UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549



                                    FORM 8-K


                                 CURRENT REPORT
                       Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)       April 16, 1998
                                                ----------------------------


                           COYOTE NETWORK SYSTEMS, INC.
             (Exact Name of Registrant as Specified in Its Charter)


             Delaware                    1-5486                36-2448698
(State or Other Jurisdiction    (Commission File Number)      (IRS Employer
      of Incorporation)                                     Identification No.)
            


         4360 Park Terrace Drive, Westlake Village, CA                 91361
-------------------------------------------------------                -----
         (Address of Principal Executive Offices)                   (Zip Code)


                                 (818) 735-7600
              (Registrant's Telephone Number; Including Area Code)




          (Former Name Or Former Address, if Changed Since Last Report)


<PAGE>
Item 2.  Acquisition or Disposition of Assets.
         Pursuant to a Stock Purchase Agreement dated March 31, 1998, on June 4,
1998, Coyote Network Systems, Inc. (the "Company") completed the sale of its 80%
interest in Valley Communications,  Inc., a California corporation ("Valley") to
Technology Services  Corporation,  a Delaware  corporation  ("TSC").  TSC is not
related to the Company or its affiliates,  officers or directors in any fashion.
Since  August of 1995,  the  Company,  through a wholly  owned  subsidiary,  C&L
Acquisitions,  Inc.,  owned 80% of the outstanding  common stock of Valley.  The
sale of Valley,  which is engaged in wire  installation,  servicing  and systems
integration,  completed the first phase of the restructuring plan adopted by the
Company's  Board in November,  1996.  Combined with the earlier sales of Atlanta
Provisions Company and C&L Communications, the Company is now focused completely
on the delivery of equipment and network  services that provide voice,  data and
video solutions to affinity groups and carriers.

         The  purchase  price  stated  in  the  Stock  Purchase   Agreement  was
$3,886,321.12.  Prior to closing,  the purchase  price was adjusted to reflect a
$375,000  discount for  prepayment  of the original  promissory  note and a pass
through  payment of $150,000 to TSC's brokers,  Don Hawley and Jay Fischer.  The
final  purchase  price  received  by the  Company  for its  interest  in  Valley
consisted of:

         1.       Cash payments to the Company:               $2,300,000.00
         2.       Assumption of the Company's debt
                    to Valley's 20% shareholders:                811,327.12
         3.       Payment for the assumption of the
                    Company's audit obligation to
                    Valley by Planned Financial Solutions:        25,000.00
         4.       Sales commission paid to 
                    Planned  Financial Solutions:                225,000.00

                                            Total             $3,361,321.12

     The purchase price was determined after arms-length negotiations between
the parties.

Item 5.  Other Events.

         1.    Formation of Coyote Gateway, LLC.
               On April 16, 1998,  the Company  established  Coyote  Gateway,
LLC, a Colorado limited liability company ("CGL").  The Company owns 80% of CGL,
and American Gateway Telecom,  Inc., a Texas  corporation  ("AGT") owns 20%. The
Company  founded CGL, with a capital  contribution of $240,000 and has agreed to
make certain additional working capital contributions through April 15, 1999. In
consideration  of its 20% ownership  interest,  AGT  contributed  assets to CGL,
consisting  of  customer  contracts  for the  transmission  of up to 31  million
minutes of  international  traffic  monthly to 11 countries when fully deployed,
and vendor and carrier  contracts  to service  those  minutes.  CGL has employed
AGT's operating and management  personnel,  and they are  participating in stock
option and bonus plans tied to the success of the venture.

         2.    Appointment of Edward A. Beeman as CFO.
               On June 1, 1998, the Company  appointed  Edward A. Beeman (age
48) as Executive Vice President and Chief  Financial  Officer.  Beeman will also
assume the role of  Corporate  Secretary.  He will report  directly to Daniel W.
Latham,  President and Chief  Operating  Officer of the Company.  Beeman will be
responsible  for all  aspects  of the  Company's  finance,  including  treasury,
accounting, and information systems.

               Prior to  joining  the  Company,  Beeman  was Chief  Financial
Officer of Western Water Company (NASDAQ: WTR), a natural resource wholesaler to
utility companies.  Prior to Western Water,  Beeman was Vice President and Chief
Financial  Officer  for  Bird  Medical  Technologies,  Inc.  (NASDAQ:  BMTI),  a
manufacturer and  international  marketer of medical  equipment.  Prior to that,
Beeman ran his own management  consulting business and held executive management
positions in the United States and Europe with  Caterpillar and Tenneco.  Beeman
began his career as a Certified  Public  Accountant with Peat Marwick Mitchell &
Co., and has a BS in Business and Accounting from Indiana University.

Item 7.  Financial Statements and Exhibits
               (b)      Pro Forma Financial Information:
                        The   following   unaudited   pro   forma   condensed
                        consolidated financial information is filed with this
                        report:  Pro  Forma  Condensed  Consolidated  Balance
                        Sheet at  December  31,  1997;  Pro  Forma  Condensed
                        Consolidated  Statements  of  Operations  for  the 52
                        Weeks Ended March 31,  1997;  and the 9 Months  Ended
                        December 31, 1997.

               (c)      Exhibits
                        99.1     Stock  Purchase  Agreement  between  C  &  L
                                 Acquisitions,  Inc. and Technology  Services
                                 Corporation, dated March 31, 1998.
                        99.2     Non Compete Agreement between C & L
                                 Acquisitions,  Inc. and Technology Services

<PAGE>
                                   SIGNATURES

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

                                            COYOTE NETWORK SYSTEMS, INC.



Date:    June 18, 1998                      /s/ James J. Fiedler
                                            --------------------
                                            James J. Fiedler, Chairman
                                            and Chief Executive Officer


<PAGE>
                  PRO FORMA FINANCIAL INFORMATION

                          COYOTE NETWORK SYSTEMS, INC.
       PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997
                                    UNAUDITED
                             (Dollars In Thousands)


<TABLE>
<CAPTION>
                                                                       Pro Forma
                                                        Historical     Adjustments     Pro Forma
                              ASSETS
<S>                                                     <C>            <C>             <C> 
Current assets
         Cash and cash equivalents                       $ 6,795        $ 2,300        $ 9,075
         Marketable securities                             1,180              0          1,180
         Receivables, net                                    999              0            999
         Inventories                                       3,298              0          3,298
         Net assets of discontinued operations               ---              0            ---
         Other current assets                                913              0            913
                                                        --------       --------      ---------
                  Total current assets                    13,185          2,300         15,485

Property and equipment                                     1,672              0          1,672
Intangible assets                                          3,595              0          3,595
Net assets of discontinued operations                      3,123         (2,300)           823
Other assets                                               2,948              0          2,948
                                                         -------      ---------        -------
                                                         $24,523       $      0        $24,523
                                                         =======       ========        =======

               LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
         Accounts payable                                 $1,635              0         $1,635
         Accrued liabilities                               1,227              0          1,227
         Accrued common stock conversion expense           5,522              0          5,522
         Accrued common stock warrant expense                494              0            494
         Current portion of long-term debt                   141              0            141
                                                         -------      ---------        -------
                  Total current liabilities                9,019              0          9,109

11.25% subordinated debentures, due 2002                   1,676              0          1,676
8.0% convertible notes, due 2000                           5,000              0          5,000
Other liabilities                                            513              0            513

Shareholders' equity
         Preferred stock - $.01 par value                    ---              0            ---
         Common stock - $1 par value                       8,816              0          8,816
         Additional paid-in capital                       84,847              0         84,847
         Accumulated deficit                             (79,411)             0        (79,411)
         Unrealized (loss) on marketable securities         (180)             0           (180)
         Treasury stock                                   (5,757)             0         (5,757)
                                                        ---------     ---------       ---------
                  Total Shareholders' equity               8,315              0          8,315
                                                        --------      ---------       --------
                                                         $24,523      $       0        $24,523
                                                         =======      =========        =======
</TABLE>

See accompanying note to pro forma condensed consolidated financial information.

<PAGE>


                         PRO FORMA FINANCIAL INFORMATION

                          COYOTE NETWORK SYSTEMS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE 52 WEEKS ENDED MARCH 31, 1997
                                    UNAUDITED
                    (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                       Pro Forma          Pro Forma
                                                      Historical       Adjustments
<S>                                                   <C>              <C>                <C>     
Net sales                                             $  7,154         $      0           $  7,154
Cost of goods sold                                       3,132                0              3,132
                                                      --------         --------           --------
Gross profit                                             4,022                0              4,022

Selling and administrative expenses                     12,112                0             12,112
Engineering, research and development                    4,060                0              4,060
                                                      --------         --------           --------
Total operating expenses                                16,172                0             16,172
                                                       -------         --------            -------

Operating loss                                         (12,150)               0            (12,150)

Interest expense                                           (52)               0                (52)
Non-operating income (expense)                          (1,337)               0             (1,337)
Minority interest                                          368                                 368
Income tax credit                                          836                0                836
                                                    ----------        ---------         ----------
Loss from continuing operations                       $(12,335)       $       0           $(12,335)
                                                      =========       =========           =========
Earnings (loss) per common share
     Continuing operations                          $    (2.34)       $       0          $   (2.34)
                                                    ===========       =========          ==========

Weighted average number of common shares
   outstanding                                           5,271                               5,271
                                                      ========                            ========
</TABLE>



See accompanying note to pro forma condensed consolidated financial information.
<PAGE>


                         PRO FORMA FINANCIAL INFORMATION

                          COYOTE NETWORK SYSTEMS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                    FOR THE 9 MONTHS ENDED DECEMBER 31, 1997
                                    UNAUDITED
                    (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                                Pro Forma
                                                              Historical       Adjustments        Pro Forma
<S>                                                            <C>             <C>                <C>    
Net sales                                                      $ 2,709                0            $ 2,709
Cost of goods sold                                                 958                0                958
                                                              --------         --------           --------
Gross profit                                                     1,751                0              1,751

Selling and administrative expenses                              9,182                0              9,182
Engineering, research and development                            2,692                0              2,692
                                                              --------         --------           --------
Total operating expenses                                        11,874                0             11,874
                                                               -------         --------            -------

Operating loss                                                 (10,123)               0            (10,123)

Interest expense                                                  (273)               0               (273)
Non-operating income                                                48                0                 48
Non-operating expense                                           (5,522)               0             (5,522)
                                                             ----------        --------          ----------
Loss from continuing operations                               $(15,870)        $      0           $(15,870)
                                                              =========        ========           =========
Earnings (loss) per common share (basic & diluted)
     Continuing operations                                   $   (2.37)        $      0          $   (2.37)
                                                             ==========        ========          ==========

Weighted average number of common shares
   outstanding (basic & diluted)                                 6,685                               6,685
                                                             =========                            ========

</TABLE>



See accompanying note to pro forma condensed consolidated financial information.


<PAGE>


                          COYOTE NETWORK SYSTEMS, INC.
                          NOTES TO PRO FORMA CONDENSED
                       CONSOLIDATED FINANCIAL INFORMATION
                                   (Unaudited)


Pro Forma Condensed Consolidated Balance Sheet:

The pro forma  adjustment  reflects the sale of the Registrant's 80% interest in
Valley  Communications,  Inc.  ("Valley")  in exchange for cash  received in the
amount of $2,300,000 net commission and expenses.


Pro Forma Statement of Operations:

The pro forma  statement  of  operations  for the 52 weeks ended March 31, 1997,
reflects  no pro forma  adjustments  as the  reclassification  of the results of
operations of Valley to discontinued  operations occurred in the previous fiscal
year. The remaining operations consist of Coyote Network Systems, Inc. corporate
office and Coyote Technologies, LLC.

The  statement  of  operations  for the nine months  ended  December  31,  1997,
reflects the results of Valley as discontinued operations.  No further pro forma
adjustments are required with respect to the sale of Valley.

<PAGE>
[{"type": "8-K", "sequence": "1", "secsgml_size_bytes": 18523}]
{"company-data": {"conformed-name": "COYOTE NETWORK SYSTEMS INC", "cik": "0000057201", "assigned-sic": "5140", "irs-number": "362448698", "state-of-incorporation": "DE", "fiscal-year-end": "0331"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-05486", "film-number": "98650952"}, "business-address": {"street1": "4360 PARK TERRACE DRIVE", "city": "WESTLAKE VILLAGE", "state": "CA", "zip": "91361", "phone": "(818) 735-"}, "mail-address": {"street1": "26025 MUREAU ROAD", "city": "CALABASAS", "state": "CA", "zip": "91302"}, "former-company": [{"former-conformed-name": "DIANA CORP", "date-changed": "19920703"}, {"former-conformed-name": "FH INDUSTRIES CORP", "date-changed": "19850814"}, {"former-conformed-name": "SCOT LAD FOODS INC", "date-changed": "19841202"}]}
UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 8-K

                                 CURRENT REPORT
                       Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)       April 16, 1998
                                                ----------------------------

                           COYOTE NETWORK SYSTEMS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

             Delaware                    1-5486                36-2448698
(State or Other Jurisdiction    (Commission File Number)      (IRS Employer
      of Incorporation)                                     Identification No.)
            

         4360 Park Terrace Drive, Westlake Village, CA                 91361
-------------------------------------------------------                -----
         (Address of Principal Executive Offices)                   (Zip Code)

                                 (818) 735-7600
              (Registrant's Telephone Number; Including Area Code)

          (Former Name Or Former Address, if Changed Since Last Report)
Item 2.  Acquisition or Disposition of Assets.
         Pursuant to a Stock Purchase Agreement dated March 31, 1998, on June 4,
1998, Coyote Network Systems, Inc. (the "Company") completed the sale of its 80%
interest in Valley Communications,  Inc., a California corporation ("Valley") to
Technology Services  Corporation,  a Delaware  corporation  ("TSC").  TSC is not
related to the Company or its affiliates,  officers or directors in any fashion.
Since  August of 1995,  the  Company,  through a wholly  owned  subsidiary,  C&L
Acquisitions,  Inc.,  owned 80% of the outstanding  common stock of Valley.  The
sale of Valley,  which is engaged in wire  installation,  servicing  and systems
integration,  completed the first phase of the restructuring plan adopted by the
Company's  Board in November,  1996.  Combined with the earlier sales of Atlanta
Provisions Company and C&L Communications, the Company is now focused completely
on the delivery of equipment and network  services that provide voice,  data and
video solutions to affinity groups and carriers.

         The  purchase  price  stated  in  the  Stock  Purchase   Agreement  was
$3,886,321.12.  Prior to closing,  the purchase  price was adjusted to reflect a
$375,000  discount for  prepayment  of the original  promissory  note and a pass
through  payment of $150,000 to TSC's brokers,  Don Hawley and Jay Fischer.  The
final  purchase  price  received  by the  Company  for its  interest  in  Valley
consisted of:

         1.       Cash payments to the Company:               $2,300,000.00
         2.       Assumption of the Company's debt
                    to Valley's 20% shareholders:                811,327.12
         3.       Payment for the assumption of the
                    Company's audit obligation to
                    Valley by Planned Financial Solutions:        25,000.00
         4.       Sales commission paid to 
                    Planned  Financial Solutions:                225,000.00

                                            Total             $3,361,321.12

     The purchase price was determined after arms-length negotiations between
the parties.

Item 5.  Other Events.

         1.    Formation of Coyote Gateway, LLC.
               On April 16, 1998,  the Company  established  Coyote  Gateway,
LLC, a Colorado limited liability company ("CGL").  The Company owns 80% of CGL,
and American Gateway Telecom,  Inc., a Texas  corporation  ("AGT") owns 20%. The
Company  founded CGL, with a capital  contribution of $240,000 and has agreed to
make certain additional working capital contributions through April 15, 1999. In
consideration  of its 20% ownership  interest,  AGT  contributed  assets to CGL,
consisting  of  customer  contracts  for the  transmission  of up to 31  million
minutes of  international  traffic  monthly to 11 countries when fully deployed,
and vendor and carrier  contracts  to service  those  minutes.  CGL has employed
AGT's operating and management  personnel,  and they are  participating in stock
option and bonus plans tied to the success of the venture.

         2.    Appointment of Edward A. Beeman as CFO.
               On June 1, 1998, the Company  appointed  Edward A. Beeman (age
48) as Executive Vice President and Chief  Financial  Officer.  Beeman will also
assume the role of  Corporate  Secretary.  He will report  directly to Daniel W.
Latham,  President and Chief  Operating  Officer of the Company.  Beeman will be
responsible  for all  aspects  of the  Company's  finance,  including  treasury,
accounting, and information systems.

               Prior to  joining  the  Company,  Beeman  was Chief  Financial
Officer of Western Water Company (NASDAQ: WTR), a natural resource wholesaler to
utility companies.  Prior to Western Water,  Beeman was Vice President and Chief
Financial  Officer  for  Bird  Medical  Technologies,  Inc.  (NASDAQ:  BMTI),  a
manufacturer and  international  marketer of medical  equipment.  Prior to that,
Beeman ran his own management  consulting business and held executive management
positions in the United States and Europe with  Caterpillar and Tenneco.  Beeman
began his career as a Certified  Public  Accountant with Peat Marwick Mitchell &
Co., and has a BS in Business and Accounting from Indiana University.

Item 7.  Financial Statements and Exhibits
               (b)      Pro Forma Financial Information:
                        The   following   unaudited   pro   forma   condensed
                        consolidated financial information is filed with this
                        report:  Pro  Forma  Condensed  Consolidated  Balance
                        Sheet at  December  31,  1997;  Pro  Forma  Condensed
                        Consolidated  Statements  of  Operations  for  the 52
                        Weeks Ended March 31,  1997;  and the 9 Months  Ended
                        December 31, 1997.

               (c)      Exhibits
                        99.1     Stock  Purchase  Agreement  between  C  &  L
                                 Acquisitions,  Inc. and Technology  Services
                                 Corporation, dated March 31, 1998.
                        99.2     Non Compete Agreement between C & L
                                 Acquisitions,  Inc. and Technology Services
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 hereunto duly authorized.

                                            COYOTE NETWORK SYSTEMS, INC.

Date:    June 18, 1998                      /s/ James J. Fiedler
                                            --------------------
                                            James J. Fiedler, Chairman
                                            and Chief Executive Officer
PRO FORMA FINANCIAL INFORMATION

                          COYOTE NETWORK SYSTEMS, INC.
       PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997
                                    UNAUDITED
                             (Dollars In Thousands)
Pro Forma
                                                        Historical     Adjustments     Pro Forma
                              ASSETS
Current assets
         Cash and cash equivalents                       $ 6,795        $ 2,300        $ 9,075
         Marketable securities                             1,180              0          1,180
         Receivables, net                                    999              0            999
         Inventories                                       3,298              0          3,298
         Net assets of discontinued operations               ---              0            ---
         Other current assets                                913              0            913
                                                        --------       --------      ---------
                  Total current assets                    13,185          2,300         15,485

Property and equipment                                     1,672              0          1,672
Intangible assets                                          3,595              0          3,595
Net assets of discontinued operations                      3,123         (2,300)           823
Other assets                                               2,948              0          2,948
                                                         -------      ---------        -------
                                                         $24,523       $      0        $24,523
                                                         =======       ========        =======

               LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
         Accounts payable                                 $1,635              0         $1,635
         Accrued liabilities                               1,227              0          1,227
         Accrued common stock conversion expense           5,522              0          5,522
         Accrued common stock warrant expense                494              0            494
         Current portion of long-term debt                   141              0            141
                                                         -------      ---------        -------
                  Total current liabilities                9,019              0          9,109

11.25% subordinated debentures, due 2002                   1,676              0          1,676
8.0% convertible notes, due 2000                           5,000              0          5,000
Other liabilities                                            513              0            513

Shareholders' equity
         Preferred stock - $.01 par value                    ---              0            ---
         Common stock - $1 par value                       8,816              0          8,816
         Additional paid-in capital                       84,847              0         84,847
         Accumulated deficit                             (79,411)             0        (79,411)
         Unrealized (loss) on marketable securities         (180)             0           (180)
         Treasury stock                                   (5,757)             0         (5,757)
                                                        ---------     ---------       ---------
                  Total Shareholders' equity               8,315              0          8,315
                                                        --------      ---------       --------
                                                         $24,523      $       0        $24,523
                                                         =======      =========        =======
See accompanying note to pro forma condensed consolidated financial information.
PRO FORMA FINANCIAL INFORMATION

                          COYOTE NETWORK SYSTEMS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE 52 WEEKS ENDED MARCH 31, 1997
                                    UNAUDITED
                    (In Thousands, Except Per Share Amounts)
Pro Forma          Pro Forma
                                                      Historical       Adjustments
Net sales                                             $  7,154         $      0           $  7,154
Cost of goods sold                                       3,132                0              3,132
                                                      --------         --------           --------
Gross profit                                             4,022                0              4,022

Selling and administrative expenses                     12,112                0             12,112
Engineering, research and development                    4,060                0              4,060
                                                      --------         --------           --------
Total operating expenses                                16,172                0             16,172
                                                       -------         --------            -------

Operating loss                                         (12,150)               0            (12,150)

Interest expense                                           (52)               0                (52)
Non-operating income (expense)                          (1,337)               0             (1,337)
Minority interest                                          368                                 368
Income tax credit                                          836                0                836
                                                    ----------        ---------         ----------
Loss from continuing operations                       $(12,335)       $       0           $(12,335)
                                                      =========       =========           =========
Earnings (loss) per common share
     Continuing operations                          $    (2.34)       $       0          $   (2.34)
                                                    ===========       =========          ==========

Weighted average number of common shares
   outstanding                                           5,271                               5,271
                                                      ========                            ========
See accompanying note to pro forma condensed consolidated financial information.
PRO FORMA FINANCIAL INFORMATION

                          COYOTE NETWORK SYSTEMS, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                    FOR THE 9 MONTHS ENDED DECEMBER 31, 1997
                                    UNAUDITED
                    (In Thousands, Except Per Share Amounts)
Pro Forma
                                                              Historical       Adjustments        Pro Forma
Net sales                                                      $ 2,709                0            $ 2,709
Cost of goods sold                                                 958                0                958
                                                              --------         --------           --------
Gross profit                                                     1,751                0              1,751

Selling and administrative expenses                              9,182                0              9,182
Engineering, research and development                            2,692                0              2,692
                                                              --------         --------           --------
Total operating expenses                                        11,874                0             11,874
                                                               -------         --------            -------

Operating loss                                                 (10,123)               0            (10,123)

Interest expense                                                  (273)               0               (273)
Non-operating income                                                48                0                 48
Non-operating expense                                           (5,522)               0             (5,522)
                                                             ----------        --------          ----------
Loss from continuing operations                               $(15,870)        $      0           $(15,870)
                                                              =========        ========           =========
Earnings (loss) per common share (basic & diluted)
     Continuing operations                                   $   (2.37)        $      0          $   (2.37)
                                                             ==========        ========          ==========

Weighted average number of common shares
   outstanding (basic & diluted)                                 6,685                               6,685
                                                             =========                            ========
See accompanying note to pro forma condensed consolidated financial information.
COYOTE NETWORK SYSTEMS, INC.
                          NOTES TO PRO FORMA CONDENSED
                       CONSOLIDATED FINANCIAL INFORMATION
                                   (Unaudited)

Pro Forma Condensed Consolidated Balance Sheet:

The pro forma  adjustment  reflects the sale of the Registrant's 80% interest in
Valley  Communications,  Inc.  ("Valley")  in exchange for cash  received in the
amount of $2,300,000 net commission and expenses.

Pro Forma Statement of Operations:

The pro forma  statement  of  operations  for the 52 weeks ended March 31, 1997,
reflects  no pro forma  adjustments  as the  reclassification  of the results of
operations of Valley to discontinued  operations occurred in the previous fiscal
year. The remaining operations consist of Coyote Network Systems, Inc. corporate
office and Coyote Technologies, LLC.

The  statement  of  operations  for the nine months  ended  December  31,  1997,
reflects the results of Valley as discontinued operations.  No further pro forma
adjustments are required with respect to the sale of Valley.