97		13		44			10-K405
		3/31/98		13					10-Q/A, 10-Q, 8-K
		6/18/98		16		36			8-K, 8-K/A
		6/30/98		13					10-Q/A, 10-Q
		9/30/98		13		36			10-Q, 10-Q/A
		10/2/98		36
		10/16/98		44
		12/23/98		36
For The Period Ended		12/31/98		1		43
		1/4/99		36
		2/2/99		36
		3/5/99		27
		3/29/99		1		13
		3/30/99		45
Filed On / Filed As Of		3/31/99		13					10-Q
		5/17/99		1		43			10-Q, DEF 14A
		12/31/99		36					10-K
		11/9/0		19		36
		12/31/0		36					10-K/A, 10-K
		12/31/1		36					10-K
		9/30/2		36					10QSB, NT 10-Q, 3
		12/31/2		36					10KSB/A, NT 10-K, 10KSB
		12/31/3		36					NT 10-K, 10KSB, 10KSB/A, NT 10-K/A
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