BOCA RESEARCH INC, 10-Q, 1999-11-15

BOCA RESEARCH INC
10-Q, 1999-11-15
TELEPHONE & TELEGRAPH APPARATUS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

The quarter ended September 30, 1999

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
(Address of principal 33487
executive offices) (Zip Code)

(561) 997-6227
(Registrant's telephone number, including area code)

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___

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

Outstanding as of
Class November 12, 1999
----- ------------
Common stock, par value 11,459,627
$.01 per share

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<PAGE>

BOCA RESEARCH, INC.
Form 10-Q For The Quarter Ended September 30, 1999

INDEX
Page
----
Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets
(unaudited) as of September 30, 1999 and
December 31, 1998.................................... 3

Condensed Consolidated Statements of
Operations (unaudited) for the three and nine months
ended September 30, 1999 and 1998 ................... 4

Condensed Consolidated Statements of
Cash Flows (unaudited) for the nine
months ended September 30, 1999 and 1998 ............ 5

Notes to Condensed Consolidated
Financial Statements (unaudited) .................... 6

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

Part II. OTHER INFORMATION

Items 1-3. Not applicable .............................. 23

Item 4. Submission of Matters to a Vote of
Security Holders ........................... 23

Item 5. Other Information ........................... 23

Item 6. Exhibits and Reports on Form 8-K ............ 24

Signatures ............................................. 25

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<PAGE>

PART I. Item 1.

BOCA RESEARCH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
--------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 14,698 $ 6,959
Trade receivables, net...................................... 5,863 11,549
Inventory, net.............................................. 5,215 9,246
Prepaid expenses and other current assets................... 1,174 637
Prepaid and deferred income taxes........................... -- 2,051
---------- -------
Total current assets...................................... 26,950 30,442
Property and equipment, net................................... 3,013 3,874
Goodwill and other intangible assets.......................... 3,728 4,804
Other assets.................................................. 731 622
---------- ---------
Total assets.......................................... $ 34,422 $ 39,742
========== =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 4,152 $ 6,804
Notes payable............................................... -- 2,800
Deferred revenue............................................ 586 --
Accrued expenses and other current liabilities.............. 3,613 4,037
---------- ---------
Total current liabilities................................. 8,351 13,641
---------- ---------
Deferred revenue.............................................. 42 --
---------- ---------

Stockholders' equity:
Common stock, 25,000,000 $.01 par value shares authorized,
11,451,293 issued and outstanding at September 30, 1999,
8,756,487 issued and outstanding at December 31, 1998...... 115 87
Additional paid-in capital.................................. 39,419 26,045
Accumulated deficit......................................... (13,505) (31)
---------- ---------
Total stockholders' equity................................ 26,029 26,101
---------- ---------
Total liabilities and stockholders' equity.............. $ 34,422 $ 39,742
========== =========
</TABLE>

See notes to condensed consolidated financial statements.

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<PAGE>

BOCA RESEARCH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales........................................ $ 7,719 $ 22,789 $ 27,167 $ 51,615
Cost of goods sold............................... 7,496 19,221 24,404 51,227
------ ------ ------ ------
Gross profit ............................... 223 3,568 2,763 388
------ ----- ------ ------
Operating expenses:
Research and development.................... 849 872 2,823 2,105
Selling, general and administrative......... 4,429 4,880 13,733 10,803
In-process research and development......... -- -- -- 2,800
------ ------- ------ ------
Total operating expenses.................... 5,278 5,752 16,556 15,708
------ ----- ------ ------
Loss from operations............................. (5,055) (2,184) (13,793) (15,320)
Non-operating income............................. 223 169 326 541
------ ------- ------ ------
Loss before income taxes ........................ (4,832) (2,015) (13,467) (14,779)
Income taxes .................................... 1 -- 7 --
------ -------- ------ ------
Net loss......................................... $(4,833) $ (2,015) $(13,474) $(14,779)
------ -------- ------- -------
Net loss per share (Basic and Diluted)........... $ (0.45) $ (0.23) $ (1.39) $ (1.69)
------ -------- ------- -------
Weighted average
shares outstanding............................. 10,764 8,756 9,671 8,747
====== ===== ===== =====
</TABLE>

See notes to condensed consolidated financial statements.

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<PAGE>

BOCA RESEARCH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1999 1998
---- ----
<S> <C> <C>
Cash provided by (used in):
Operating activities:
Net loss................................................ $ (13,474) $ (14,779)
Adjustments for non-cash charges........................ 2,209 5,612
Changes in assets and liabilities....................... 8,768 10,984
--------- ---------
Net cash provided by (used in) operating activities... (2,497) 1,817
--------- ---------
Investing activities:
Cash paid for acquisition............................... ( 2,800) (4,580)
Capital expenditures.................................... (365) (244)
--------- ---------
Net cash used in investing activities................. (3,165) (4,824)
Financing activities - Issuance of common stock .......... 13,401 130
--------- ---------
Net increase (decrease) in cash and cash equivalents...... 7,739 (2,877)
Cash and cash equivalents, beginning of period............ 6,959 8,205
--------- ---------
Cash and cash equivalents, end of period.................. $ 14,698 $ 5,328
========= =========
</TABLE>

See notes to condensed consolidated financial statements.

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<PAGE>

BOCA RESEARCH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Basis of Presentation

The condensed consolidated financial statements have been prepared by
the Company in accordance with the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting and, accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles. In the opinion of management, the condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
the Company as of September 30, 1999, and the results of its operations and its
cash flows for the three and nine month periods ended September 30, 1999 and
1998. These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in the
preparation of the Company's 1998 audited consolidated financial statements.

The accompanying financial statements should be read in conjunction with
the Company's most recent audited consolidated financial statements and notes
thereto for the year ended December 31, 1998. The results of operations for the
three and nine month periods ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full year.

Certain prior year amounts have been reclassified to conform to the
current presentation.

Supplemental Cash Flow Information

Net cash refunds of income taxes were approximately $2,044,000 and
$7,162,000 in the nine month periods ended September 30, 1999 and 1998,
respectively. Interest expense of $185,000 was paid in the first nine months of
1999.

Comprehensive Income (Loss)

Comprehensive income includes all changes in equity during a period
except those resulting from investment by owners and distributions to owners.
The Company's comprehensive income (loss) equals its net loss for the three and
nine months ended September 30, 1999 and 1998, and net loss is the only
component of comprehensive income (loss) for such periods.

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<PAGE>

BOCA RESEARCH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't)
(Unaudited)

Current Assets

Trade receivables are included in the condensed consolidated balance
sheets net of allowances and consist of the following (in thousands):

September 30, December 31,
1999 1998
---- ----
Trade receivables............................. $ 9,824 $ 16,241
Allowance for sales returns, allowances and
price protection............................. (1,920) (2,161)
Allowance for doubtful accounts............... (2,041) (2,531)
------- -------
$ 5,863 $ 11,549
======= =======

Included in the accounts receivable balance is $50,000 in receivables
from PowerTel Boca Pvt., Ltd. ("PowerTel") a joint venture in India in which the
Company has a 20% ownership interest. Sales to this related party in the first
nine months of 1999 and 1998 were approximately $72,000 and $252,000,
respectively. The Company has agreed to payment terms of 180 days for PowerTel.

During the first quarter of 1999, the Company charged off an accounts
receivable balance of approximately $406,000 from LocalNet Communications, Inc.
In addition, the Company wrote off its investment of $150,000 in LocalNet
Communications, Inc.

Inventories included in the condensed consolidated balance sheets
consist of the following (in thousands):

September 30, December 31,
1999 1998
---- ----
Raw materials.......................... $ 4,366 $ 8,024
Work in process........................ 1,550 3,133
Finished goods......................... 2,584 1,339
Inventory reserves..................... (3,285) (3,250)
------ ------
$ 5,215 $ 9,246
======= ======

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<PAGE>

BOCA RESEARCH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't)
(Unaudited)

Property and Equipment

Property and equipment is included in the condensed consolidated balance
sheets net of accumulated depreciation of $12,774,000 at September 30, 1999 and
$13,161,000 at December 31, 1998.

Deferred Revenue

There are two components comprising deferred revenue as of September 30,
1999. Each component is described below.

Revenue related to the providing of engineering services is recognized
as the work is performed, using the percentage of completion method. During the
first nine months of 1999, revenue of approximately $606,000 was recognized with
respect to such engineering services and has been included in net sales. Related
costs including labor and direct expenses have been included in the cost of
goods sold.

During the first quarter of 1999, the Company entered into an agreement
that provides e.TV Commerce, Inc., a wholly owned subsidiary of Compu-DAWN, with
an exclusive arrangement, subject to certain exceptions, to market Boca
Research's advanced network capable TV set-top box. Boca Research has agreed not
to manufacture the TV set-top box for any other multi-level marketing company
which resells local and/or long distance telephone services or Internet access
services, subject to, among other things, minimum purchase requirements over a
two year period. At this time, it appears likely that the agreed upon minimum
purchase requirements will not be met. Related to this agreement, Boca Research
has been issued 117,398 unregistered shares of Compu-DAWN's common stock.
Compu-DAWN retains a call on all shares issued at prices ranging from $5.00 to
$5.75. The appraised value of the shares received by the Company is $200,000 and
this amount is being recognized as revenue on a straight-line basis over 24
months.

Line of Credit

The Company entered into a two-year secured revolving line of credit
agreement on November 9, 1998, 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 September 30, 1999 and December 31, 1998.

-8-
<PAGE>

BOCA RESEARCH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't)
(Unaudited)

Commitments and Contingencies

The Company has been named a co-defendant in an action brought in the
United States District Court for the District of Massachusetts, by NEC
Technologies, Inc. The suit alleges that the Company supplied modem hardware to
NEC, which was combined by NEC with software supplied by another co-defendant,
Ring Zero Systems, Inc. NEC was subsequently sued for patent infringement by
PhoneTel Communications, Inc., allegedly as a result of NEC's combination of
modem hardware and software supplied by the vendors in its personal computer
products. NEC alleges that the Company and Ring Zero are obligated to indemnify
NEC for NEC's cost of defense and settlement of the PhoneTel suit, in the amount
of $327,000. Management at the Company is evaluating the claim, but does not
presently believe the claim will have a material adverse effect on the Company's
business, results of operations and financial condition.

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.

Stockholders' Equity

During the nine month period ended September 30, 1999, 246,685 shares
were issued in connection with the exercise of options granted under the
Company's stock purchase and option plans. The aggregate proceeds received from
these exercises were approximately $679,000.

On May 28, 1999, Infomatec Integrated Information Systems AG
("Infomatec"), an Internet software company located in Augsburg, Germany
purchased 1,747,965 newly issued shares, or approximately 19.9% of the Company's
then outstanding common stock, at a purchase price of $4.58 per share. Net
proceeds from the issuance were approximately $7,782,000. Under the Stock
Purchase Agreement, Infomatec, agreed to grant stock options to members of the
Company's existing management to purchase from Infomatec 270,000 shares of the
Company's common stock at an option strike price of $4.58 per share, subject to
approval by the Company's shareholders. At the Annual Meeting of Shareholders on
August 16, 1999, the vote to approve these stock options was not passed.

On September 24, 1999, National Semiconductor Corporation, a Company
based in Santa Clara, California, purchased 691,085 newly issued shares, or
approximately 6.4% of the Company's then outstanding common stock, at a purchase
price of $7.24 per share. Net proceeds from the issuance were approximately
$4,903,000.

-9-
<PAGE>

Stock Option Plan

During the nine month period ended September 30, 1999, the Company
granted options to purchase 222,500 shares at prices ranging from $ 3.22 to $
7.44 to both new and existing employees and 208,329 stock options were canceled.

-10-
<PAGE>

Item 2.

BOCA RESEARCH, INC.

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

The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors set forth below and
elsewhere in this Report.

As an aid to reviewing the Company's results of operations for the three
and nine month periods ended September 30, 1999 and 1998, the following table
sets forth the financial information as a percent of net sales and as a percent
of change when compared to the earlier period:

<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- Percent ------------------- Percent
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................... 100.0 % 100.0 % (66.1) % 100.0 % 100.0 % (47.4) %
Cost of goods sold.......................... 97.1 84.3 (61.0) 89.8 99.2 (52.4)
---- ---- ---- ----
Gross profit............................ 2.9 15.7 (93.8) 10.2 0.8 612.1
---- ---- ---- ----
Operating expenses:
Research and development.................. 11.0 3.8 (2.6) 10.4 4.1 34.1
Selling, general and administrative....... 57.4 21.4 (9.2) 50.6 20.9 27.1
In-process research & development......... 0.0 0.0 * 0.0 5.4 (100.0)
---- ---- ---- ----
Total operating expenses................ 68.4 25.2 (8.2) 61.0 30.4 5.4
---- ---- ---- ----
Loss from operations........................ (65.5) (9.5) 131.5 (50.8) (29.6) (10.0)
Non-operating income ....................... 2.9 0.7 32.0 1.2 1.0 (39.7)
---- ---- ---- ----
Loss before income taxes ................... (62.6) (8.8) 139.8 (49.6) (28.6) (8.9)
Income taxes ............................... 0.0 0.0 * 0.0 0.0 *
---- ---- ---- ----
Net loss.................................... (62.6) % (8.8) % 139.9 % (49.6) % (28.6) % (8.8) %
==== ==== ==== ====
</TABLE>

* Not meaningful

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<PAGE>

Results of Operations

Net Sales. The Company's net sales decreased by 66.1% to $7,719,000 in
the three months ended September 30, 1999 from $22,789,000 in the three months
ended September 30, 1998. For the nine months ended September 30, 1999, net
sales decreased by 47.4% to $27,167,000 from $51,615,000 for the comparable
period in 1998. The sales decrease in the three and nine month periods ended
September 30, 1999 over the comparable period in 1998 is shown below by product
category. Included in the data communications product category below is net
sales of $3,492,000 and $11,013,000 of Global Village branded product for the
three months and nine months ended September 30, 1999, respectively. Net sales
of Global Village branded product during the period from June 18 to June 30,
1998 were $1,434,000 and net sales during the third quarter of 1998 were
$12,418,000. The Company acquired the modem business of Global Village
Communication, Inc. as of June 18, 1998. The addition of the Global Village
brand extended Boca Research's customer base in the Macintosh(R) market with the
#1-selling modems for Macs(R). Net sales by product category were as follows:

<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(In Millions) (In Millions)
------------- -------------
<S> <C> <C> <C> <C>
Data Communications........................................... $ 6.1 $ 18.4 $ 21.5 $ 33.1
Custom Manufacturing.......................................... -- 2.4 0.5 11.3
Networking.................................................... -- 0.4 0.4 1.3
Video Graphics................................................ -- 0.2 0.1 0.7
I/O, IDE, & Multiport........................................ 1.2 1.1 3.0 3.6
Video Conferencing............................................ -- -- 0.3 0.2
Internet Access Device, Thin Client........................... 0.2 0.3 0.8 1.4
Engineering Services.......................................... 0.2 -- 0.6 --
----- ----- ----- -----
$ 7.7 $ 22.8 $ 27.2 $ 51.6
===== ===== ===== =====
</TABLE>

Excluding the net sales associated with the modem business of Global
Village, the sales decrease was primarily attributable to decreases in sales of
data communications products and custom manufacturing. Sales of data
communication products were adversely affected by several factors, including
pricing pressure on all modem products, excess industry-wide channel
inventories, 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.

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<PAGE>

With respect to the Global Village branded product, net sales decreased to
$3,492,000 in the third quarter of 1999 as compared to net sales of $12,418,000
in the third quarter of 1998. The $12,418,000 in net sales during the third
quarter of 1998 included sales to Apple Computer, Inc. ("Apple") of $5,128,000.
There were no significant sales to Apple during the nine months ended September
30, 1999. During January 1999, Apple introduced its new line of Power Macintosh
G3 computers, which negatively impacted sales of the Company's existing Global
Village modems. In fact, because of the introduction of the Universal Serial Bus
interface, no modems were available for the Power Macintosh G3 computers until
Boca Research began shipping the Global Village TelePort Internal 56K fax/modem
in the second half of February. From April 2 through June 27, 1999, Apple
offered purchasers of a qualifying Power Macintosh G3 computer the option of
choosing either a 56K internal modem or an internal Zip drive at no additional
cost. The Company believes that the Apple promotion had a negative impact on
sales of Global Village branded modems during the second and third quarters of
1999. The Apple promotion has resulted in pricing and inventory issues in the
Global Village modem business, which are expected to continue to negatively
impact operations in the fourth quarter of 1999.

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 represented 18% of net
sales. For the nine months ended September 30, 1999 sales in this category
represented 2% of net sales.

International sales were approximately $.8 million for the three months
ended September 30, 1999 compared to $5.1 million for the three months ended
September 30, 1998. For the nine months ended September 30, 1999 international
sales were approximately $3.4 million compared to $9.9 million for the nine
months ended September 30, 1998, due to the foregoing factors.

Gross Profit . Gross profit was $223,000 for the three months ended
September 30, 1999 as compared to $3,568,000 for the three months ended
September 30, 1998 and decreased as a percentage of net sales to 2.9% in the
three months ended September 30, 1999 from the 15.7% in the three months ended
September 30, 1998. For the nine months ended September 30, 1999 gross profit
increased to $2,763,000 from $388,000 in the nine months ended September 30,
1998. Gross profit as a percentage of net sales increased to 10.2% for the nine
months ended September 30, 1999 from 0.8% for the nine months ended September
30, 1998. The gross profit percentage is being affected by low utilization of
the Company's manufacturing facilities and aggressive channel pricing to reduce
channel inventories as well as inventory write-downs of $931,000 and $1,852,000
recorded in the three months and nine months ended September 30, 1999,
respectively. In the three and nine month periods ended September 30, 1999 the
Company's gross profit was impacted by net sales of $3,492,000 and $11,013,000,
respectively, of Global Village branded products, which have higher gross
margins associated with them as compared to sales of Boca Research branded
products.

The gross profit margins for the Company's products depend on 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 manufacturing efficiencies and capacity utilization. In
addition, gross profit margins on product categories differ. In particular,
custom manufacturing is typically a low profit margin business. Accordingly, the
Company's gross profit has varied substantially from quarter to quarter in the
past, and can be expected to continue to do so in the future. There will be
circumstances, which management currently anticipates will occur in the fourth

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<PAGE>

quarter, in which the Company accepts lower margin sales for purposes such as to
reduce inventories, and to utilize manufacturing capacity.

Research and Development Expenses. Research and development expenses
decreased to $849,000 in the three months ended September 30, 1999 from $872,000
in the three months ended September 30, 1998. This represents an increase in
research and development expenses as a percentage of net sales to 11.0% for the
three months ended September 30, 1999 from 3.8% for the three months ended
September 30, 1998. Research and development expenses increased to $2,823,000
for the nine months ended September 30, 1999 from $2,105,000 in the nine months
ended September 30, 1998. This represents an increase in research and
development expenses as a percentage of net sales to 10.4% for the nine months
ended September 30, 1999 from 4.1% for the nine months ended September 30, 1998.
Research and development expenses increased in the nine months ended September
30, 1999 versus the comparable period in 1998 primarily as the result of the
acquisition of the modem business of Global Village. In addition, the Company is
placing more emphasis on research and development and currently anticipates 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 decreased to $4,429,000 in the three months ended
September 30, 1999 from $4,880,000 in the three months ended September 30, 1998.
Selling, general and administrative expenses as a percentage of net sales
increased to 57.4% in the three months ended September 30, 1999 from 21.4% in
the three months ended September 30, 1998. Selling, general and administrative
expenses increased to $13,733,000 in the nine months ended September 30, 1999
from $10,803,000 in the nine months ended September 30, 1998. Selling, general
and administrative expenses as a percentage of net sales increased to 50.6% in
the nine months ended September 30, 1999 from 20.9% in the nine months ended
September 30, 1998. Selling, general and administrative expenses increased in
the nine months ended September 30, 1999 versus the comparable period in 1998
primarily as the result of the acquisition of the modem business of Global
Village. The Company's expenses for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998 were $1,020,000 higher for
advertising and marketing programs, $690,000 higher for technical support,
$320,000 higher for trade shows, $270,000 higher for amortization of
intangibles, and $150,000 higher for the write-off of the Company's investment
in LocalNet Communications, Inc.

Selling, general and administrative expenses as a percentage of net sales
will continue to fluctuate and will be influenced by the level of sales to the
various distribution channels, and the particular sales and marketing
requirements of each of the channels. Certain selling, general and
administrative expenses have a fixed nature, thus a reduction in net sales may
result in an increase in 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 of
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. The value of purchased technology 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, represented $2,800,000 of the total purchase price. The value
attributed to the in-process research and development was determined by an
independent appraisal.

-14-
<PAGE>

Liquidity and Capital Resources

In the nine months ended September 30, 1999, the Company's working capital
increased by $1,798,000 from December 31, 1998. This increase was represented by
increases in cash of $7,739,000, prepaid expenses and other current assets of
$537,000 and a decrease in current liabilities of $5,290,000; offset by
decreases in inventories of $4,031,000, trade receivables of $5,686,000 and
prepaid and deferred income taxes of $2,051,000. The Company's operations used
cash of $2,497,000 for the nine months ended September 30, 1999. The Company
does not anticipate that it will be profitable in the fourth quarter of 1999 and
this would negatively impact the generation of cash from operations for the
fourth quarter of 1999. During the nine months ended September 30, 1999, the
Company had positive net cash flows of approximately $2.0 million from refunded
federal income taxes, approximately $7.8 million net proceeds for issuance of
1,747,965 shares of its common stock to Infomatec Integrated Information Systems
AG, and approximately $4.9 million net proceeds for issuance of 691,085 shares
of its common stock to National Semiconductor Corporation.

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 for such acquisitions or to meet working
capital needs. There can be no assurance that additional capital beyond the
amounts 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. The ability of a complete system or device, in
which a Product is embedded, to 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.

State of Readiness. The Company's Year 2000 Readiness Plan addresses
year 2000 issues relating to the products made by the Company, the Company's
Information Systems and internal/external IT and non-IT operating systems,
including the Company's facilities, Automated Payroll system, Manufacturing
Resource Planning (MRP)/Accounting system and SMT manufacturing equipment. The
Company's Year 2000 Readiness Team is responsible for implementing and executing

-15-
<PAGE>

the Plan which has been developed to provide a centralized control and
monitoring system for the strategic planning, date critical scheduling and
execution of the Company's year 2000 readiness efforts. The Plan has been
structured into the following Phases: Awareness, Inventory, Assessment,
Remediation, Testing/Validation, Dissemination/Implementation and Contingency
Planning. Each Phase addresses the products made by the Company and the
Company's own facilities and operating systems (IS, IT and non-IT) and the
facilities and operating systems (IS, IT non-IT) of its material customers,
vendors, suppliers and third party providers as well as the products, components
and services which they provide to the Company.

The Company's Year 2000 progress is formally monitored by an
independent third-party consulting firm which has been retained to evaluate the
status of the Company's Y2K initiative as measured against the objectives and
timetables identified in its Year 2000 Readiness Plan. The consulting firm
indicated in their last report to the Board of Directors dated September 13,
1999, that the Company is on schedule with their year 2000 activities. The
Company's management believes that they will continue on schedule. However, the
Company's ability to remain on schedule is primarily dependent upon the software
vendor's adherence to the Plan's timeline for the delivery of an upgraded MRP
interactive Return Materials Authorization (RMA) system. The upgraded system is
scheduled for installation and implementation during the week of November 15. A
Contingency Plan has been developed for the RMA system, therefore, should the
remediation not be completed prior to the Year 2000, the Contingency Plan will
be invoked. The Company's MRP/Accounting system has been upgraded to the
manufacturer's latest version for Year 2000 compliance. The Company's SMT
manufacturing equipment has been remediated and successfully undergone
post-remediation testing. The Company's facilities, including safety and
security operating systems, have been remediated and tested, where testing is
possible, for year 2000 compliance.

Plan status: Phase I - Awareness, 100% complete, Phase II - Inventory,
100% complete, Phase III Assessment, 100% complete, Phase IV - Remediation of
products, 100% complete; Remediation of operating systems, 95% complete, Phase V
- - Testing of products, 100% complete; Testing of operating systems, 90%
complete, Phase VI - Dissemination of product remediation, 100% complete;
Implementation of remediated operating systems, 90% complete, Phase VII -
Contingency Planning, 100% complete.

The Company relies, 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 has completed its review of the
responses it has received to the questionnaires which were circulated to these
service providers, vendors, third party providers and customers with whom the
Company has material relationships to obtain information relating to the year
2000 compliance of their products/services, facilities and operating systems.
Based on the fact that any year 2000 related performance problems, which may
occur within these Companies, are outside of the control of Boca Research,
contingency plans, where feasible, have been developed for each of these
business partners which the Company considers to be Mission Critical "1" or "2"
and in some instances, the Company has elected to replace vendors or systems.
However, despite the precautionary actions which the Company has taken, there
can be no assurance that the Company's business partners 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.

-16-
<PAGE>

Costs. A cost analysis was performed during each phase of the Company's
Year 2000 Readiness Plan and the identified costs were budgeted and reported to
Executive Management and the Board of Directors, which includes the members of
the Audit Committee. This information was last updated and reported on October
11. An updated report reflecting the information below is scheduled for
presentation to the Board of Directors and the Audit Committee on November 15.

To date, the Company has identified an estimated total cost of
approximately $460,016, of which $252,765 has been expended, for the Company's
Year 2000 initiative to bring its operating systems and products into year 2000
compliance. Funds identified but not yet expended, which are included in the
$460,016 total, are: $52,000 for customized RMA software code development and
$32,000 for a Tech Support database upgrade. Other IS and IT hardware and
software costs are estimated to reach $133,000 with $94,264 having been expended
to date. Reflected within these expenditures is the cost for the accelerated
installation, to afford a solution to year 2000 capability issues, of new
software and hardware which had, in the normal course of business, been
scheduled for implementation at a later date. Year 2000 Project administration
and overhead costs, which to date total $75,000, are expected to account for
approximately $105,000 of the $460,016. The fees charged by the third-party
consulting firm to periodically audit the Company's Year 2000 status and to
design a database to facilitate project management for the remediation of
operating systems are included in the $105,000 estimated Project Administration
costs. The Company has also expended $75,000 on software development and testing
for product remediation. In most cases, where remediation is achieved by
software replacement, more than one option is available to the customer.
Therefore, it is difficult, at this time, to determine the replacement costs
that the Company will incur, however, it is estimated that the cost will not
exceed $50,000. Costs for various other small projects are included within the
total estimated cost of $460,016. There can be no assurance that year 2000
performance issues, of products or operating systems, particularly any issues
which are undiscovered at this time, 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.

The Company will continue to evaluate its products and operating
systems as it prepares to move into the new millennium. The Company will also
continue to monitor the Y2K Web pages of the vendors of the software
applications, which the Company uses in its operating systems, to identify and
implement any final updates required for Year 2000 compliance. In the event year
2000 related product or operating systems performance issues, which are unknown
at this time, are identified, an appropriate remediation plan will be
implemented. Due to the evolving process of identifying product and operating
systems issues, as those issues and any resulting requirements for remediation
become known, we are unable, at this time, to determine the full financial
impact on the Company should additional remediation be required. While
contingency plans have been developed for each operating system designated
Mission Critical "1" or "2", there can be no assurance that year 2000 issues
will not have a material adverse effect on the Company's financial condition and
results of operations.

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

-17-
<PAGE>

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 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

-18-
<PAGE>

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.

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.

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

-19-
<PAGE>

losses. The strength of the U.S. dollar 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.

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 49% of net sales in 1998
and 28% of net sales for the nine months ended September 30, 1999. 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 32% of the Company's net sales in 1998 and 38% of net sales for
the nine months ended September 30, 1999. 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.

-20-
<PAGE>

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 and 14% of net sales for the nine months ended September 30, 1999.

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

-21-
<PAGE>

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. Custom manufacturing sales
accounted for approximately 18% and 2% of the Company's net sales for the year
ended December 31, 1998 and the nine months ended September 30, 1999,
respectively.

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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<PAGE>

PART II.

BOCA RESEARCH, INC.
OTHER INFORMATION

Items 1-3. Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

At the Annual Meeting of Stockholders of the Company held on
August 16, 1999, (i) the Company's nominees for directors to serve until the
2000 Annual Meeting of Stockholders were elected and (ii) the stockholders
approved an amendment to the Company's 1992 Stock Option Plan to increase the
number of shares covered thereby from a fixed number of 1,700,000 to such number
as shall always be equivalent to 26% of the then issued and outstanding Common
Stock of the Company and (iii) the stockholders did not approve the granting of
Management Retention Options by Infomatec Integrated Information Systems AG.

With respect to the election of the Directors, the voting was as follows:

Nominee For Against Withheld
------- --- ------- --------
Blaine E. Davis 9,631,072 0 585,204
Karl Gruns 9,650,142 0 566,134
Robert W. Ferguson 9,629,475 0 586,801
Edward Will 9,642,496 0 573,780
H. Ric Luhrs 9,621,642 0 594,634
Gerhard R. Harlos 9,635,262 0 581,014
Joseph M. O'Donnell 9,635,996 0 580,280
Arthur R. Wyatt 9,632,972 0 583,304
Alexander Haefele 9,647,942 0 568,334

With respect to the amendment to the Company's 1992 Stock Option Plan, the
voting was as follows:

For Against Withheld Non-Voted
4,601,451 1,613,443 272,902 3,728,480

With respect to the granting of the Management Retention Options by Infomatec
Integrated Information Systems AG, the voting was as follows:

For Against Withheld Non-Voted
2,668,526 2,784,681 1,280,599 3,482,470

Item 5. Other information

None.

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<PAGE>

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

10.22 Employment agreement dated as of August 1, 1999, between
Robert P. Heinlein and the Company.

11 Calculation of shares used in determining earnings per share.

(b) Reports on Form 8-K

On September 27, 1999, the Company filed a Current Report on
Form 8-K to report that the Company had entered into and
closed on an agreement with respect to the purchase of
691,085 newly issued shares by National Semiconductor
Corporation, at a purchase price of $7.24 per share, for an
aggregate purchase price of approximately $5.0 million in
cash.

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<PAGE>

BOCA RESEARCH, INC.

SIGNATURES

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

Dated: November 12, 1999 /s/ Anthony F. Zalenski
-----------------------
Anthony F. Zalenski
President and Chief Executive Officer
(Principal Executive Officer)

Dated: November 12, 1999 /s/ Robert P. Heinlein
----------------------
Robert P. Heinlein
Vice President of Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)

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<PAGE>

BOCA RESEARCH, INC.

INDEX TO EXHIBITS
Page
----

Exhibit 10.22 Employment agreement dated as of August 1, 1999,
between Robert P. Heinlein and the Company. 27

Exhibit 11 Calculation of shares used in determining
earnings per share 34

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<PAGE>

Exhibit 10.22

EMPLOYMENT AGREEMENT

This Agreement is made as of the _____ day of _____________, 1999,
between Boca Research, Inc., a Florida corporation (the "Company"), and Robert
Heinlein (the "Employee").

RECITALS

WHEREAS, the Company desires to employ the Employee as Chief Financial
Officer of the Company, and the Employee desires to serve as Chief Financial
Officer of the Company, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:

1. Employment. The company hereby employs the Employee as the Chief
Financial Officer of the Company, and the Employee accepts such employment for
the term of employment specified in Section 3 below (the "Employment Term").
During the Employment Term, the Employee shall, subject to the direction of the
President and Chief Executive Officer of the Company, oversee and direct the
financial operations of the Company and perform such other duties as may from
time to time be assigned to him by the President and Chief Executive Officer.

2. Performance. The Employee agrees to devote his best efforts and all
of his business time to the performance of his duties hereunder during the
Employment Term.

3. Employment Term. The Employment Term shall begin on August 1, 1999,
and shall continue until terminated in accordance with the terms of this
Agreement (the "Employment Term").

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<PAGE>

4. Compensation.

(a) Salary. During the Employment Term, the Company shall pay
the Employee a base salary, payable in equal bi-weekly installments, subject to
withholding and other applicable taxes, at an annual rate of One Hundred
Forty-four Thousand and no/100 Dollars ($144,000.00).

(b) Insurance; Other Benefits. The Employee shall be entitled
to participate in all employee benefit plans now existing or hereinafter
established by the Company, including, but not limited to, medical/dental
insurance plans, group life and disability insurance plans, 401(k) Plan,
pension, profit sharing or bonus plans, Employee Stock Purchase Plan, and any
other employee benefit plan or arrangement made available to executive officers
of the Company. For the purpose of determining Long Term Disability and Life
Insurance benefits the Employee's base compensation shall be equal to his base
salary.

(c) Vacation. The Employee shall be entitled to take paid
vacation during each calendar year of the Employment Term as provided for in the
Company's personnel policy as it exists from time to time, to be taken at such
time or times as shall be mutually convenient and consistent with his duties and
obligations to the Company.

(d) Stock Options. The Company hereby grants to the Employee
the option to purchase all or any part of an aggregate of 22,500 shares of
common stock of the Company, at a purchase price as of July 30, 1999, subject to
the following vesting schedule:

Cumulative Number of
Shares for Which Option
Will be Exercisable Date of Vesting
------------------- ---------------
7,500 On the first anniversary of the date of grant

15,000 On the second anniversary of the date of grant

22,500 On the third anniversary of the date of grant,

and further subject to the terms, conditions and provisions of the 1992 Employee
Stock Option Plan and subject to such conditions as are established in the Stock
Option Agreement to be approved by the Compensation Committee.

Notwithstanding the foregoing, the vesting of all of the
Employee's existing options will automatically accelerate and become fully
vested immediately upon a "Change of Control." "Change of Control," for purposes
of this Agreement, shall mean the occurrence of any of the following events:

-28-
<PAGE>

i) any merger or consolidation of the Company with
any other persons in which the Company is not the surviving company,

ii) any sale of all or of substantially all of the
assets of the Company to any other person resulting in the Company leaving the
telecommunications industry,

iii) the acquisition by any person of 40% or more of
the outstanding voting stock of the Company, or

iv) the election of any directors of the Company if
such directors were not nominated for election as directors by the Board of
Directors of the Company and if such directors constitute a majority of all of
the members of the Board of Directors of the Company.

5. Expenses. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with the policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.

6. Agreement Not to Compete. The Employee agrees that during the
Employment Term and any Subsequent Employment Term and during the
Non-Competition Period (defined below) he will not in any capacity, either
separately, jointly, or in association with others, directly or indirectly, as
an officer, director, consultant, agent, employee, owner, partner, stockholder
or otherwise, engage or have a financial interest in any business which competes
with the Company in the United States (excepting only the ownership of not more
than 5% of the outstanding securities of any class listed on an exchange or
regularly traded in the over-the-counter market). The "Non-Competition Period"
shall mean the period ending one year after either (a)the termination of his
employment hereunder by the Company , provided that the Company continues to
comply with its obligations under Section 8(b) hereof during such one year
period, or (b)the termination of his employment hereunder by virtue of the
Employee's resignation, unless such resignation is for Good Reason (as defined
below). The Employee further agrees that during the Non-Competition Period,
except in connection with the performance of services hereunder, he will not in
any capacity, either separately, jointly or in association with others, directly
or indirection, solicit or contact with regard to a business competitor of the
Company any of the Company's employees, consultants, agents or suppliers,
customers or prospects, as shown by the Company's records, that were employees,
consultants, agents, suppliers, customers or prospects of the Company at any
time during the year immediately preceding the termination of employment
hereunder. For purposes of this Agreement, "Good Reason" shall mean the
resignation of the Employee due to (a)a material change in the Employee's duties
and responsibilities which interfere with his ability to manage the affairs of
the Company, (b)a material modification of the Employee's duties hereunder such
that such duties are not consistent with the duties of a chief financial officer
of a company of similar size and in a similar business as the Company, or (c)a
Change of Control arising out of any merger or consolidation of the Company with
any other person in which the Company is not the surviving company or any sale
of all or substantially all of the assets of the Company to any other person.

-29-
<PAGE>

If a court determines that the foregoing restrictions are too broad or
otherwise unreasonable under applicable law, including with respect to time or
space, the court is hereby requested and authorized by the parties hereto to
revise the foregoing restrictions to include the maximum restrictions allowed
under the applicable law. The Employee expressly agrees that breach of the
foregoing would result in irreparable injuries to the Company, that the remedy
at law for any such breach will be inadequate and that upon breach of this
provision, the Company, in addition to all other available remedies, shall be
entitled as a matter of right to seek injunctive relief in any court of
competent jurisdiction.

7. Secret Processes and Confidential Information. For the Employment
Term and thereafter, the Employee agrees to be bound by the terms and conditions
of the Company's Business Code of Conduct and the Confidentiality Agreement
executed by the Employee in favor of the Company.

8. Termination.

(a) Termination. The employment of the Employee hereunder may
be terminated by either party by written notice to the other party, unless
otherwise terminated in the manner provided in this Section 8.

(b) Termination by the Company With Cause. The Company shall
have the right at any time to terminate the Employee's employment hereunder upon
the occurrence of any of the following (any such termination being referred to
as a termination for "Cause"):

(i) the commission by the Employee of any proven
embezzlement of a material amount of funds or other proven deliberate and
premeditated act of dishonesty against the financial or business interests of
the Company which adversely affects the Company;

(ii) the breach by the Employee of any material term
of the Business Code of Conduct, which beach is not cured within 30 days
subsequent to notice from the Company to the Employee specifying such breach;

(iii) the conviction by the Employee of or the
pleading by the Employee of nolo contendere to, a felony;

(iv) the willful failure or refusal of the Employee
to materially perform the duties specified in and pursuant to Section 1 hereof
or to follow the lawful directives of the Board of Directors (provided that the
lawfulness of such directives is confirmed by general counsel to the Company),
which failure or refusal is not cured within 15 days subsequent to notice from
the Company to the Employee specifying the nature of such failure or refusal; or

(v) the breach by the Employee of any material terms
of this Agreement, which beach is not cured within 30 days subsequent to notice
from the Company to the Employee specifying such breach.

-30-
<PAGE>

(c) Termination Upon Death or Disability. The Employee's
employment hereunder shall automatically terminate upon the Employee's death or
upon his inability to perform his duties hereunder by reason of any mental,
physical or other disability for a period of at least six consecutive months, as
determined by a qualified physician selected by the Employee from a list of five
physicians selected by the Company.

(d) Termination by the Company Without Cause. The Company
shall have the right to terminate the Employee's employment at any time for any
reason without Cause.

(e) Resignation by Employee. The Employee shall have the right
to resign his employment with the Company, in good standing, provided a 60 day
notice is given, at any time for any reason.

9. Effect of Termination of Employment.

(a) With Cause; Resignation; Death or Disability. If the
Employee's employment is terminated with Cause pursuant to Section 8(b), if the
Employee's employment is terminated by the death or disability of the Employee
pursuant to Section 8(c), or if the Employee elects to terminate his employment,
the Employee's salary and other benefits specified in Section 4 shall cease at
the time of such termination; provided, however, that the Employee shall be paid
for all accrued and unused vacation and be entitled to continue to participate
in the Company's medical benefit plans to the extent required by law. Further,
the Employee shall be entitled to such life insurance and/or disability benefits
in the event of a death or disability as the Company provides pursuant to
Section 4(b) above, which for information purposes only, amounts to life
insurance coverage equal to two times the Employee's base salary, subject to
certain caps and limitations under the coverage. This provision shall not be
construed as requiring the Company to carry any certain amounts of insurance and
the same may change from time to time.

(b) Without Cause by the Company. If the Employee's employment is
terminated by the Company without Cause pursuant to Section 8(d), the Employee's
salary and other benefits specified in Section 4 shall cease at the time of such
termination, provided, however, that the Employee shall be entitled to be paid
for all accrued unused vacation. The Employee shall be entitled to receive one
year's annual base salary which exists as of the time of termination, payable in
twelve (12) equal monthly installments commencing on the 1st day of the month
following termination, as "Severance Pay." The Employee shall not be required to
mitigate the amount of any payment provided for in this Section 9(b) by seeking
other employment or otherwise; provided, however, that if the Employee accepts
any other employment for compensation of any kind, deferred or otherwise, during
such period during which the said Severance Pay is being made, such Severance
Pay shall terminate and the Company shall be under no further obligations to
Employee therefor except that he shall be entitled to participate in the
Company's group insurance plans to the extent required by law. Further, all
existing stock options possessed by the Employee shall be deemed immediately
vested, subject to the terms of the 1992 Employee Stock Option Plan. In the
event of such termination whereby the Severance Pay is being made as provided
above, Employee's employment shall be deemed to continue during such period that
the severance payments are being made, exclusively for the purpose of exercising
options pursuant to the 1992 Employee Stock Option Plan and for the purpose of
Employee's continuing on the Company's group medical, dental, and life insurance
plans.

-31-
<PAGE>

10. Insurance. The Company may purchase insurance on the life of the
Employee, and if it does so, the Employee shall cooperate fully by performing
all the requirements of the life insurer which are necessary conditions
precedent to the issuance of the life insurance policy issued by it.

11. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:

If to the Employee:
Robert Heinlein
3398 NW 24th Terrace
Boca Raton, Florida 33431

If to the Company:
Boca Research, Inc.
1377 Clint Moore Road
Boca Raton, Florida 33487
Attn: Chairman

12. General.

(a) Governing Law. The terms of this Agreement shall be
governed by and construed under the laws of the State of Florida without regard
to its principles of conflicts of laws.

(b) Assignability. The Employee may not assign his interest in
or delegate his duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without consent of Employee.

(c) Enforcement Costs. In the event that either the Company or
the Employee initiates an action or claim to enforce any provision or term of
this Agreement, the costs and expenses (including attorneys' fees) of the
prevailing party shall be paid by the other party, such party to be deemed to
have prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.

(d) Binding Effect; Successors. This Agreement shall be
binding upon and inure to the benefit of the Company, its permitted successors
and assigns and the Employee, his representatives and heirs. The Company will
require that any successor (whether direct or indirect, by purchase of stock or
assets, by merger, by consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, together with such successor's
ultimate parent corporation (if any), will be jointly and severally liable for
the obligations owed to the Employee hereunder and will perform this Agreement
in the same manner and to the same extent that the Company is obligated to
perform it. Any succession shall not, however, relieve or alter the Company's
continuing liability for all obligations owing to the Employee hereunder. The
Employee acknowledges and understands, however, that the Employee's employment
by a successor to the Company, if consistent with the terms and provisions of
this Agreement, will not be deemed a termination of the Executive's employment
with the Company.

-32-
<PAGE>

(e) Entire Agreement; Modification. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof and may not be modified or amended in any way except in writing by the
parties hereto.

(f) Duration. Notwithstanding the term of employment
hereunder, this Agreement shall continue for so long as any obligations remain
under this Agreement.

(g) Indemnification. The Employee shall be entitled to rights
of indemnification as an officer of the Company to the extent that the Company
provides indemnification to its officers and directors, including the benefit of
any directors' and officers' insurance coverage maintained from time to time.

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first above written.

BOCA RESEARCH, INC.

By: /S/________________
Name: Anthony F. Zalenski
Title: President

EMPLOYEE

/S/____________
Robert Heinlein

-33-

<PAGE>

Exhibit 11

BOCA RESEARCH, INC.

EXHIBIT 11 - CALCULATION OF SHARES USED IN
DETERMINING NET INCOME PER SHARE
(Unaudited)

September 30, 1999
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Shares outstanding at January 1, 1999......................... 8,756,487 8,756,487
Shares issued January 1, 1999 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 20,643 20,643
Shares issued May 28, 1999 to
Infomatec Integrated Information
Systems AG.................................................. 1,747,965 806,753
Shares issued July 1, 1999 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 23,270 7,842
Shares issued in connection with a
non-qualified stock option plan............................. 163,019 61,438
Shares issued September 24, 1999 to
National Semiconductor Corporation.......................... 52,583 17,720
---------- ---------
Weighted average shares outstanding........................... 10,763,967 9,670,883
========== =========

September 30, 1998

Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------

Shares outstanding at January 1, 1998......................... 8,725,079 8,725,079
Shares issued January 1, 1998 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 16,578 16,578
Shares issued July 1, 1998 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 14,830 4,943
--------- ---------
Weighted average shares outstanding........................... 8,756,487 8,746,600
========= =========
</TABLE>

-34-

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,698,000
<SECURITIES> 0
<RECEIVABLES> 9,824,000
<ALLOWANCES> 3,961,000
<INVENTORY> 5,215,000
<CURRENT-ASSETS> 26,950,000
<PP&E> 15,787,000
<DEPRECIATION> 12,774,000
<TOTAL-ASSETS> 34,422,000
<CURRENT-LIABILITIES> 8,351,000
<BONDS> 0
0
0
<COMMON> 115,000
<OTHER-SE> 25,914,000
<TOTAL-LIABILITY-AND-EQUITY> 34,422,000
<SALES> 7,719,000
<TOTAL-REVENUES> 7,719,000
<CGS> 7,496,000
<TOTAL-COSTS> 7,496,000
<OTHER-EXPENSES> 5,278,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> (4,832,000)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (4,833,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,833,000)
<EPS-BASIC> (0.45)
<EPS-DILUTED> (0.45)

</TABLE>