ECCS INC, 10-Q, 1996-08-14

ECCS INC
10-Q, 1996-08-14
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 1996
Commission File No. 0-21600

ECCS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C>
New Jersey 22-2288911
- ------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

One Sheila Drive, Tinton Falls, New Jersey 07724
- ------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>

(908) 747-6995
-------------------------------
(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 Registrant's classes
of common stock, as of June 30, 1996:

<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common Stock, $.01 par value 4,333,171
</TABLE>

Page 1 of 24 Pages
<PAGE> 2

ECCS, INC.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Consolidated Balance Sheets as of December 31, 1995 (audited)
and June 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Consolidated Statements of Operations for the
three months ended June 30, 1995 and June 30, 1996
and for the six months ended June 30, 1995 and
June 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Consolidated Statements of Cash Flows for the
six months ended June 30, 1995 and June 30, 1996 (unaudited). . . . . . . . . . . . . . 4

Notes to Consolidated Financial Statements (unaudited). . . . . . . . . . . . . . . . . 5

Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . . . . . . . . . . . . . . 11
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 23

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>

- i -
<PAGE> 3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

-1-
<PAGE> 4
ECCS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $1,514 $4,800
Accounts receivable, less allowance for doubtful accounts of
$226 in 1995 and $215 at June 30, 1996 . . . . . . . . . . . . . . . 2,767 6,362
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,854 2,801
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 395
Other receivables, less allowance for doubtful accounts of
none in 1995 and none at June 30, 1996 . . . . . . . . . . . . . . . 34 55
------- -------
9,438 14,413
Property, plant and equipment (net). . . . . . . . . . . . . . . . . . . . 1,311 1,243
Investment in real estate (net). . . . . . . . . . . . . . . . . . . . . . 714 --
Capitalized software (net) . . . . . . . . . . . . . . . . . . . . . . . . 919 913
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 52
------- -------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $12,435 $16,621
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Loans payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,849 $3,388
Payable to AT&T Commercial . . . . . . . . . . . . . . . . . . . . . . 1,254 335
Mortgage payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 --
Current portion of capital lease obligations . . . . . . . . . . . . . 78 116
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . 3,631 4,807
Customer deposits, advances and other credits. . . . . . . . . . . . . 990 1,339
------- -------
8,304 9,985

Capital lease obligations, net of current portion. . . . . . . . . . . . . 50 40
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 161
------- -------
8,519 10,186

Series B cumulative redeemable convertible preferred stock, $.01 par
value per share, Authorized, 3,000,000 shares;
Issued and outstanding, 1,600,000 shares at December 31, 1995. . . . . 16 --
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . 1,778 --
------- -------
1,794 --
------- -------
Shareholders' Equity:
Preferred stock, $.01 par value per share
Authorized, 3,000,000 shares;
Series B cumulative convertible preferred stock, $.01 par value per
share, Issued and outstanding, 1,600,000 shares at June 30, 1996 . . -- 16
Series C cumulative convertible preferred stock, $.01 par value per
share Issued and outstanding, 500,000 shares at June 30, 1996. . . . -- 5
Common stock, $.01 par value per share
Authorized, 20,000,000 shares;
Issued and outstanding, 4,277,975 shares at December 31, 1995
and 4,333,171 at June 30, 1996 . . . . . . . . . . . . . . . . . . . 43 43
Capital in excess of par value - preferred . . . . . . . . . . . . . . -- 4,521
Capital in excess of par value - common. . . . . . . . . . . . . . . . 9,974 10,120
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . (7,895) (8,270)
------- -------
2,122 6,435
------- -------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . $12,435 $16,621
======= =======
</TABLE>

See notes to consolidated financial statements.

-2-
<PAGE> 5

ECCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
For the Three For the Six
Months Ended June 30, Months Ended June 30,
--------------------- ---------------------
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 9,290 $ 7,733 $ 18,373 $ 12,838
Cost of sales. . . . . . . . . . . . . . . . . . . . . . 6,621 5,203 13,622 8,731
-------- -------- -------- --------

Gross profit . . . . . . . . . . . . . . . . . . . . 2,669 2,530 4,751 4,107

Operating expenses:
Selling, general & administrative. . . . . . . . . . 2,494 2,130 4,869 3,652
Research & development . . . . . . . . . . . . . . . 372 402 575 673
-------- -------- -------- --------

Operating income (loss). . . . . . . . . . . . . . . . . (197) (2) (693) (218)

Net interest expense . . . . . . . . . . . . . . . . 118 60 265 157
-------- -------- -------- --------
Loss before provision for
income taxes . . . . . . . . . . . . . . . . . . . . (315) (62) (958) (375)

Provision (benefit) for income taxes . . . . . . . . . . -- -- -- --
-------- -------- -------- --------

Net loss . . . . . . . . . . . . . . . . . . . . . . $ (315) (62) (958) (375)
======== ======== ======== ========

Net loss per share . . . . . . . . . . . . . . . . . . . $ (0.08) (0.03) (0.23) (0.11)
======== ======== ======== ========

Weighted average number of common and common
equivalent shares. . . . . . . . . . . . . . . . . . 4,218 4,319 4,218 4,322
======== ======== ======== ========
</TABLE>

See notes to consolidated financial statements.

-3-
<PAGE> 6
ECCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)

<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (958) $ (375)
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 612 652
Gain on sale of Illinois property . . . . . . . . . . . . . . . . . . . . -- (83)
Deferred rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (4)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Decrease (increase) in accounts receivable. . . . . . . . . . . . . . . . 3,340 (3,595)
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . 894 2,053
Decrease in income taxes refundable . . . . . . . . . . . . . . . . . . . 854 --
Increase in prepaid expenses and other. . . . . . . . . . . . . . . . . . (142) (126)
Decrease (increase) in other receivables. . . . . . . . . . . . . . . . . 401 (21)
Decrease in other assets. . . . . . . . . . . . . . . . . . . . . . . . . 9 1
Decrease in payable to AT&T Commercial. . . . . . . . . . . . . . . . . . (1,985) (919)
(Decrease) increase in accounts payable and accrued liabilities . . . . . (595) 1,176
(Decrease) increase in customer deposits. . . . . . . . . . . . . . . . . (629) 349
-------- --------
Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . . 1,796 (892)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . . (65) (307)
Proceeds from sale of Illinois property. . . . . . . . . . . . . . . . . . . . -- 855
Additions to capitalized software. . . . . . . . . . . . . . . . . . . . . . . (103) (248)
-------- --------
Net cash (used in) provided by investing activities. . . . . . . . . . . . . . . . (168) 300
-------- --------
Cash flows from financing activities:
Borrowings under revolving credit agreement. . . . . . . . . . . . . . . . . . 19,454 9,694
Repayments under revolving credit agreement. . . . . . . . . . . . . . . . . . (20,176) (8,155)
Repayment of long-term debt and capital lease obligations. . . . . . . . . . . (67) (53)
Repayment of mortgage payable. . . . . . . . . . . . . . . . . . . . . . . . . -- (502)
Net proceeds from issuance of preferred stock. . . . . . . . . . . . . . . . . 1,794 2,748
Proceeds from exercise of stock options and issuances. . . . . . . . . . . . . 12 146
-------- --------

Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . 1,017 3,878
-------- --------

Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . 2,645 3,286

Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . 1,670 1,514
-------- --------

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . $ 4,315 $ 4,800
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 227 $ 185
======== ========
</TABLE>

See notes to consolidated financial statements.

-4-
<PAGE> 7
ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for June 30, 1995 and June 30, 1996 is unaudited)

NOTE 1 - BASIS OF PRESENTATION:

The information presented for June 30, 1995 and June 30, 1996 and for
the three and six-month periods then ended, is unaudited, but, in the opinion
of the Company's management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for the fair presentation of
the Company's financial position as of June 30, 1996, the results of its
operations for the three and six-month periods ended June 30, 1995 and June 30,
1996 and its cash flows for the six-month periods ended June 30, 1995 and June
30, 1996. The financial statements included herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1995, which were included as part of
the Company's Annual Report on Form 10-K.

The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances have been
eliminated.

Results for the interim period are not necessarily indicative of
results that may be expected for the entire year.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Organization and Business

ECCS, Inc. ("ECCS" or the "Company") provides systems integration
solutions that feature high-availability mass storage enhancement products
including those designed and manufactured by the Company, as well as
value-added resales of UNIX-based computer systems, networking, connectivity,
peripheral products and enterprise management software. Notable features
related to ECCS' high-availability mass storage enhancement products include
RAID 10, Split Mirror (TM), Single Button Rebuild, and Status Monitor software.
ECCS provides CPU Systems from AT&T, SUN and IBM along with offering systems
integration services that feature custom design and support of high
availability operating environments which include such features as automatic
server failover, hot-swappable component replacement, and on-line system
maintenance. ECCS currently focuses its marketing and sales efforts on
original equipment manufacturers (OEMs), corporate end-user accounts and
organizations selling to federal government customers. The Company conducts
sales and marketing from its corporate headquarters in New Jersey and from its
offices in Alpharetta, Georgia, Arlington, Virginia and Seattle, Washington.
ECCS' reseller relationship with Computer Associates

-5-
<PAGE> 8
ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for June 30, 1995 and June 30, 1996 is unaudited)

provides ECCS' customers with a software tool (CA-Unicenter), which allows a
distributed open systems environment to be managed from one central location,
thereby integrating servers, the Company's high-availability mass storage
subsystems, system security and other critical system administration functions
all under one umbrella.

(b) Cash and Cash Equivalents

The Company considers short-term investments with a maturity of three
months or less when purchased to be cash equivalents.

Inventories are stated at the lower of cost (first-in, first-out
method) or market. Cost includes invoiced amounts plus capitalized labor,
freight and overhead related to purchasing, distribution and manufacturing
activities.

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ -----------
(unaudited)

<S> <C> <C>
Purchased parts. . . . . . . . . . . . . . . . . . . . . $2,538 $2,254
Finished goods . . . . . . . . . . . . . . . . . . . . . 3,129 1,453
------ ------
5,667 3,707

Less: inventory valuation reserve. . . . . . . . . . . . 813 906
------ ------
$4,854 $2,801
====== ======
</TABLE>

(d) Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation and
amortization are provided on a straight-line basis over the estimated useful
lives ranging from 3 to 5 years.

Equipment under capital leases is recorded at the lower of fair value
or present value of minimum lease payments at the inception of the lease.
Amortization of the leased property is computed using the straight-line method
over the term of the lease.

-6-
<PAGE> 9

ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for June 30, 1995 and June 30, 1996 is unaudited)

(e) Investment in Real Estate

In 1993, the Company made a $753,000 investment in real estate,
including building and land. Depreciation on the building is recognized on a
straight line basis over the estimated useful life of 31.5 years. On March 19,
1996, the Company sold its Romeoville, Illinois property for gross proceeds of
$855,000. These proceeds were used to pay off the mortgage in full. Net cash
proceeds to the Company were approximately $270,000.

(f) Software Development Costs

The Company capitalizes software development costs in accordance with
the Statement of Financial Accounting Standards Board ("SFAS") No. 86. Such
costs are capitalized after technological feasibility has been demonstrated.
Such capitalized amounts are amortized commencing with product introduction on
a straight-line basis utilizing the estimated economic life ranging from one to
three years. Amortization of capitalized software development is charged to
cost of sales and aggregated $90,000 and $255,000 for the periods ended June
30, 1995 and June 30, 1996, respectively. At December 31, 1995 and June 30,
1996, the Company has capitalized $1,574,000 and $1,823,000 software
development costs, respectively, of which $655,000 and $910,000 had been
amortized, respectively.

(g) Revenue Recognition

In general, revenue is recognized upon shipment of the product or
system or as services are provided. Revenues related to maintenance contracts
are recognized over the respective terms of the maintenance contracts. Revenue
for certain major product enhancements and major new product offerings, for
which the Company believes that significant product development risks may exist
which can realistically only be addressed during live beta testing at end-user
sites, generally is not recognized until successful completion of such end-user
beta testing.

(h) Warranty

Estimated future warranty obligations related to ECCS products are
provided by charges to operations in the period the related revenue is
recognized.

(i) Research and Development Costs

Research and development costs are expensed as incurred, except for
software development costs which are accounted for as noted in (f) above.

-7-
<PAGE> 10
ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for June 30, 1995 and June 30, 1996 is unaudited)

(j) Income Taxes

The Company has adopted the provisions of SFAS No. 109 in accounting
for income taxes. This statement requires an asset and liability approach for
financial accounting and reporting for income taxes. At the end of 1995, the
Company had a net operating loss carryforward of approximately $7,300,000. The
Internal Revenue Service allows this loss to be carried forward to subsequent
periods in which the Company has taxable income. However, due to the recent
private placements (see Note 4), the Internal Revenue Service may limit the
Company's ability to offset taxable income in future periods against the loss
carryforward.

(k) Per Share Information

Net loss per share is computed using the weighted average number of
common shares and common share equivalents outstanding during the periods
presented. To the extent common share equivalents are anti-dilutive, they are
not included in the calculation. Common share equivalents result from
outstanding options and warrants to purchase common stock and from redeemable
convertible preferred stock. In determining net loss per share, aggregate
preferred stock dividends (see Note 4) of $53,258 and $85,758 for the three and
six month periods ended June 30, 1996, although not declared by the Company's
Board of Directors or paid by the Company, were used to derive the Company's
earnings per share. Such amount was $14,578 for both the three and six month
periods ended June 30, 1995

NOTE 3 -- LITIGATION

On March 23, 1993, the Company was served with a complaint in which a
terminated employee of the Company alleges that the Company fraudulently
induced him to join the Company and negligently misrepresented the Company, its
products and markets and the position offered. The plaintiff seeks an
unspecified amount of damages, including punitive damages and costs. The
Company intends to deny the allegations made and to defend vigorously the
action. The Company does not believe that the outcome of the action will be
material.

On July 10, 1995, the Company filed a complaint against a customer
for non-payment of invoices relating to products shipped by the Company in the
first quarter of 1995. On August 11, 1995, such customer filed a counterclaim
against the Company alleging breach of contract. The Company intends to deny
the allegations made and to defend vigorously the action. The Company does not
believe that the outcome of the action will be material.

-8-
<PAGE> 11
ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for June 30, 1995 and June 30, 1996 is unaudited)

damages and alleges negligence on the part of the Company arising from the
Company's alleged actions requiring such employee to work an excessive number
of hours, causing such employee to fall asleep while driving. The Company
denies the allegations and intends to defend vigorously the action. The
Company does not believe that the outcome of the action will have a material
effect on the Company's business, financial condition or results of operations.
The Company believes that the claim will be covered by its insurance.

NOTE 4 -- CONVERTIBLE PREFERRED STOCK

The Company has an authorized class of 3,000,000 shares of Preferred
Stock which may be issued by the Board of Directors on such terms and with such
rights, preferences and designations as the Board may determine. On May 19,
1995, 1,600,000 shares of the Company's Preferred Stock were designated as 6%
Cumulative Redeemable Convertible Preferred Stock, Series B ("Series B
Preferred Stock"). Such shares were issued on May 19, 1995. Dividends on the
Series B Preferred Stock are calculated at $0.02 per share per quarter and
accumulate if not declared and paid. Interest of 6% per annum accrues on any
unpaid dividends. At any time, the Series B Preferred Stockholders may convert
their Series B Preferred Stock into Common Stock, at the initial rate of one
for one, as such conversion ratio may be adjusted from time to time (see
below).

On May 17, 1996, the Company's Series B Preferred Stock was amended to
delete the mandatory and optional redemption provisions contained therein. As
a result of the deletion of the mandatory and optional redemption provision,
the Series B Preferred Stock was reclassified to equity in the balance sheet at
June 30, 1996.

Also on May 17, 1996, 500,000 shares of the Company's Preferred Stock
were designated as Cumulative Convertible Preferred Stock, Series C ("Series C
Preferred Stock"). Of such shares, 462,512 were issued into escrow on May 17,
1996 at a price per share of $6.00. Dividends with respect to such shares are
calculated based on $0.09 per share per quarter and accumulate if not declared
and paid. Interest of 6% per annum accrues on any unpaid dividends. At any
time, the Series C Preferred Stockholders may convert their Series C Preferred
Stock into Common Stock, at the initial rate of four shares of Common Stock for
each share of Series C Preferred Stock, as such conversion ratio may be
adjusted from time to time (see below). However, upon the consummation of a
public offering that meets certain terms, as defined, the Series C Preferred
Stock will automatically convert. The Company has reserved 2,000,000 shares of
Common Stock for the conversion of the outstanding Series C Preferred Stock.
The 462,512 shares of Series C Preferred Stock and the proceeds thereof were
released from escrow on May 25, 1996 upon satisfaction of all applicable
conditions to release, after denial by Nasdaq of an exception to the
shareholder approval requirement. The issuance of such shares of Series C
Preferred Stock without shareholder approval and without an exception to such
requirement

-9-
<PAGE> 12

ECCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for June 30, 1995 and June 30, 1996 is unaudited)

constitutes a breach of the Company's listing agreement with Nasdaq.
Consequently, the Company has been delisted from the Nasdaq National Market and
is now listed on the Nasdaq Small Cap Market. The Company's Board of Directors
had determined that the issuance of the shares of Series C Preferred Stock
without shareholder approval was necessary for the continued financial
viability of the Company.

On May 30, 1996, the Company issued directly to certain investors the
remaining 37,488 shares of Series C Preferred Stock at a price of $6.00 per
share.

In connection with the issuance of the Series C Preferred Stock and
pursuant to the anti-dilution provisions of the Series B Preferred Stock, the
conversion ratio of the Series B Preferred Stock was adjusted. As a result, the
Series B Preferred Stock is currently convertible into approximately 1,770,272
shares of Common Stock. The Company has reserved 1,770,272 shares of Common
Stock for the conversion of outstanding Series B Preferred Stock.

In the event of liquidation, dissolution or winding up of the Company,
Series B Preferred Stockholders and Series C Preferred Stockholders, on a pro
rata basis, are entitled to receive prior and in preference to Common
Stockholders.

Upon the consummation of the sale into escrow of 462,512 shares of
Series C Preferred Stock, the direct pay line of credit was terminated and the
general line of credit was increased to $2 million. On May 9, 1996, as part of
its reevaluation of its credit position, AT&T-CFC agreed to provide a $750,000
direct line of credit, and a direct pay line of credit of $1,250,000, which
requires a deposit of the proceeds of sales directly into AT&T-CFC's lockbox.
Such line of credit has the same financial covenants as the Company's previous
line of credit with AT&T-CFC. The outstanding balance due AT&T-CFC at June 30,
1996 was $335,000.

-10-
<PAGE> 13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.

RESULTS OF OPERATIONS (IN THOUSANDS)

Three Months Ended June 30, 1996 and 1995

Net Sales

Net sales decreased by approximately $1,557, or 16.8%, in the three
months ended June 30, 1996, as compared to net sales in the three months ended
June 30, 1995. The decrease in 1996 resulted primarily from a decrease in
communications sector sales of $3,490 offset by an increase in federal sector
sales of $534, an increase of $624 in commercial sector sales, and an increase
in OEM sector sales of $775.

The increase in sales in the Company's federal, commercial and OEM
sectors represents an increase in sales of the Company's own mass storage
enhancement products.

As previously announced, the Company entered into an OEM agreement
with Unisys Corporation to sell the Synchronix family of products. Sales to
Unisys of the Company's Synchronix product line during the three months ended
June 30, 1996 were $527, or 6.8% of total net sales.

Also as previously announced, the Company entered into an agreement
with Hughes Data Corporation to sell mass storage RAID products through Hughes
into the federal government. Sales to Hughes of such products for the
three-month period ended June 30, 1996 were $2,911, or 37.6% of total net
sales.

The decrease in the Company's communication sector reflects a
reduction in sales of NCR computer equipment.

A substantial portion of sales made to customers in the communications
sector were sales to multiple AT&T business units. In the three months ended
June 30, 1996 and June 30, 1995, 13% and 54% of net sales, respectively, were
made to multiple AT&T entities. The Company believes that much of the downward
pressure on sales to the multiple AT&T business units is attributable to
intense increased competition from the NCR sales force. The Company earlier
reported that, in October 1993, NCR announced a major company restructuring.
At that time, the Company stated that although it was unable to determine the
impact, if any, that would result from such announced restructuring, there
could be no assurance that such restructuring by the Company's leading vendor
would not have an adverse impact on the Company's results of operations in
ensuing quarters. Also, in its Annual Report for the year ended December 31,
1994, the Company reported that NCR revised its policies related to sales of
NCR products to other AT&T business units. At that time, the Company announced
that it believed that such restructuring and policy changes created intense
additional competition for the Company,

-11-
<PAGE> 14

particularly with respect to sales into AT&T business units, and that such AT&T
business units have begun purchasing a greater portion of NCR computer
equipment directly from NCR. Accordingly, the Company has, in general,
experienced declining sales to multiple AT&T business units, increased downward
price pressure on such sales and declining profitability on its sales of NCR
computer equipment into AT&T business units.

In September 1995, NCR announced another major corporate restructuring
including significant layoffs and the elimination of certain products; and AT&T
announced a major restructuring plan which includes the spin-off to its
shareholders of NCR and AT&T's Network Systems Communications Products group.
The Company believes that disruption and uncertainties resulting from these
AT&T and NCR restructurings resulted in a materially adverse impact on the
Company's new orders and shipments during the second quarter of 1996. Although
the Company cannot predict the impact, if any, of these same influences in the
third quarter of 1996 and beyond, the Company's results of operations may be
adversely affected.

The Company's value added reseller agreement with NCR is terminable by
either party upon 90 days prior written notice. On May 17, 1996, the Company
received notice from NCR pursuant to which NCR advised the Company of its plan
to establish second tier "Associate VAR" relationships, through four
distributors, with its current partners which do not meet the criteria for a
"Direct VAR". Such notice also provided that, in either case, the Company's
existing value added reseller agreement will be terminated effective 90 days
from receipt of NCR's letter and that the Company is required to submit an
application, either directly to NCR or to one of the four distributors, for
authorization as an NCR Direct VAR or an Associate VAR, as the case may be.
NCR has advised the Company that its purchases must be in excess of $8 million
annually in order for the Company to continue to make purchases directly from
NCR rather than through such distributors. In 1995, the Company's purchases
from NCR were $9.5 million. In light of the Company's strategy to diversify its
customer base and increase sales through alternative channel partners, and
NCR's repositioning, the Company does not anticipate that its purchases from
NCR will total $8 million annually. Therefore, the Company has requested an
extension until the end of 1996 to determine whether its annual purchases will
qualify it as an Associate VAR or a Direct VAR. The Company has not received
any indication from NCR as to whether such request for an extension will be
granted. In the event that it is not granted and the Company must become an
Associate VAR, or, in the event that even after such an extension, the criteria
for a Direct VAR are not met, the Company's costs to acquire NCR inventory will
increase, and will materially adversely affect the communications sector's
gross margins.

An integral part of the Company's strategy is to continue to seek to
diversify its customer base and to increase direct commercial and federal
sector sales and sales through alternate channel partners. As part of the
Company's strategic plan, the Company, in addition to striving to expand sales
of its own mass storage enhancement products, has been endeavoring to broaden
its markets and expand its product and service offerings. During the third
quarter of 1995, the Company took additional steps toward these goals of
broadening its potentially available market

-12-
<PAGE> 15
and expanding its product and service offerings by becoming an IBM Industry
Remarketer Affiliate for the IBM RISC System/6000, establishing a reseller
relationship with Computer Associates for its Unicenter product which allows
centralized management of distributed open systems computing environments and
entering into a business partner agreement with CLAM Associates, which provides
a software product that allows automatic server failover for IBM RS/6000s in
clustered environments. In addition, the Company announced a high-performing,
easy-to-administer, mid-range RAID subsystem targeted to address the
high-availability requirements of Sun Microsystems customers. There can be no
assurance that the Company will be able to successfully implement this
strategy.

Gross Profit

The Company's cost of sales includes primarily the cost of the
Company's own and other vendors' products. The Company's gross profit
decreased by approximately $139 in the three months ended June 30, 1996 to a
gross profit of $2,530. Such decrease has resulted from a decrease in sales
volume offset by an increase in gross margin percentage from 28.7% to 32.5%.
The increase in gross margin percentage is due primarily to a shift in product
mix toward sales of the Company's own mass storage enhancement products, which
generally have higher gross margins than those realized in the sales of NCR
based systems.

Operating Expenses

Selling, general and administrative expenses consist primarily of
salaries, commissions, bonuses and related employee benefits, payroll taxes and
other administrative and overhead costs. Selling, general and administrative
expenses increased as a percentage of net sales in the three months ended June
30, 1996, representing 28% of net sales, an increase of 1 percentage point from
the three months ended June 30, 1995. Such increase was due primarily to the
lower sales volume for the three months ended June 30, 1996. The nominal
dollar decrease in selling, general and administrative expense for the three
months ended June 30, 1996 was $364 when compared to such expense for the three
months ended June 30, 1995, the amount of which was $2,494. Such decrease was
primarily the result of lower commission expense and payroll-related expenses.
Salaries, commissions, bonuses and related employee benefits and payroll taxes
were the largest components of selling, general and administrative expenses,
accounting for 61% and 63% of such expenses in the three months ended June 30,
1996 and June 30, 1995, respectively.

Research and development expenses consist primarily of the costs
associated with research and development personnel. These expenses have
increased in the past three years as the Company continued to enhance its tape
backup devices and focused on the development of its RAID products and
technology. Although research and development expenses were a small percentage
of the Company's net sales in the second quarter of 1996, such expenses
represented approximately 5.8% of the net sales of the Company's mass storage
enhancement products (7.5% including the amount capitalized in the three month
period ended June 30, 1996 in accordance with SFAS No. 86). The Company
expects to continue to devote greater resources to product development in the
future.

-13-
<PAGE> 16
Interest Expense

Interest expense for the three months ended June 30, 1996 decreased by
$58 as compared to the three months ended June 30, 1995, due principally to
decreased inventory carrying levels resulting in a decrease in borrowings.

Six Months Ended June 30, 1996 and 1995

Net Sales

Net sales decreased by approximately $5,535, or 30.1%, in the six
months ended June 30, 1996 as compared to net sales in the six months ended
June 30, 1995. The decrease in 1996 resulted primarily from a decrease in
communications sector sales of $7,863 offset by an increase in federal sector
sales of $914, a $248 increase in commercial sector sales, and an increase of
$1,166 in sales to the OEM sector.

The increase in sales in the Company's federal, commercial and OEM
sectors represents an increase in sales of the Company's own mass storage
enhancement products.

As previously announced, the Company entered into an OEM agreement
with Unisys Corporation to sell the Synchronix family of products. Sales to
Unisys of the Company's Synchronix product line during the six months ended
June 30, 1996 were $1,132, or 8.8% of total net sales.

Also as previously announced, the Company entered into an agreement
with Hughes Data Corporation to sell mass storage RAID products through Hughes
into the federal government. Sales to Hughes of such products for the
six-month period ended June 30, 1996 were $2,911, or 22.7.% of total net sales.

The decrease in the Company's communication sector reflects a
reduction in sales of NCR computer equipment.

A substantial portion of sales made to customers in the communications
sector were sales to multiple AT&T business units. In the six months ended
June 30, 1996 and June 30, 1995, 15% and 54% of net sales, respectively, were
made to multiple AT&T entities. The Company believes that much of the downward
pressure on sales to the multiple AT&T business units is attributable to
intense increased competition from the NCR sales force. The Company earlier
reported that, in October 1993, NCR announced a major company restructuring.
At that time, the Company stated that although it was unable to determine the
impact, if any, that would result from such announced restructuring, there
could be no assurance that such

-14-
<PAGE> 17
restructuring by the Company's leading vendor would not have an adverse impact
on the Company's results of operations in ensuing quarters. Also, in its
Annual Report for the year ended December 31, 1994, the Company reported that
NCR revised its policies related to sales of NCR products to other AT&T
business units. At that time, the Company announced that it believed that such
restructuring and policy changes created intense additional competition for the
Company, particularly with respect to sales into AT&T business units, and that
such AT&T business units have begun purchasing a greater portion of NCR
computer equipment directly from NCR. Accordingly, the Company has, in
general, experienced declining sales to multiple AT&T business units, increased
downward price pressure on such sales and declining profitability on its sales
of NCR computer equipment into AT&T business units.

In September 1995, NCR announced another major corporate restructuring
including significant layoffs and the elimination of certain products; and AT&T
announced a major restructuring plan which includes the spin-off to its
shareholders of NCR and AT&T's Network Systems Communications Products group.
The Company believes that disruption and uncertainties resulting from these
AT&T and NCR restructurings resulted in a materially adverse impact on the
Company's new orders and shipments during the six months ended June 30, 1996.
Although the Company cannot predict the impact, if any, of these same
influences in the remainder of 1996 and beyond, the Company's results of
operations may be adversely affected.

The Company's value added reseller agreement with NCR is terminable by
either party upon 90 days prior written notice. On May 17, 1996, the Company
received notice from NCR pursuant to which NCR advised the Company of its plan
to establish second tier "Associate VAR" relationships, through four
distributors, with its current partners which do not meet the criteria for a
"Direct VAR". Such notice also provided that, in either case, the Company's
existing value added reseller agreement will be terminated effective 90 days
from receipt of NCR's letter and that the Company is required to submit an
application, either directly to NCR or to one of the four distributors, for
authorization as an NCR Direct VAR or an Associate VAR, as the case may be.
NCR has advised the Company that its purchases must be in excess of $8 million
annually in order for the Company to continue to make purchases directly from
NCR rather than through such distributors. In 1995, the Company's purchases
from NCR were $9.5 million. In light of the Company's strategy to diversify
its customer base and increase sales through alternative channel partners, and
NCR's repositioning, the Company does not anticipate that its purchases from
NCR will total $8 million annually. Therefore, the Company has requested an
extension until the end of 1996 to determine whether its annual purchases will
qualify it as an Associate VAR or a Direct VAR. The Company has not received
any indication from NCR as to whether such request for an extension will be
granted. In the event that it is not granted and the Company must become an
Associate VAR, or, in the event that even after such an extension, the criteria
for a Direct VAR are not met, the Company's costs to acquire NCR inventory will
increase, and will materially adversely affect the communications sector's
gross margins.

-15-
<PAGE> 18
and expanding its product and service offerings by becoming an IBM Industry
Remarketer Affiliate for the IBM RISC System/6000, establishing a reseller
relationship with Computer Associates for its Unicenter product which allows
centralized management of distributed open systems computing environments and
entering into a business partner agreement with CLAM Associates, which provides
a software product that allows automatic server failover for IBM RS/6000s in
clustered environments. In addition, the Company announced a high-performing,
easy-to-administer, mid-range RAID subsystem targeted to address the
high-availability requirements of Sun Microsystems customers. There can be no
assurance that the Company will be able to successfully implement this
strategy.

Gross Profit

The Company's gross profit decreased by approximately $644, or 13.4%,
in the six months ended June 30, 1996 as compared to the gross profit earned in
the six months ended June 30, 1995 of $4,751. The decrease in the 1996 period
resulted from decreased sales volume, in part, offset by an increase in gross
margin percentage from 25.9% to 32%. The increase in gross margin percentage
is due primarily to a shift in product mix toward sales of the Company's own
mass storage enhancement products, which generally have higher gross margins
than those realized on the sales of NCR based systems.

Operating Expenses

Selling, general and administrative expenses increased as a percentage
of net sales in the six months ended June 30, 1996, representing 28.4% of net
sales, an increase of 1.9 percentage points from the six months ended June 30,
1995. Such increase in the 1996 period was due principally to the Company's
lower sales volume. The nominal dollar decrease for the six month period ended
June 30, 1996 was $1,217 when compared to such expense for the six months ended
June 30, 1995, the amount of which was $4,869. Such decrease was primarily the
result of lower commission expense and payroll-related expenses. Salaries,
commissions, bonuses and related employee benefits and payroll taxes were the
largest components of selling, general and administrative expenses, accounting
for 61% of such expenses in each of the six months ended June 30, 1996 and June
30, 1995, respectively.

Interest Expense

Interest expense for the six months ended June 30, 1996 decreased by
$108, as compared to the six months ended June 30, 1995, due principally to
decreased inventory carrying levels resulting in a decrease in borrowings.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital was $4.4 million and $1.1 million at
June 30, 1996 and December 31, 1995, respectively.

-16-
<PAGE> 19
Since its inception, the Company has funded its operations primarily
from cash generated by operations augmented with funds from borrowings under a
line of credit and inventory financing and through both private sales and a
public offering of equity securities. However, during 1994 and continuing
through 1995, the Company's liquidity condition impaired its ability to fund
operations and the Company remains dependent on its ability to finance accounts
receivable and certain inventory.

During the six months ended June 30, 1996, the Company relied on
extended payment terms from AT&T Commercial Finance Corporation for 6.7% of its
inventory acquisitions. The Company's obligations under the agreement with
AT&T-CFC are collateralized by substantially all of the assets of the Company.
In addition, the value of the inventory upon which AT&T-CFC has a first
priority lien must be at least equal to the amount of credit extended (not
including unbilled approvals) by AT&T-CFC. The Company's obligations under
such agreement include the obligation to pay one-half of any advance within 30
days from the date of such advance and the remaining one-half within 60 days
from the date of such advance. As of June 30, 1996, the Company owed
approximately $335 under this credit line. The Company's available credit line
for inventory acquisitions through AT&T-CFC was $5.5 million, including a
$500,000 overline amount. The agreement with AT&T-CFC contains a total assets
to debt ratio requirement, a total inventory to debt ratio requirement and a
net worth requirement. As of December 31, 1995, the Company was in default
with respect to its net worth requirement, but at June 30, 1996, the Company
was in full compliance with such requirement. On May 6, 1996, AT&T-CFC waived
such default through June 30, 1996. On May 9, 1996, as part of its
reevaluation of its position, AT&T-CFC agreed to provide a $750,000 direct line
of credit, and a direct pay line of credit of $1,250,000, which requires the
deposit of the proceeds of sales directly into AT&T-CFC's lockbox. Such line
of credit has the same financial covenants as the Company's previous line of
credit with AT&T-CFC. On May 17, 1996, simultaneously with the consummation of
the sale of shares of Cumulative Convertible Preferred Stock, Series C (the
"Series C Preferred Stock"), as hereinafter described, the direct pay line of
credit was terminated, the general line of credit was increased to $2 million
and the Company was in compliance with the net worth covenant. Such agreement
expires on March 31, 1997 and may be renewed on such date.

In addition, pursuant to an agreement with AT&T GIS, AT&T GIS agreed
to supply product directly to the Company under either a consignment or agency
relationship, at the discretion of AT&T GIS, if AT&T-CFC ceases to provide
inventory financing to the Company for any reason other than the failure of the
Company to make timely payments. Under a consignment relationship, AT&T GIS
provided product to ECCS to cover ECCS' delivery schedule, as defined by signed
purchase orders received by the Company to fulfill product deliveries within 30
days. Under an agency relationship, AT&T GIS would provide equipment directly
to customers of the Company and would remit payment to the Company after
deducting equipment costs, freight and taxes. Both the consignment arrangement
and the agency relationship were available until May 1996 and were not renewed.
The Company does not believe that the loss of these arrangements will have a
material adverse effect on the Company's ability to obtain inventory.

-17-
<PAGE> 20
The Company also has a financing facility with Fidelity Funding of
California, Inc. ("Fidelity") which provides for a maximum accounts receivable
financing of $7 million at the prime lending rate with a 0.5% transaction fee
applied to each borrowing. In addition, the agreement requires a commitment
fee of 0.5% of the total available financing amount, payable annually on each
anniversary date of the agreement. The financing facility agreement is for a
period of three years and the obligations under such agreement are
collateralized by substantially all of the assets of the Company. The
agreement does not contain any cash withdrawal restrictions, any requirements
for maintenance of specific financial ratios or minimum net worth or
limitations on dividend payments.

AT&T-CFC and Fidelity have entered into an intercreditor subordination
agreement with respect to their relative interests in substantially all of the
Company's assets.

On May 17, 1996, 500,000 shares of the Company's Preferred Stock were
designated as Series C Preferred Stock and the Company consummated a private
placement of such Series C Preferred Stock, pursuant to which the Company
issued and sold into escrow, for the benefit of certain investors, 462,512
shares of Series C Preferred Stock at a price per share of $6.00. Dividends
with respect to such shares are calculated based on $.09 per share per quarter
and accumulate if not declared and paid. Interest of 6% per annum accrues on
any unpaid dividends. The 462,512 shares of Series C Preferred Stock and the
proceeds thereof were released from escrow on May 25, 1996 upon satisfaction of
all applicable conditions to release, after denial by Nasdaq of an exception to
the shareholders approval requirement. The issuance of such shares of Series C
Preferred Stock without shareholder approval and without an exception to such
requirement constitutes a breach of the Company's listing agreement with
Nasdaq. Consequently, the Company has been delisted from the Nasdaq National
Market and is now listed on the Nasdaq SmallCap Market. The Company's Board of
Directors had determined that the issuance of the shares of Series C Preferred
Stock without shareholder approval was necessary for the continued financial
viability of the Company.

On May 30, 1996, the Company issued and sold directly to certain
investors the remaining 37,488 shares of Series C Preferred Stock at a price of
$6.00 per share.

On June 30, 1996, the Company's cash balance was approximately $4.8
million.

The Company had, as of June 30, 1996, invested $307,000 in capital
equipment and leasehold improvements. Capital expenditures for 1996 are
expected to be approximately $400,000, although such amounts are not subject to
formal commitments. There are no other material commitments for capital
expenditures currently outstanding.

The Company believes that its existing available cash, credit
facilities and the cash flow expected to be generated from operations, will be
adequate to satisfy its current and planned operations for at least the next 12
months. However, the Company is not able, at this time, to fully assess the
impact on the Company, if any, as a result of the AT&T restructurings announced
by AT&T and NCR during the third quarter of 1995. Such restructurings have
created added uncertainty for the Company and there can be no assurance that
the Company's business will not

-18-
<PAGE> 21
be materially adversely affected by such restructurings. In addition, on May
17, 1996, the Company received notice from NCR pursuant to which NCR advised
the Company of its plan to establish second tier "Associate VAR" relationships,
through four distributors, with its current partners which do not meet the
criteria for a "Direct VAR". Such notice also provided that, in either case,
the Company's existing value added reseller agreement will be terminated
effective 90 days from receipt of NCR's letter and that the Company is required
to submit an application, either directly to NCR or to one of the four
distributors, for authorization as an NCR Direct VAR or an Associate VAR, as
the case may be. NCR has advised the Company that its purchases must be in
excess of $8 million annually in order for the Company to continue to make
purchases directly from NCR rather than through such distributors. In 1995,
the Company's purchases from NCR were $9.5 million. In light of the Company's
strategy to diversify its customer base and increase sales through alternative
channel partners, and NCR's repositioning, the Company does not anticipate that
its purchases from NCR will total $8 million annually. Therefore, the Company
has requested an extension until the end of 1996 to determine whether its
annual purchases will qualify it as an Associate VAR or a Direct VAR. The
Company has not received any indication from NCR as to whether such request for
an extension will be granted. In the event that it is not granted and the
Company must become an Associate VAR, or, in the event that even after such an
extension, the criteria for a Direct VAR are not met, the Company's costs to
acquire NCR inventory will increase, and will materially adversely affect the
communications sector's gross margins.

The net cash used in operating activities for the first six months of
1996 was $892,000. This use of operating funds is a result of an increase in
accounts receivable and a decrease in the payable to AT&T Commercial offset, in
part, by decreased inventory levels and an increase in accounts payable and
accrued liabilties.

-19-
<PAGE> 22
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On or about April 27, 1996, the Company was served with a complaint
filed in the Superior Court of New Jersey, Law Division, Monmouth County. The
action arises out of a motor vehicle accident between an employee of the
Company, who was returning to his home from his job at the Company, and the
plaintiff in the action. The plaintiff seeks unspecified damages and alleges
negligence on the part of the Company arising from the Company's alleged
actions requiring such employee to work an excessive number of hours, causing
such employee to fall asleep while driving. The Company denies the allegations
and intends to defend vigorously the action. The Company does not believe that
the outcome of the action will have a material effect on the Company's
business, financial condition or results of operations. The Company believes
that the claim will be covered by its insurance.

ITEM 5. OTHER INFORMATION.

(a) Private Placement

On May 19, 1995, the Company consummated a private placement of Series
B Preferred Stock pursuant to which the Company issued and sold to certain
investors 1,600,000 shares of Series B Preferred Stock at a price per share of
$1.25. On May 17, 1996, the Company's Series B Preferred Stock was amended to
delete the mandatory and optional redemption provisions contained therein.

Also, on May 17, 1996, 500,000 shares of the Company's Preferred Stock
were designated as Series C Preferred Stock and the Company consummated a
private placement of such Series C Preferred Stock through Unterberg Harris
("Unterberg"), pursuant to which the Company issued and sold into escrow, for
the benefit of certain investors, 462,512 shares of Series C Preferred Stock at
a price per share of $6.00. Dividends with respect to such shares are
calculated based on $.09 per share per quarter and accumulate if not declared
and paid. Interest of 6% per annum accrues on any unpaid dividends. At any
time, the Series C Preferred Stockholders may convert their Series C Preferred
Stock into Common Stock, at the initial rate of four shares of Common Stock for
each share of Series C Preferred Stock, as such conversion ratio may be
adjusted from time to time. However, upon the consummation of a public
offering that meets certain terms, as defined, the Series C Preferred Stock
will automatically convert. The 462,512 shares of Series C Preferred Stock and
the proceeds thereof were released from escrow on May 25, 1996 upon
satisfaction of all applicable conditions to release, after denial by Nasdaq of
an exception to the shareholder approval requirement. The issuance of such
shares of Series C Preferred Stock without shareholder approval and without an
exception to such requirement constitutes a breach of the Company's listing
agreement with Nasdaq. Consequently, the Company has been delisted from the
Nasdaq National Market and is now listed on the Nasdaq

-20-
<PAGE> 23
SmallCap Market. The Company's Board of Directors had determined that the
issuance of the shares of Series C Preferred Stock without shareholder approval
was necessary for the continued financial viability of the Company. In the
event of liquidation, dissolution or winding up of the Company, Series B
Preferred Stockholders and Series C Preferred Stockholders, on a pro rata
basis, are entitled to receive prior and in preference to Common Stockholders.

On May 30, 1996, the Company issued and sold directly to certain
investors the remaining 37,488 shares of Series C Preferred Stock at a price of
$6.00 per share. To the Company's knowledge, such investors used their own
funds to purchase the remaining Series C Preferred Stock. Such investors and
number of shares of Series C Preferred Stock purchased by each on May 30, 1996
are as follows:

<TABLE>
<CAPTION>
Number of Shares of
Name Series C Preferred Stock Purchased
<S> <C>
George Karfunkel 8,321
c/o American Stock Transfer Company
40 Wall Street, 46th Floor
New York, New York 10005

Joseph M. Tucci 12,500
Wang Laboratory, Inc.
One Technology Park Drive
Billerica, Massachusetts 01821

J. Bruce Lewellyn 16,667
272 Ash Street
Englewood Cliffs, New Jersey 07632
</TABLE>

Upon consummation of the sale of the remaining shares of Series C
Preferred Stock, investors holding Series C Preferred Stock own 24.7% of the
capital stock of the Company on an as-converted to Common Stock basis (includes
outstanding Common Stock and shares of Common Stock issuable upon the
conversion of the Series B Preferred Stock and Series C Preferred Stock). Of
such investors, Unterberg Harris Private Equity Partners, L.P., Unterberg
Harris Private Equity Partners, C.V. and Unterberg Harris LLC are controlled by
Unterberg. As a result of the Series C Preferred Stock transaction, Unterberg
beneficially owns approximately 1,400,000 shares, or 17.3% of the capital stock
of the Company on an as-converted to Common Stock basis (includes outstanding
Common Stock and shares of Common Stock issuable upon the conversion of the
Series B Preferred Stock and Series C Preferred Stock).

-21-
<PAGE> 24
Holders of the Series C Preferred Stock and the previously issued
Series B Preferred Stock, voting as a class, have the right to elect two
members of the Board of Directors of the Company, who may not be removed except
by the affirmative vote of the holders of such classes of stock.

The vote of 66 2/3% of the holders of Series C Preferred Stock is
required in order for the Company to: (i) amend the Certificate (other than an
amendment which changes the dividend payable on or the liquidation preference
of the Series C Preferred Stock, for which the vote of 80% of the holders of
Series C Preferred Stock is required); (ii) create a class of stock ranking
senior or equal to the Series C Preferred Stock; (iii) redeem or acquire shares
of its capital stock or issue any capital stock or securities exchangeable into
capital stock (with certain exceptions); (iv) cancel any material indebtedness
(with certain exceptions); (v) permit or allow any liens, encumbrances or other
restrictions with respect to its assets, except in the ordinary course of
business; and (vi) sell or transfer all or substantially all of its assets or
merge or consolidate with another corporation, or undertake any
reclassification or recapitalization with respect to its capital stock.

The Series C Preferred Stock is: (i) convertible to Common Stock at
the option of the holders thereof at any time on a four-for-one basis (subject
to change if the conversion price changes); and (ii) automatically convertible
(on the same basis as set forth in the preceding section (i)) to Common Stock
upon the consummation of a public offering of Common Stock at a per share price
of not less than $4.00 and resulting in aggregate gross proceeds to the Company
of at least $5,000,000.

Subject to certain conditions, holders of Series C Preferred Stock
have a right of first offer with respect to the issuance of any new securities
which would reduce such holder's holdings by 10% or more. Also, subject to
certain conditions, the holders of Series C Preferred Stock have certain demand
and piggyback registration rights.

(b) Election of Directors

On June 20, 1996 the Board of Directors of the Company elected the
following new Directors to fill vacancies on the Board:

Gregg M. Azcuy
Thomas I. Unterberg, as designee for holders of Series B
Preferred Stock and Series C Preferred Stock
Frank R. Triolo
Donald E. Fowler

On June 20, 1996, Michael E. Faherty resigned as Chief Executive
Officer of the Company. Mr. Faherty now serves as Chairman of the Board. Also
on such date, Gregg M. Azcuy, President and Chief Operating Officer, was
elected by the Board of Directors of the Company to serve as President and
Chief Executive Officer.

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<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

10.1 Indemnification Agreement as of June 20, 1996 by and between the
Company and Thomas I. Unterberg.

10.2 Indemnification Agreement as of June 20, 1996 by and between the
Company and Frank R. Triolo.

10.3 Indemnification Agreement as of June 20, 1996 by and between the
Company and Donald E. Fowler

(b) Reports on Form 8-K.

None.

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<PAGE> 26

SIGNATURES

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

ECCS, Inc.

DATE: August 14, 1996 By: /s/ GREGG M. AZCUY
-------------------------
Gregg M. Azcuy, President
and Chief Executive Officer
(Principal Executive Officer)

DATE: August 14, 1996 By: /s/ LOUIS J. ALTIERI
---------------------------
Louis J. Altieri, Vice President,
Finance and Administration
(Principal Financial and
Accounting Officer)

-24-

<PAGE> 1
EXHIBIT 10.1

ECCS, INC.

INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is made as of June 20,
1996, by and between ECCS, Inc. a New Jersey corporation (the "Company"), and
Thomas I. Unterberg ("Indemnitee").

WHEREAS, Indemnitee is a director of the Company and performs a
valuable service in such capacity for the Company;

WHEREAS, the Company and Indemnitee recognize the difficulty in
obtaining liability insurance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and
the general reductions in the coverage of such insurance;

WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely
limited;

WHEREAS, Indemnitee does not regard the current protection available,
including the Company's current insurance policies, if any, as adequate under
the present circumstances, and the Indemnitee and other directors, officers,
employees, agents and fiduciaries of the Company may not be willing to continue
to serve in such capacities without additional protection; and

WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company as a director, wishes to provide for the indemnification and advancing
of expenses to Indemnitee to the maximum extent permitted by law.

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

1. Indemnification.

(a) Indemnification of Expenses. The Company shall
indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was
or is or becomes a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other (hereinafter a "Claim")
by reason of (or arising in part out of) any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was
serving at the request of the Company as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction
<PAGE> 2
on the part of Indemnitee while serving in such capacity (hereinafter an
"Indemnifiable Event") against any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any such
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement (collectively,
hereinafter "Expenses"), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses. Such
payment of Expenses shall be made by the Company as soon as practicable but in
any event no later than thirty (30) days after written demand by Indemnitee
therefor is presented to the Company.

(b) Reviewing Party. Notwithstanding the foregoing, (i)
the obligations of the Company under Section l(a) shall be subject to the
condition that the Reviewing Party (as described in Section 10(e) hereof) shall
not have determined (in a written opinion, in any case in which the Independent
Legal Counsel referred to in Section 1(c) hereof is involved) that Indemnitee
would not be permitted to be indemnified under applicable law, and (ii) the
obligation of the Company to make an advance payment of Expenses to Indemnitee
pursuant to Section 2(a) (an "Expense Advance") shall be subject to the
condition that, if, when and to the extent that the Reviewing Party determines
that Indemnitee would not be permitted to be so indemnified under applicable
law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby
agrees to reimburse the Company) for all such amounts theretofore paid;
provided, however, that if Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control (as defined in Section 10(c) hereof), the Reviewing Party
shall be selected by the Board of Directors, and if there has been such a
Change in Control (other than a Change in Control which has been approved by a
majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), the Reviewing Party shall be the Independent
Legal Counsel referred to in Section l(c) hereof. If the Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.

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<PAGE> 3

(c) Change in Control. The Company agrees that if there
is a Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then with respect to all
matters thereafter arising concerning the rights of Indemnitee to payments of
Expenses and Expense Advances under this Agreement or any other agreement or
under the Company's Certificate of Incorporation or Bylaws as now or hereafter
in effect, the Company shall seek legal advice only from Independent Legal
Counsel (as defined in Section 10(d) hereof) selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to pay
the reasonable fees of the Independent Legal Counsel referred to above and to
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.

(d) Mandatory Payment of Expenses. Notwithstanding any
other provision of this Agreement other than Section 9 hereof, to the extent
that Indemnitee has been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without prejudice, in defense of
any action, suit, proceeding, inquiry or investigation referred to in Section
(1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.

2. Expenses; Indemnification Procedure.

(a) Advancement of Expenses. The Company shall advance
all Expenses incurred by Indemnitee. The advances to be made hereunder shall
be paid by the Company to Indemnitee as soon as practicable but in any event no
later than thirty (30) days after written demand by Indemnitee therefor to the
Company.

(b) Notice; Cooperation by Indemnitee. Indemnitee shall,
as a condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as reasonably practicable
of Indemnitee's receipt of notice of any Claim (for purposes of this Section
2(b) and the notice required by the Indemnitee to the Company under this
section the term "Claim" shall not include a threatened Claim) made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within
Indemnitee's power.

(c) No Presumptions; Burden of Proof. For purposes of
this Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not

-3-
<PAGE> 4
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law. In addition, neither the
failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee has
not met such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law, shall
be a defense to Indemnitee's claim or create a presumption that Indemnitee has
not met any particular standard of conduct or did not have any particular
belief. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of proof shall be on the Company to establish that Indemnitee is not
so entitled.

(d) Notice to Insurers. If, at the time of the receipt
by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the
Company has liability insurance in effect which may cover such Claim, the
Company shall give prompt notice of the commencement of such Claim to the
insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable
as a result of such action, suit, proceeding, inquiry or investigation in
accordance with the terms of such policies.

(e) Selection of Counsel; Right to Defend. In the event
the Company shall be obligated hereunder to pay the Expenses of any claim,
action, suit, proceeding, inquiry or investigation, the Company, if
appropriate, shall be entitled to assume the defense of such action, suit,
proceeding, inquiry or investigation with counsel approved by Indemnitee, upon
the delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same action, suit, proceeding, inquiry or
investigation; provided that, (i) Indemnitee shall have the right to employ
Indemnitee's counsel in any such action, suit, proceeding, inquiry or
investigation at Indemnitee's expense and (ii) if (A) the employment of counsel
by Indemnitee has been previously authorized by the Company, (B) Indemnitee
shall have reasonably concluded that there may be a conflict of interest
between the Company and Indemnitee in the conduct of any such defense, or (C)
the Company shall not continue to retain such counsel to defend such action,
suit, proceeding, inquiry or investigation, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company. Notwithstanding
the foregoing, with respect to the subject matter of this Section 2(e), the
provisions of any liability insurance applicable to directors and/or officers
shall govern.

3. Additional Indemnification Rights; Nonexclusivity.

(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the

-4-
<PAGE> 5
Company's Bylaws or by statute. In the event of any change after the date of
this Agreement in any applicable law, statute or rule which expands the right
of a New Jersey corporation to indemnify a member of its board of directors or
an officer, employee, agent or fiduciary, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change. In the event of any change in any applicable law,
statute or rule which narrows the right of a New Jersey corporation to
indemnify a member of its board of directors or an officer, employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder.

(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested directors, the Business
Corporation Act of the State of New Jersey, or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
Indemnitee may have ceased to serve in such capacity.

4. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any action, suit,
proceeding, inquiry or investigation made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
or pursuant to the Certificate of Incorporation, Bylaws or otherwise) of the
amounts otherwise indemnifiable hereunder.

5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses in the investigation, defense, appeal or settlement of any
civil or criminal action, suit, proceeding, inquiry or investigation, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.

6. Mutual Acknowledgment. Both the Company and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for
a determination of the Company's right under public policy to indemnify
Indemnitee.

7. Liability Insurance. To the extent the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as to
provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee is a director; or of
the Company's officers. If Indemnitee is not a director of the Company but is
an officer, or of the

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<PAGE> 6
of the Company's key employees, agents or fiduciaries, if Indemnitee is not an
officer or director but is a key employee, agent or fiduciary.

8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

(a) Excluded Action or Omissions. To indemnify
Indemnitee for acts, omissions or transactions from which Indemnitee may not be
relieved of liability under applicable law.

(b) Claims Initiated by Indemnitee. To indemnify or
advance Expenses to Indemnitee with respect to proceedings or claims initiated
or brought voluntarily by Indemnitee and not by way of defense, except (1) with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate of Incorporation or Bylaws now or hereafter
in effect relating to Claims for Indemnifiable Events, (ii) in specific cases
if the Board of Directors has approved the initiation or bringing of such suit,
or (iii) as otherwise required under Section 14A:3-5 of the New Jersey Business
Corporation Act, regardless of whether Indemnitee ultimately is determined to
be entitled to such indemnification, advance Expense payment or insurance
recovery, as the case may be.

(c) Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by the Indemnitee with respect to any proceeding instituted
by Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or

(d) Claims Under Section 16(b). To indemnify Indemnitee
for Expenses or the payment of profits arising from the purchase and sale, or
sale and purchase, by Indemnitee of securities in violation of Section 16(b) of
the Securities Exchange Act of 1934, as amended, or any similar successor
statute.

9. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a
legal action within such two-year period; provided, however, that if any
shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.

10. Construction of Certain Phrases.

(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees, agents or

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<PAGE> 7
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting
or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.

(c) For purposes of this Agreement a "Change in Control"
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by
the Board of Directors or nomination for election by the Company's stockholders
was approved by a vote of at least two thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total
voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.

(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitee within the last three

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<PAGE> 8
years (other than with respect to matters concerning the rights of Indemnitee
under this Agreement, or of other indemnitees under similar indemnity
agreements).

(e) For purposes of this Agreement, a "Reviewing Party"
shall mean any appropriate person or body consisting of a member or members of
the Company's Board of Directors or any other person or body appointed by the
Board of Directors who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.

(f) For purposes of this Agreement, "Voting Securities"
shall mean any securities of the Company that vote generally in the election of
directors.

11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.

12. Binding Effect: Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause
any successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director of the Company or of any other enterprise at the Company's request.

13. Actions by Indemnitee. In the event that any action is
instituted by Indemnitee under this Agreement or under any liability insurance
policies maintained by the Company to enforce or interpret any of the terms
hereof or thereof, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee with respect to such action, regardless of whether
Indemnitee is ultimately successful in such action, and shall be entitled to
the advancement of Expenses with respect to such action, unless as a part of
such action the court of competent jurisdiction over such action determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an
action instituted by or in the name of the Company under this Agreement to
enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all Expenses incurred by Indemnitee in defense of such
action (including costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement Expenses with respect to such action, unless as a part of such
action the court having jurisdiction over such action determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.

14. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and receipted

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<PAGE> 9
for by the party addressee, on the date of such receipt, or (ii) if mailed by
domestic certified or registered mail with postage prepaid, on the third
business day after the date postmarked. Addresses for notice to either party
are as shown on the signature page of this Agreement, or as subsequently
modified by written notice.

15. Consent to Jurisdiction. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
New Jersey for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be commenced, prosecuted and continued only in the
State of New Jersey, which shall be the exclusive and only proper forum for
adjudicating such a claim.

16. Severability. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including, without limitations, each portion of this
Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.

17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
New Jersey, as applied to contracts between New Jersey residents, entered into
and to be performed entirely within the State of New Jersey, without regard to
the conflict of laws principles thereof.

18. Subrogation. In the event of payment under this Agreement by
the Company, the Company shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary to secure such rights and
to enable the Company effectively to bring suit to enforce such rights.

19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is
in writing signed by both the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.

20. Integration and Entire Agreement. This Agreement sets forth
the entire understanding between the parties hereto and supersedes and merges
all previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.

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<PAGE> 10
21. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.

* * * * * *

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<PAGE> 11

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

ECCS, INC.

By:______________________________

Title:___________________________

_________________________________

_________________________________
(address)

AGREED TO AND ACCEPTED

INDEMNITEE:

______________________________
(signature)

Thomas I. Unterberg
(name of Indemnitee)

______________________________

______________________________
(address)

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<PAGE> 1
EXHIBIT 10.2

ECCS, INC.

INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is made as of June 20,
1996, by and between ECCS, Inc. a New Jersey corporation (the "Company"), and
Frank R. Triolo ("Indemnitee").

WHEREAS, Indemnitee is a director of the Company and performs a
valuable service in such capacity for the Company;

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

1. Indemnification.

(b) Reviewing Party. Notwithstanding the foregoing, (i)
the obligations of the Company under Section l(a) shall be subject to the
condition that the Reviewing Party (as described in Section 10(c) hereof) shall
not have determined (in a written opinion, in any case in which the Independent
Legal Counsel referred to in Section 1(c) hereof is involved) that Indemnitee
would not be permitted to be indemnified under applicable law, and (ii) the
obligation of the Company to make an advance payment of Expenses to Indemnitee
pursuant to Section 2(a) (an "Expense Advance") shall be subject to the
condition that, if, when and to the extent that the Reviewing Party determines
that Indemnitee would not be permitted to be so indemnified under applicable
law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby
agrees to reimburse the Company) for all such amounts theretofore paid;
provided, however, that if Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control (as defined in Section 10(c) hereof), the Reviewing Party
shall be selected by the Board of Directors, and if there has been such a
Change in Control (other than a Change in Control which has been approved by a
majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), the Reviewing Party shall be the Independent
Legal Counsel referred to in Section l(c) hereof. If the Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.

-2-
<PAGE> 3
(c) Change in Control. The Company agrees that if there
is a Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then with respect to all
matters thereafter arising concerning the rights of Indemnitee to payments of
Expenses and Expense Advances under this Agreement or any other agreement or
under the Company's Certificate of Incorporation or Bylaws as now or hereafter
in effect, the Company shall seek legal advice only from Independent Legal
Counsel (as defined in Section 10(d) hereof) selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to pay
the reasonable fees of the Independent Legal Counsel referred to above and to
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.

2. Expenses; Indemnification Procedure.

3. Additional Indemnification Rights; Nonexclusivity.

7. Liability Insurance. To the extent the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee is a director; or
of the Company's officers, if Indemnitee is not a director of the Company but
is an officer; or of the

-5-
<PAGE> 6
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.

8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

(a) Excluded Action or Omissions. To indemnify
Indemnitee for acts, omissions or transactions from which Indemnitee may not be
relieved of liability under applicable law.

(b) Claims Initiated by Indemnitee. To indemnify or
advance Expenses to Indemnitee with respect to proceedings or claims initiated
or brought voluntarily by Indemnitee and not by way of defense, except (1) with
respect to proceedings brought to establish or enforce a right to
idemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate of Incorporation or Bylaws now or hereafter
in effect relating to Claims for Indemnifiable Events, (ii) in specific cases
if the Board of Directors has approved the initiation or bringing of such suit,
or (iii) as otherwise required under Section 14A:3-5 of the New Jersey Business
Corporation Act, regardless of whether Indemnitee ultimately is determined to
be entitled to such indemnification, advance Expense payment or insurance
recovery, as the case may be.

10. Construction of Certain Phrases.

-7-
<PAGE> 8
years (other than with respect to matters concerning the rights of Indemnitee
under this Agreement, or of other indemnitees under similar indemnity
agreements).

(f) For purposes of this Agreement, "Voting Securities"
shall mean any securities of the Company that vote generally in the election of
directors.

11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.

12. Binding Effect; Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause
any successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director of the Company or of any other enterprise at the Company's request.

14. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and receipted

* * * * * *

-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

ECCS, INC.

By:______________________________

Title:___________________________

_________________________________

_________________________________
(address)

AGREED TO AND ACCEPTED

INDEMNITEE:

______________________________
(signature)

Frank R. Triolo
(name of Indemnitee)

______________________________

______________________________
(address)

-11-

<PAGE> 1
EXHIBIT 10.3

ECCS, INC.

INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is made as of June 20,
1996, by and between ECCS, Inc. a New Jersey corporation (the "Company"), and
Donald E. Fowler ("Indemnitee").

WHEREAS, Indemnitee is a director of the Company and performs a
valuable service in such capacity for the Company;

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

1. Indemnification.

2. Expenses; Indemnification Procedure.

3. Additional Indemnification Rights; Nonexclusivity.

7. Liability Insurance. To the extent the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee is a director; or
of the Company's officers, if Indemnitee is not a director of the Company but
is an officer; or of the

-5-
<PAGE> 6
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.

8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

(a) Excluded Action or Omissions. To indemnify
Indemnitee for acts, omissions or transactions from which Indemnitee may not be
relieved of liability under applicable law.

10. Construction of Certain Phrases.

-7-
<PAGE> 8
years (other than with respect to matters concerning the rights of Indemnitee
under this Agreement, or of other indemnitees under similar indemnity
agreements).

(f) For purposes of this Agreement, "Voting Securities"
shall mean any securities of the Company that vote generally in the election of
directors.

11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.

14. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and receipted

* * * * * *

-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

ECCS, INC.

By:______________________________

Title:___________________________

_________________________________

_________________________________
(address)

AGREED TO AND ACCEPTED

INDEMNITEE:

______________________________
(signature)

Donald E. Fowler
(name of Indemnitee)

______________________________

______________________________
(address)

-11-

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,800
<SECURITIES> 0
<RECEIVABLES> 6,577
<ALLOWANCES> 215
<INVENTORY> 2,801
<CURRENT-ASSETS> 14,413
<PP&E> 3,953
<DEPRECIATION> 2,710
<TOTAL-ASSETS> 16,621
<CURRENT-LIABILITIES> 9,985
<BONDS> 0
0
21
<COMMON> 43
<OTHER-SE> 6,371
<TOTAL-LIABILITY-AND-EQUITY> 16,621
<SALES> 12,838
<TOTAL-REVENUES> 12,838
<CGS> 8,731
<TOTAL-COSTS> 8,731
<OTHER-EXPENSES> 4,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> (375)
<INCOME-TAX> 0
<INCOME-CONTINUING> (375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (375)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0

</TABLE>