<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)

     [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          Exchange Act of 1934 for the quarterly period ended October 28, 2000.

     [    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          Exchange Act of 1934 for the transition period from ____ to ____.

                         Commission file number 0-26761

                                NETSILICON, INC.
             (Exact name of registrant as specified in its charter)

          MASSACHUSETTS                                  04-2826579
   (State of incorporation)                 (I.R.S. Employer Identification No.)

         411 WAVERLEY OAKS RD., BLDG. 227, WALTHAM, MASSACHUSETTS 02452
                     (Address of principal executive office)

                                 (781) 647-1234
                               (Telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                  Yes X     No
                                     ----     ----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.

6,632,780 shares of Voting Common Stock, $0.01 par value, as of December 8, 2000
7,150,000 shares of Non-Voting Common Stock, $0.01 par value, as of December 8,
2000








<PAGE>   2




                                 NETSILICON, INC.
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                 Page

<S>                                                                                              <C>
PART I.   FINANCIAL INFORMATION

ITEM 1.   Financial Statements

             Condensed Consolidated Balance Sheets
             October 28, 2000 and January 31, 2000.............................................     3

             Condensed Consolidated Statements of Income
             Three Months and Nine Months Ended October 28, 2000 and October 31, 1999..........     4

             Condensed Consolidated Statements of Cash Flows
             Nine Months Ended October 28, 2000 and October 31, 1999...........................     5

             Notes to Condensed Consolidated Financial Statements..............................   6-8

ITEM 2.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations........................................................  8-24

ITEM 3.   Quantitative and Qualitative Disclosure About Market Risk............................    24

PART II.  OTHER INFORMATION

ITEM 1.   Legal Proceedings....................................................................    24

ITEM 2.   Changes in Securities and Use of Proceeds............................................    24

ITEM 3.   Defaults Upon Senior Securities......................................................    24

ITEM 4.   Submission of Matters to a Vote of Security Holders..................................    25

ITEM 5.   Other Information....................................................................    25

ITEM 6.   Exhibits and Reports on Form 8-K.....................................................    25

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

Exhibit 27.1
</TABLE>










                                      2
<PAGE>   3


                          PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

<TABLE>
<CAPTION>
                                                         NETSILICON, INC.
                                               CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                                OCTOBER 28, 2000    JANUARY 31, 2000
                                                                                                    (Unaudited)
                                                                                                ----------------    ---------------
<S>                                                                                             <C>                  <C>
                                     ASSETS
CURRENT ASSETS
       Cash and equivalents                                                                         $  7,091,200       $ 11,096,500
       Short-term investments                                                                          8,068,100          8,203,700
       Accounts receivable, net                                                                        5,547,400          2,266,000
       Inventory, net                                                                                  6,604,100          4,322,400
       Prepaid expenses and other current assets                                                       1,710,300            798,900
                                                                                                    ------------       ------------
            TOTAL CURRENT ASSETS                                                                      29,021,100         26,687,500

PROPERTY AND EQUIPMENT, NET                                                                            2,527,600          1,466,400

INTANGIBLE ASSETS, NET                                                                                 2,499,400               --

OTHER ASSETS                                                                                           2,117,100          1,626,600
                                                                                                    ------------       ------------

TOTAL ASSETS                                                                                        $ 36,165,200       $ 29,780,500
                                                                                                    ============       ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
       Short-term debt                                                                              $       --         $    779,700
       Accounts payable                                                                                4,392,100          3,013,200
       Due to affiliate                                                                                  223,000             56,900
       Other current liabilities, including short term portion of capital lease obligation             3,400,000          3,322,700
                                                                                                    ------------       ------------
            TOTAL CURRENT LIABILITIES                                                                  8,015,100          7,172,500

CAPITAL LEASE OBLIGATION - Less current portion                                                             --              125,100
                                                                                                    ------------       ------------

            TOTAL LIABILITIES                                                                          8,015,100          7,297,600
                                                                                                    ------------       ------------

STOCKHOLDERS' EQUITY
       Preferred stock, $0.01 par value; 5,000,000 authorized;
          none issued                                                                                       --                 --

       Common stock, $0.01 par value; 35,000,000 authorized; issued and
          outstanding:
            Voting (6,282,780 and 6,037,500 shares at October 28 and
              January 31, respectively)                                                                   62,800             60,400
            Non-Voting (7,500,000 shares at October 28 and January 31)                                    75,000             75,000
       Additional paid-in capital                                                                     28,187,400         24,755,400
       Accumulated other comprehensive income (loss)                                                       8,000            (26,400)
       Accumulated deficit                                                                              (183,100)        (2,381,500)
                                                                                                    ------------       ------------
            TOTAL STOCKHOLDERS' EQUITY                                                                28,150,100         22,482,900
                                                                                                    ------------       ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                          $ 36,165,200       $ 29,780,500
                                                                                                    ============       ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                      3
<PAGE>   4



                                NETSILICON, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                  Three Months Ended                   Nine Months Ended
                                                        October 28, 2000    October 31, 1999    October 28, 2000   October 31, 1999
                                                        ----------------    ----------------    ----------------   ----------------
<S>                                                      <C>                <C>                  <C>                <C>
NET SALES                                                  $10,687,700        $ 10,148,800         $29,554,600        $ 23,478,400
COST OF SALES                                                4,429,300           4,654,200          12,069,700          11,727,300
                                                           -----------        ------------         -----------        ------------

GROSS MARGIN                                                 6,258,400           5,494,600          17,484,900          11,751,100
                                                           -----------        ------------         -----------        ------------

OPERATING EXPENSES
     Selling and marketing                                   2,819,200           2,206,400           8,151,300           5,260,600
     Engineering, research and development                   1,900,100           1,249,000           4,693,500           2,314,400
     General and administrative                              1,085,300           1,066,200           3,124,800           2,466,700
                                                           -----------        ------------         -----------        ------------

          TOTAL OPERATING EXPENSES                           5,804,600           4,521,600          15,969,600          10,041,700
                                                           -----------        ------------         -----------        ------------


OPERATING INCOME                                               453,800             973,000           1,515,300           1,709,400

     Interest income (expense)                                 218,200             (68,100)            683,100            (481,100)
                                                           -----------        ------------         -----------        ------------

INCOME BEFORE TAXES
     ON INCOME                                                 672,000             904,900           2,198,400           1,228,300

     Taxes on income                                              --                  --                  --                  --
                                                           -----------        ------------         -----------        ------------


NET INCOME                                                 $   672,000        $    904,900         $ 2,198,400        $  1,228,300
                                                           ===========        ============         ===========        ============


NET INCOME PER COMMON SHARE
          Basic                                            $      0.05        $       0.08         $      0.16        $       0.12
          Diluted                                          $      0.04        $       0.07         $      0.14        $       0.11

SHARES USED IN PER SHARE CALCULATION
          Basic                                             13,719,643          11,768,750          13,636,354          10,589,583
          Diluted                                           15,814,393          12,434,763          15,911,922          10,814,027
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                      4
<PAGE>   5




                                NETSILICON, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                         Nine Months Ended
                                                                                             October 28, 2000       October 31, 1999
                                                                                             ----------------       ----------------
<S>                                                                                          <C>                    <C>
CASH FLOW FROM OPERATING ACTIVITIES:
     Net income                                                                                $  2,198,400            $  1,228,300
     Adjustments to reconcile net income to
     net cash (used in) provided by operating activities:
          Depreciation and amortization                                                           1,179,000                 941,400
          Changes in operating assets and liabilities, excluding
             effect of acquisition:
              Accounts receivable                                                                (3,189,900)              1,280,300
              Inventories                                                                        (2,281,700)               (192,400)
              Other current assets                                                                 (911,400)               (150,800)
              Accounts payable                                                                    1,545,000                 454,700
              Other current liabilities                                                              10,900               1,811,000
                                                                                               ------------            ------------
                  NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                            (1,449,700)              5,372,500
                                                                                               ------------            -------------
CASH FLOW FROM INVESTING ACTIVITIES:
     Proceeds from maturity/sale of short-term investments                                          170,000                    --
     Purchases of property and equipment                                                         (1,669,300)               (603,400)
     Direct acquisition costs                                                                      (439,700)                   --
     Software development costs                                                                    (426,900)               (668,100)
     Other assets                                                                                  (308,700)                415,500
                                                                                               ------------            ------------
                  NET CASH USED IN INVESTING ACTIVITIES                                          (2,674,600)               (856,000)
                                                                                               ------------            ------------
CASH FLOW FROM FINANCING ACTIVITIES:
     Repayments of affiliate advances                                                                  --                (4,824,200)
     Repayments of short-term debt, net                                                            (779,700)             (2,551,500)
     Payments of capital lease obligation                                                          (189,000)                (23,400)
     Proceeds from issuance of stock (net of issuance costs)                                           --                22,249,100
     Proceeds from exercise of stock options                                                      1,087,700                    --
                                                                                               ------------            ------------
                  NET CASH PROVIDED BY FINANCING ACTIVITIES                                         119,000              14,850,000
                                                                                               ------------            ------------

INCREASE (DECREASE) IN CASH AND EQUIVALENTS                                                      (4,005,300)             19,366,500

CASH AND EQUIVALENTS - BEGINNING OF PERIOD                                                       11,096,500                 582,600
                                                                                               ------------            ------------

CASH AND EQUIVALENTS - END OF PERIOD                                                           $  7,091,200            $ 19,949,100
                                                                                               ============            ============
</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>   6

                                NETSILICON, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)



1.       Basis of presentation:

                  In the opinion of management, the accompanying condensed
                  consolidated financial statements include all adjustments
                  necessary for a fair presentation of NETsilicon, Inc.'s (the
                  "Company") financial position, results of operations and cash
                  flows for these interim periods. This quarterly information
                  should be read in conjunction with the audited financial
                  statements and accompanying notes included in the Company's
                  2000 Form 10-K as filed with the Securities and Exchange
                  Commission ("SEC") on May 1, 2000.

                  The financial statements are prepared in conformity with
                  generally accepted accounting principles which require
                  management to make estimates that affect the reported amounts
                  of assets, liabilities, revenues and expenses, and the
                  disclosure of contingent assets and liabilities. Actual
                  results could differ from these estimates.

                  Certain prior period amounts have been reclassified to conform
                  to the current period presentation. Included among these
                  reclasses is the reclassification of amortization of
                  capitalized software costs from engineering, research and
                  development costs to cost of sales. These reclassifications
                  had no effect on net income or stockholders' equity.

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


2.       Inventories:

                  Inventories are stated at the lower of cost (first-in,
                  first-out) or market. Cost is computed using standard costs,
                  which approximate actual cost on a first-in, first-out basis.
                  Inventories consist of:

<TABLE>
<CAPTION>
                                          October 28,         January 31,
                                             2000                2000
                                        ----------------    ----------------

<S>                                     <C>                 <C>
                 Raw material                $6,130,400          $2,518,600
                 Work in process                175,700           1,693,400
                 Finished goods                 298,000             110,400
                                        ----------------    ----------------
                 Total inventory             $6,604,100          $4,322,400
                                        ================    ================
</TABLE>




3.       Earnings per share calculation:

                  Basic earnings per share is computed based on the weighted
                  average number of shares outstanding during the period.
                  Diluted earnings per share is computed based on the weighted
                  average number of shares outstanding during the period
                  increased by the effect of dilutive potential common shares
                  which consist of shares issuable under stock benefit plans
                  and warrants.

                                      6
<PAGE>   7

                  The following is a reconciliation of the numerators and
                  denominators of the basic and diluted per share computations:



<TABLE>
<CAPTION>
                                                       Three Months Ended            Nine Months Ended
                                                   ---------------------------    -------------------------
                                                    October 28,    October 31,    October 28,   October 31,
                                                       2000           1999           2000          1999
                                                   ------------    -----------    -----------   -----------
<S>                                                <C>             <C>            <C>           <C>
                Net income available to common
                shareholders, basic and diluted       $672,000       $904,900     $2,198,400    $ 1,228,300
                                                   ============    ===========    ===========   ===========

                Weighted-average number of
                common shares used in basic
                earnings per share                  13,719,643     11,768,750     13,636,354     10,589,583

                Effect of dilutive securities -
                stock options                        2,094,750        666,013      2,275,568        224,444
                                                   ------------    -----------    -----------   -----------

                Weighted-average number of
                common shares and dilutive
                potential common stock used in
                dilutive earnings per share         15,814,393     12,434,763     15,911,922     10,814,027
                                                   ============    ===========    ===========   ===========
</TABLE>

                  The shares issuable upon exercise of options and warrants
                  represent the quarterly average of the shares issuable at
                  exercise net of the shares assumed to have been purchased, at
                  the average market price for the period, with the assumed
                  exercise proceeds. Accordingly, options and warrants with
                  exercise prices in excess of the average market price for
                  the period are excluded because their effect would be
                  anti-dilutive.


4.       Acquisition

                  On August 31, 2000, the Company completed the acquisition of
                  the strategic network technology assets (the "Purchased
                  Assets") of Pacific Softworks Technology, Inc. ("Pacific"), a
                  subsidiary of PASW, Inc. (formerly Pacific Softworks, Inc.).
                  The Purchased Assets, which represent substantially all of the
                  assets of Pacific, will be used by the Company to develop and
                  license embedded network protocols, software that enables
                  electronic devices to communicate over local and wide area
                  networks.

                  The purchase price was allocated to the tangible and
                  intangible assets acquired and liabilities assumed on the
                  basis of their respective estimated fair values on the
                  acquisition date, as follows:

<TABLE>
<S>                                                         <C>
                 Completed technology                       $2,417,700

                 Workforce                                     228,700
                 Fixed assets                                  103,700
                 Accounts receivable                            91,500
                                                            ----------
                 Total purchase price                       $2,841,600
                                                            ==========
</TABLE>

                  The purchase price consisted of 90,000 shares of the common
                  stock of the Company, valued at $2,271,600, and $570,000 of
                  acquisition-related costs, including $400,000 for investment
                  banking fees and fees for legal, accounting and consulting.
                  The purchased completed technology and workforce assets are
                  being amortized over three years.

5.       Revolving Line of Credit-Bank

                  On July 31, 2000 the Company obtained a $5,000,000 revolving
                  line of credit with a bank, which expires May 31, 2001, and is
                  available to fund working capital. Borrowings under the line
                  of credit are

                                      7
<PAGE>   8

                  secured by certain Company assets, including inventory and
                  accounts receivable, and bear interest at the prime rate plus
                  0.25% (9.75% at October 28, 2000). The maximum available
                  credit under the revolving line of credit is equal to the
                  lesser of $5,000,000 and the then effective borrowing base,
                  as defined in the bank agreement and calculated as a
                  percentage of accounts receivable. The agreement requires
                  that the Company maintain certain financial ratios among
                  other restrictive covenants. As of October 28, 2000 there
                  were no borrowings outstanding under the revolving note.

6.       Contingencies

                  On August 31, 2000, Websprocket, LLC filed a suit against the
                  Company in the United States District Court for the Northern
                  District of California (Websprocket, LLC v. NETsilicon, Inc.,
                  Civil Action No. C-00-20915), claiming breach of contract.
                  The complaint alleges that the Company breached a technology
                  development contract that was executed between the Company
                  and Websprocket, LLC in December 1999. Websprocket, LLC seeks
                  relief including alleged damages of $2,000,000 plus
                  attorney's fees, a declaration of its rights under the
                  technology development contract and an injunction requiring
                  the Company to cease using and return all property of
                  Websprocket, LLC. We believe we have meritorious defenses to
                  the claims and intend to contest the lawsuit vigorously. On
                  or about October 31, 2000, the Company denied the allegations
                  in  Websprocket, LLC's complaint and asserted counterclaims
                  against Websprocket, LLC that included breach of contract,
                  fraud, and negligent misrepresentation. An unfavorable
                  resolution of the action could have a material adverse effect
                  on the business, results of operations or financial condition
                  of the Company.



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

                  Information provided by the Company from time to time
                  including statements in this Form 10-Q which are not
                  historical facts are so-called "forward-looking statements"
                  that involve risks and uncertainties, made pursuant to the
                  safe harbor provisions of the Private Securities Litigation
                  Reform Act of 1995.  In particular, statements contained in
                  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations which are not historical facts
                  (including, but not limited to, statements concerning the
                  plans and objectives of management; expectations for sales
                  and marketing, research and development and general and
                  administrative expenses; developments relating to the
                  Company's product and service offerings, markets and
                  acquisitions; anticipated trends in the Company's business;
                  and the Company's expected liquidity and capital resources)
                  may constitute forward-looking statements.  These
                  forward-looking statements are neither promises nor
                  guarantees, but are subject to risk and uncertainties that
                  could cause actual results to differ materially from the
                  expectations set forth in the forward-looking statements.
                  Factors that may cause such differences include, but are not
                  limited to, the factors discussed below, and the other risks
                  discussed in the Company's Annual Report on Form 10-K for the
                  fiscal year ended January 31, 2000 and from time to time in
                  the Company's other filings with the Securities and Exchange
                  Commission.

                  OVERVIEW

                  We develop and market Ethernet microprocessing solutions,
                  including semiconductor devices and software, designed to
                  meet the networking requirements of intelligent,
                  network-enabled devices. We commenced our operations in 1984
                  as Digital Products, Inc. From our inception, we have
                  developed and marketed networking products for embedded
                  systems that enable the connection of electronic devices to
                  networks.

                                      8
<PAGE>   9

                  In September 1996, Osicom Technologies, Inc. ("Osicom")
                  acquired all of our outstanding capital stock from our
                  stockholders. We were a wholly-owned subsidiary of Osicom from
                  the date of the acquisition through our initial public
                  offering in September 1999.


                  RESULTS OF OPERATIONS

                  The following table sets forth information derived from our
                  Statement of Operations expressed as a percentage of net sales
                  for the three and nine month periods ended October 28, 2000
                  and October 31, 1999.

<TABLE>
<CAPTION>
                                                    Three Months Ended                 Nine Months Ended
                                               October 28,       October 31,       October 28,      October 31,
                                                   2000              1999             2000             1999
                                              ---------------    -------------    --------------    -----------
<S>                                           <C>                <C>              <C>               <C>
                 Net sales                         100.0%            100.0%           100.0%           100.0%
                 Cost of sales                      41.4              45.9             40.8             49.9
                                              ---------------    -------------    --------------    -----------
                 Gross margin                       58.6              54.1             59.2             50.1
                                              ---------------    -------------    --------------    -----------

                 Operating expenses:
                   Selling and marketing            26.4              21.7             27.6             22.4
                   Engineering, research
                     and development                17.8              12.3             15.9              9.9
                   General and
                     administrative                 10.2              10.5             10.6             10.5
                                              ---------------    -------------    --------------    -----------
                 Total operating expenses           54.4              44.5             54.1             42.8
                                              ---------------    -------------    --------------    -----------

                 Operating income                    4.2               9.6              5.1              7.3

                 Interest income (expense)           2.0              (0.7)             2.3             (2.0)
                                              ---------------    -------------    --------------    -----------

                 Income before taxes on
                   income                            6.2               8.9              7.4              5.3

                 Taxes on income                      -                 -                -                -
                                              ---------------    -------------    --------------    -----------
                 Net income
                                                     6.2%              8.9%             7.4%             5.3%
                                              ===============    =============    ==============     ===========
</TABLE>


                  Three and Nine Months Ended October 28, 2000 compared to
                  Three and Nine Months Ended October 31, 1999:

                  Net sales. Net sales increased to $10.7 million for the three
                  months ended October 28, 2000 from $10.1 million for the three
                  months ended October 31, 1999, representing an increase of
                  5.3%. Net sales increased to $29.6 million for the nine months
                  ended October 28, 2000 from $23.5 million for the nine months
                  ended October 31, 1999, an increase of 25.9%.

                  The increase in net sales was due primarily to an increase in
                  OEM customers to which we shipped product from 30 for the
                  period ended October 31, 1999 to 74 for the period ended
                  October 28, 2000. Furthermore, the increase is attributable to
                  increased sales to existing OEM imaging customers due to
                  greater demand for their products and an increase in the
                  number of projects we have with these customers. Net sales for
                  the three months ended October 31, 1999 included a significant
                  order from a new imaging customer related to increased demand
                  for its product toward the end of calendar year 1999 as a
                  result of Year 2000 remediation. Backlog for our products and
                  services was approximately $4.8 million and $7.3 million at
                  October 28, 2000 and October 31, 1999, respectively, all of
                  which was scheduled to be shipped within 12 months.

                  Our embedded networking semiconductor and controller products
                  accounted for 89.0% and 95.3% of total net sales for the nine
                  months ended October 28, 2000 and October 31, 1999,
                  respectively. Software development tools and development
                  boards accounted for 5.4% of

                                      9
<PAGE>   10

                  total net sales for the nine months ended October 28, 2000
                  and 1.7% of total net sales for the prior year nine month
                  period. Royalty, maintenance and service revenue was 5.6%
                  and 3.0% of total net sales for the nine months ended October
                  28, 2000 and October 31, 1999, respectively. Deferred
                  revenue of $320,800 is included in other current liabilities
                  at October 28, 2000.

                  During the nine months ended October 28, 2000, international
                  sales accounted for 55% of net sales compared to 60% of net
                  sales for the nine month period ended October 31, 1999.

                  Cost of sales; gross margin. Costs of goods sold consists
                  principally of the cost of raw material components and
                  subcontractor labor assembly from outside manufacturers and
                  suppliers and amortization of software development costs.
                  Gross margin increased to $6.3 million, or 58.6% of net
                  sales, for the three months ended October 28, 2000 from $5.5
                  million, or 54.1% of net sales, for the three months ended
                  October 31, 1999, representing an increase of 13.9%. Gross
                  margin increased 48.8% to $17.5 million, or 59.2% of net
                  sales, for the nine months ended October 28, 2000 from $11.8
                  million, or 50.1% of net sales, for the nine months ended
                  October 31, 1999.

                  The increases in gross margin percent for the periods ended
                  October 28, 2000 from the prior year periods were due
                  primarily to (i) material and subcontractor labor cost
                  reductions which were partially attributable to the increased
                  sales volume, (ii) increases in non-recurring engineering fees
                  related to new OEM imaging projects and royalties and (iii) a
                  gradual shift in product mix to higher margin intelligent
                  device market products and a shift from imaging network
                  interface cards to higher margin imaging semiconductor
                  devices.

                  Selling and marketing expenses. Selling and marketing expenses
                  consist mainly of employee-related expenses, commissions to
                  sales representatives, trade shows and travel expense. Selling
                  and marketing expenses increased from $2.2 million, or 21.7%
                  of net sales, for the three months ended October 31, 1999 to
                  $2.8 million, or 26.4% of net sales, for the three months
                  ended October 28, 2000, representing an increase of 27.8%.
                  Similarly, selling and marketing expenses increased 55.0% to
                  $8.2 million, or 27.6% of net sales, for the nine months ended
                  October 28, 2000 from $5.3 million, or 22.4% of net sales, for
                  the nine months ended October 31, 1999.

                  The increase was the result of (i) additional sales
                  commissions due to increased sales volume and the expansion of
                  our network of manufacturing representatives, distributors and
                  authorized developers, (ii) additional payroll costs related
                  to the expansion of our direct sales and marketing teams in
                  the United States, Europe and Asia from 35 employees in
                  October 1999 to 53 employees in October 2000, (iii) greater
                  marketing costs associated with the introduction of new
                  products, greater participation in trade shows and costs
                  associated with Internet and web marketing activities. The
                  increase in headcount from October 1999 to October 2000
                  includes the addition of three sales and marketing individuals
                  acquired in connection with our purchase of certain assets of
                  Pacific Softworks, Inc. ("Pacific") in August 2000.

                  Engineering, research and development. Engineering, research
                  and development expenses consist primarily of salaries and the
                  related costs of employees engaged in research, design and
                  development activities. Engineering, research and development
                  expenses increased to $1.9 million, or 17.8% of net sales, for
                  the three months ended October 28, 2000 from $1.2 million, or
                  12.3% of net sales, for the three months ended October 31,
                  1999, representing an increase of 52.1%. Engineering, research
                  and development expenses increased 102.8% to $4.7 million, or
                  15.9% of net sales, for the nine months ended October 28, 2000
                  from $2.3 million, or 9.9% of net sales, for the nine months
                  ended October 31, 1999.

                                      10
<PAGE>   11
                  This increase is due primarily to increased payroll costs
                  associated with an increase in headcount from 34 employees
                  engaged in research and development activities at October 31,
                  1999 to 52 employees at October 28, 2000. The increase in
                  headcount includes the addition of 10 engineers acquired in
                  connection with our purchase of certain assets of Pacific in
                  August 2000. In addition, the increase in engineering,
                  research and development expenses is attributable to increases
                  in contract labor and consulting costs related to our
                  investment in product development, including investments in
                  the development of products supporting the Linux operating
                  system and Java programming language. Futhermore, the increase
                  is due to higher recruiting costs, increased depreciation and
                  amortization of purchased software tools, and amortization of
                  purchased intangible assets related to our purchase of certain
                  Pacific assets in August 2000.

                  General and administrative expenses. General and
                  administrative expenses consist primarily of salaries,
                  employee-related expenses, legal expenses, audit fees and
                  provisions for accounts receivable allowances. General and
                  administrative expenses increased to $1.09 million, or 10.2%
                  of net sales, for the three months ended October 28, 2000 from
                  $1.07 million, or 10.5% of net sales, for the three months
                  ended October 31, 1999, an increase of 1.8%. General and
                  administrative expenses increased 26.7% to $3.1 million, or
                  10.6% of net sales, for the nine months ended October 28, 2000
                  from $2.5 million, or 10.5% of net sales, for the nine months
                  ended October 31, 1999. The increase in general and
                  administrative expenses is attributable to higher payroll
                  costs related to an increase in headcount in addition to
                  increased legal, accounting and insurance costs associated
                  with becoming a public entity and consulting and other costs
                  associated with the continued development of our MIS group.

                  Interest income/expense. Interest income includes interest
                  earned on cash and short-term investment balances. Interest
                  expense is the result of our borrowings against our line of
                  credit with our former lender, Coast Business Credit, and the
                  interest charged by our former sole shareholder, Osicom, for
                  our borrowings from Osicom. Net interest income was $218,200,
                  or 2.0% of net sales, and $683,100, or 2.3% of net sales, for
                  the three and nine months ended October 28, 2000,
                  respectively, and consisted of interest earned on cash and
                  short-term investment balances. Net interest expense was
                  $68,100, or 0.7% of net sales, and $481,100, or 2.0% of net
                  sales, for the three and six months ended October 31, 1999,
                  respectively and consisted of interest on borrowings from both
                  our line of credit and Osicom. The increases in interest
                  income and the decreases in interest expense from the periods
                  ended October 1999 to the periods ended October 2000 are the
                  result of the proceeds raised by the sale of our stock in
                  conjunction with our initial public offering on September 15,
                  1999 and our subsequent repayment of amounts due Coast
                  Business Credit and Osicom.

                  Provision for income taxes. There was no net provision for
                  income taxes for the three and nine month periods ended
                  October 28, 2000 and October 31, 1999 as the provisions were
                  offset by available net operating loss carryforwards.


                  Liquidity and Capital Resources

                  Prior to our public offering in September 1999 we financed
                  our operations through advances from Osicom and borrowings
                  under our short-term bank line of credit. The Company received
                  proceeds, net of offering costs, of approximately $22.2
                  million as a result of the initial public offering and sale of
                  our stock. At October 28, 2000 we had working capital of $21.0
                  million and cash and cash equivalents of $7.1 million.

                  Our operating activities used cash of $1.4 million and
                  provided cash of $5.4 million for the nine month periods ended
                  October 28, 2000 and October 31, 1999, respectively.

                                      11
<PAGE>   12
                  Cash used by operating activities in the nine month period
                  ended October 28, 2000 was attributable to increases in
                  accounts receivable and inventory, offset in part by net
                  income, an increase in accounts payable and the non-cash
                  impact of depreciation and amortization. The increase in
                  accounts receivable and inventory related to the growth in
                  sales and the demand for our product. The increase in
                  inventory is also due to larger volume purchases of certain
                  electronic components that were made to decrease the risk to
                  our operations of the sharp fluctuations in the market supply
                  of the components. Cash provided in the nine month period
                  ended October 31, 1999 was attributable to net income, a
                  decrease in accounts receivable, an increase in other current
                  liabilities, and the non-cash impact of depreciation and
                  amortization.

                  In order to support our anticipated growth, we expect that our
                  sales and marketing expenses, engineering, research and
                  development expenses and general and administrative expenses
                  each will increase in the fiscal year ending January 31, 2001
                  and thereafter compared to the amounts of such expenses in the
                  fiscal year ending January 31, 2000. There can be no assurance
                  that our available cash and cash flow from operations will be
                  sufficient to fund such additional expenses.

                  Our standard payment terms are net 30 days. While we actively
                  pursue collection within that time, receivables have
                  frequently taken longer to collect in part because we sell
                  products to large companies in Asia.

                  Our investing activities used cash of $2.7 million and
                  $856,000 during the nine months ended October 28, 2000 and
                  October 31, 1999, respectively. Cash used in investing
                  activities during the nine months ended October 28, 2000
                  related primarily to purchases of $1.7 million of property and
                  equipment, cash payments for acquisition-related costs
                  incurred in connection with our purchase of certain Pacific
                  assets in August 2000 of $439,700 and software development
                  costs of $426,900. Cash used in investing activities during
                  the nine months ended October 31, 1999 related primarily to
                  purchases of $603,400 of property and equipment and software
                  development costs of $668,100.

                  On August 31, 2000, we issued 90,000 shares of common stock,
                  valued at $2.3 million and incurred $570,000 of
                  acquisition-related costs in connection with the acquisition
                  of the strategic network technology assets of Pacific. The
                  total purchase price was $2.8 million and was allocated to
                  the tangible and intangible assets acquired.

                  Cash provided by financing activities was $119,000 and $14.9
                  million during the nine months ended October 28, 2000 and
                  October 31, 1999, respectively. Cash provided by financing
                  activities during the period ended October 28, 2000 related
                  primarily to proceeds from the exercise of stock options of
                  $1.1 million which were offset in part by the repayment of
                  short-term debt obligations of $779,700. Cash provided by
                  financing activities during the period ended October 31, 1999
                  was attributable primarily to proceeds of $22.2 million from
                  the sale of common stock in connection with our initial public
                  offering in September 1999 which were offset in part by
                  repayments of affiliate advances of $4.8 million and
                  repayments of short-term debt of $2.6 million.

                  We anticipate that our available cash resources will be
                  sufficient to meet our presently anticipated capital
                  requirements through the next 12 months. Nonetheless, we may
                  elect to sell additional equity securities or to obtain
                  additional credit. Our future capital requirements may vary
                  materially from those now planned and will depend on many
                  factors, including, but not limited to, the levels at which we
                  maintain inventory and accounts receivable; the market
                  acceptance of our products; the levels of promotion and
                  advertising required to launch products or enter markets and
                  attain a competitive position in the marketplace; volume
                  pricing concessions; our business, product, capital
                  expenditure and research and development plans and technology
                  roadmap; capital improvements to new and existing facilities;
                  technological advances; the response of

                                      12
<PAGE>   13
                  competitors to our products; and our relationships with
                  suppliers and customers. In addition, we may require an
                  increase in the level of working capital to accommodate
                  planned growth, hiring and infrastructure needs. Additional
                  capital may be required for consummation of any acquisitions
                  of businesses, products or technologies. We may need to raise
                  additional funds through public or private financings or
                  borrowings if existing resources and cash generated from
                  operations are insufficient to fund our future activities. No
                  assurance can be given that additional financing will be
                  available or that, if available, such financing can be
                  obtained on terms favorable to our shareholders and us. If
                  additional funds are raised through the issuance of equity
                  securities, the percentage ownership of then current
                  stockholders of us will be reduced and such equity securities
                  may have rights, preferences or privileges senior to those of
                  holders of our common stock. If adequate funds are not
                  available to satisfy short- or long-term capital requirements,
                  we may be required to limit our operations significantly.


                  Risk Factors

                  You should carefully consider the following risks before
                  investing in our common stock. These are not the only risks
                  facing our company. Additional risks may also impair our
                  business operations. If any of the following risks come to
                  fruition, our business, results of operations or financial
                  condition could be materially adversely affected. In that
                  case, the trading price of our common stock could decline, and
                  you may lose all or part of your investment. You should also
                  refer to the other information set forth in this report, and
                  incorporated by reference, including our financial statements
                  and the accompanying notes.

                  This report contains certain "forward-looking statements"
                  (statements that are not historical fact) based on our current
                  expectations, assumptions, estimates and projections about our
                  company and our industry. These forward-looking statements
                  involve risks and uncertainties. Our actual results could
                  differ materially from those anticipated in those
                  forward-looking statements as a result of many factors, as
                  more fully described in this section and elsewhere in this
                  report.

                  WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT THAT
                  MAKE FUTURE OPERATING RESULTS AND PROFITABILITY DIFFICULT TO
                  PREDICT.

                  We incurred net losses from continuing operations for the
                  fiscal years ended January 31, 1997, 1998 and 1999. At January
                  31, 2000, we had an accumulated deficit of $2.4 million.
                  Although we were profitable in fiscal year 2000 and for the
                  first nine months of fiscal year 2001, there can be no
                  assurance that we will be able to maintain profitability on a
                  quarterly or annual basis in the future. In addition, revenue
                  growth is not necessarily indicative of future operating
                  results and there can be no assurance that we will be able to
                  sustain revenue growth. We continue to invest significant
                  financial resources in product development, marketing and
                  sales, and a failure of such expenditures to result in
                  significant increases in revenue could have a material adverse
                  effect on us. Due to the limited history and undetermined
                  market acceptance of our new products, the rapidly evolving
                  nature of our business and markets, potential changes in
                  product standards that significantly influence many of the
                  markets for our products, the high level of competition in the
                  industries in which we operate and the other factors described
                  elsewhere in Risk Factors, there can be no assurance that our
                  investment in these areas will result in increases in revenue
                  or that any revenue growth that is achieved can be sustained.
                  Our history of losses, coupled with the factors described
                  below, make future operating results difficult to predict. We
                  and our future prospects must be considered in light of the
                  risks, costs and difficulties frequently encountered by
                  emerging companies. As a result, there can be no assurance
                  that we will be profitable in any future period.

                                      13
<PAGE>   14
                  THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY ADVERSELY
                  AFFECT THE TRADING PRICE OF OUR COMMON STOCK.

                  Our net sales and operating results have in the past and may
                  in the future fluctuate substantially from quarter to quarter
                  and from year to year. These results have varied significantly
                  due to a number of factors, including:

                           -        market acceptance of and demand for our
                                    products and those of our customers;

                           -        unanticipated delays or problems in the
                                    introduction of our products;

                           -        the timing of large customer orders;

                           -        the timing and success of our customers'
                                    development cycles;

                           -        our ability to introduce new products in
                                    accordance with customer design requirements
                                    and design cycles;

                           -        new product announcements or product
                                    introductions by us and our competitors;

                           -        availability and cost of manufacturing
                                    sources for our products;

                           -        the volume of orders that are received and
                                    can be filled in a quarter;

                           -        the rescheduling or cancellation of orders
                                    by customers;

                           -        changes in product mix;

                           -        timing of "design wins" with our customers
                                    and related revenue; and

                           -        changes in currency exchange rates.

                  Our operating results could also be harmed by:

                           -        the growth rate of markets into which we
                                    sell our products;

                           -        changes in the mix of sales to customers and
                                    sales representatives;

                           -        costs associated with protecting our
                                    intellectual property; and

                           -        changes in product costs and pricing by us
                                    and our competitors.

                  We budget expenses based in part on future revenue
                  projections. We may be unable to adjust spending in a timely
                  manner in response to any unanticipated declines in revenues.

                  As a result of these and other factors, investors should not
                  rely solely upon period-to-period comparisons of our operating
                  results as an indication of future performance. It is likely
                  that in some future period our operating results or business
                  outlook will be below the expectations of securities analysts
                  or investors, which would likely result in a significant
                  reduction in the market price of the shares of common stock.

                  OUR FAILURE TO INCREASE SALES TO MANUFACTURERS OF INTELLIGENT
                  NETWORK-ENABLED DEVICES AND OTHER EMBEDDED SYSTEMS WILL
                  ADVERSELY AFFECT OUR FINANCIAL RESULTS.

                                      14
<PAGE>   15
                  Our financial performance and future growth is dependent upon
                  our ability to sell our products to manufacturers of
                  intelligent, network-enabled devices and other embedded
                  systems in various markets, including markets in which
                  networking solutions for embedded systems have not
                  historically been sold, such as the industrial automation
                  equipment, data acquisition and test equipment, Internet
                  devices and security equipment markets. A substantial portion
                  of our recent development efforts have been directed toward
                  the development of new products for markets that are new and
                  rapidly evolving. There can be no assurance that

                           -        the additional intelligent device markets
                                    targeted by us for our products and services
                                    will develop;

                           -        developers within each market targeted by us
                                    will choose our products and services to
                                    meet their needs;

                           -        we will successfully develop products to
                                    meet the industry-specific requirements of
                                    developers in our targeted markets or that
                                    design wins will result in significant
                                    sales; or

                           -        developers in our targeted markets will gain
                                    market acceptance for their devices which
                                    incorporate our products.

                  We have limited experience in designing our products to meet
                  the requirements of developers in these industries. Moreover,
                  our products and services have, to date, achieved limited
                  acceptance in these industries.

                  WE ARE DEPENDENT ON THE IMAGING MARKET FOR A LARGE PORTION OF
                  OUR REVENUES.

                  The imaging market has historically accounted for
                  substantially all of our revenues. In the fiscal years ended
                  January 31, 2000, 1999 and 1998, 95%, 95% and 100%,
                  respectively, of our revenues were generated from customers in
                  the imaging market. Our success has been and continues to be
                  dependent on the continued success of the imaging
                  market. Many of our customers face competition from larger,
                  more established companies which may exert competitive or
                  other pressures on them. Any decline in sales to the imaging
                  market would have a material adverse effect on our business,
                  results of operations and financial condition.

                  Due in part to an economic slowdown affecting our imaging
                  customers, we anticipate a decline in imaging revenue in the
                  fourth quarter of fiscal year 2001 from third quarter imaging
                  revenue. We expect that the decline in fourth quarter imaging
                  revenue and the related expected decrease in imaging revenue
                  growth in the first half of fiscal year 2002 will adversely
                  effect our results of operations and financial condition.

                  The imaging market is characterized by declining prices of
                  existing products. Therefore, continual improvements in
                  manufacturing efficiencies and the introduction of new
                  products and enhancements to existing products are required
                  for us to maintain our gross margins. In response to customer
                  demands or competitive pressures, or to pursue new product or
                  market opportunities, we may take certain pricing or marketing
                  actions, such as price reductions or volume discounts. These
                  actions could have a material adverse effect on us.

                  A significant amount of our customers in the imaging market
                  are headquartered in Japan. Our customers are subject to
                  declines in their local economies, which have affected them
                  from time to time in the past and may affect them in the
                  future. The success of our customers affects their purchases
                  from us.

                  OUR HIGHLY CONCENTRATED CUSTOMER BASE INCREASES THE POTENTIAL
                  ADVERSE EFFECT ON US FROM THE LOSS OF ONE OR MORE CUSTOMERS.

                  Our products have historically been sold into the imaging
                  markets for use in products such as printers, scanners, fax
                  machines, copiers and multi-function peripherals. This market
                  is highly concentrated. Accordingly, our sales are derived
                  from a limited number

                                      15
<PAGE>   16
                  of customers, with the top five OEM customers accounting for
                  72% and 52% of total revenues for the fiscal years ended 2000
                  and 1999, respectively. In particular, sales to Ricoh,
                  Dimatech and Minolta each accounted for 26%, 24% and 13% of
                  total revenues, respectively, for the fiscal year ended
                  January 31, 2000. Sales to Minolta, Kyocera and Konica
                  accounted for 12%, 12% and 11% of total revenues,
                  respectively, for the fiscal year ended January 31, 1999. We
                  expect that a small number of customers will continue to
                  account for a substantial portion of our total revenues for
                  the foreseeable future. All of our sales are made on the basis
                  of purchase orders rather than under long-term agreements, and
                  therefore, any customer could cease purchasing our products at
                  any time without penalty. The decision of any key customer to
                  cease using our products or a material decline in the number
                  of units purchased by a significant customer would have a
                  material adverse effect on us.

                  THE LONG AND VARIABLE SALES CYCLE FOR OUR PRODUCTS MAKE IT
                  MORE DIFFICULT FOR US TO PREDICT OUR OPERATING RESULTS AND
                  MANAGE OUR BUSINESS.

                  The sale of our products typically involves a significant
                  technical evaluation and commitment of capital and other
                  resources by potential customers, as well as delays frequently
                  associated with customers' internal procedures to deploy new
                  technologies within their products and to test and accept new
                  technologies. For these and other reasons, the sales cycle
                  associated with our products is typically lengthy, lasting
                  nine months or longer, and is subject to a number of
                  significant risks, including customers' internal acceptance
                  reviews, that are beyond our control. Because of the lengthy
                  sales cycle and the large size of customer orders, if orders
                  forecasted for a specific customer for a particular quarter
                  are not realized in that quarter, our operating results for
                  that quarter could be materially adversely affected.

                  OUR RELATIVELY LOW LEVEL OF BACKLOG INCREASES THE POTENTIAL
                  VARIABILITY OF OUR QUARTERLY OPERATING RESULTS.

                  Our backlog at the beginning of each quarter typically is not
                  sufficient to achieve expected sales for the quarter. To
                  achieve our sales objectives, we are dependent upon obtaining
                  orders during each quarter for shipment during that quarter.
                  Furthermore, our agreements with our customers typically
                  permit them to change delivery schedules. Non-imaging
                  customers may cancel orders within specified time frames
                  (typically 30 days or more prior to the scheduled shipment
                  date under our policies) without significant penalty. Our
                  customers have in the past built, and may in the future build,
                  significant inventory in order to facilitate more rapid
                  deployment of anticipated major products or for other reasons.
                  Decisions by such customers to reduce their inventory levels
                  have led and could lead to reductions in their purchases from
                  us. These reductions, in turn, have caused and could cause
                  adverse fluctuations in our operating results.

                  OUR DEPENDENCE ON NEW PRODUCT DEVELOPMENT AND THE RAPID
                  TECHNOLOGICAL CHANGE THAT CHARACTERIZES OUR INDUSTRY MAKE US
                  SUSCEPTIBLE TO LOSS OF MARKET SHARE RESULTING FROM
                  COMPETITORS' PRODUCT INTRODUCTIONS AND SIMILAR RISKS.

                  The semiconductor and networking industries are characterized
                  by rapidly changing technologies, evolving industry standards,
                  frequent new product introductions, short product life cycles
                  and rapidly changing customer requirements. The introduction
                  of products embodying new technologies and the emergence of
                  new industry standards can render existing products obsolete
                  and unmarketable. Our future success will depend on our
                  ability to enhance our existing products, to introduce new
                  products to meet changing customer requirements and emerging
                  technologies, and to demonstrate the performance advantages
                  and cost-effectiveness of our products over competing
                  products. Any failure by us to modify our products to support
                  new local-area network, or LAN, wide-area

                                      16
<PAGE>   17
                  network, or WAN, and Internet technologies, or alternative
                  technologies, or any failure to achieve widespread customer
                  acceptance of such modified products could have a material
                  adverse effect on us. In particular, we have dedicated
                  significant resources to developing products based on the
                  Linux operating system and on the Java programming language,
                  and the failure of these products to achieve widespread
                  acceptance could have a material adverse effect on us.

                  We have in the past and may in the future experience delays
                  in developing and marketing product enhancements or new
                  products that respond to technological change, evolving
                  industry standards and changing customer requirements. There
                  can be no assurance that we will not experience difficulties
                  that could delay or prevent the successful development,
                  introduction and marketing of these products or product
                  enhancements, or that our new products and product
                  enhancements will adequately meet the requirements of the
                  marketplace and achieve any significant or sustainable degree
                  of market acceptance in existing or additional markets.
                  Failure by us, for technological or other reasons, to develop
                  and introduce new products and product enhancements in a
                  timely and cost-effective manner would have a material
                  adverse effect on us. In addition, the future introductions
                  or announcements of products by us or one of our competitors
                  embodying new technologies or changes in industry standards
                  or customer requirements could render our then-existing
                  products obsolete or unmarketable. There can be no assurance
                  that the introduction or announcement of new product
                  offerings by us or one or more of our competitors will not
                  cause customers to defer the purchase of our existing
                  products. Such deferment of purchases could have a material
                  adverse effect on us.

                  OUR FAILURE TO EFFECTIVELY MANAGE PRODUCT TRANSITIONS COULD
                  HAVE A MATERIAL ADVERSE EFFECT ON US.

                  From time to time, we or our competitors may announce new
                  products, capabilities or technologies that may replace or
                  shorten the life cycles of our existing products.
                  Announcements of currently planned or other new products may
                  cause customers to defer or stop purchasing our products until
                  new products become available. Furthermore, the introduction
                  of new or enhanced products requires us to manage the
                  transition from older product inventories and ensure that
                  adequate supplies of new products can be delivered to meet
                  customer demand. Our failure to effectively manage transitions
                  from older products could have a material adverse effect on
                  our business, results of operations and financial condition.

                  OUR FAILURE TO COMPETE SUCCESSFULLY IN OUR HIGHLY COMPETITIVE
                  MARKET COULD RESULT IN REDUCED PRICES AND LOSS OF MARKET
                  SHARE.

                  The markets in which we operate are intensely competitive and
                  characterized by rapidly changing technology, evolving
                  industry standards, declining average selling prices and
                  frequent new product introductions. A number of companies
                  offer products that compete with one or more elements of our
                  products. We believe that the competitive factors affecting
                  the market for our products include product performance, price
                  and quality, product functionality and features, the
                  availability of products for existing and future platforms,
                  the ease of integration with other hardware and software
                  components of the customer's products, and the quality of
                  support services, product documentation and training. The
                  relative importance of each of these factors depends upon the
                  specific customer involved. There can be no assurance that we
                  will be able to compete successfully against current and
                  future competitors, or that competitive factors faced by us
                  will not have a material adverse effect on us.

                  We primarily compete with the internal development departments
                  of large manufacturing companies that have developed their own
                  networking solutions, as well as established

                                      17
<PAGE>   18
                  developers of embedded systems software and chips such as Axis
                  Communications, Echelon, Emulex, Hitachi, Integrated Systems,
                  Intel, Milan Technology, a division of Digi International,
                  Motorola, Peerless Systems, Samsung and Wind River. In
                  addition, we are aware of certain companies which have
                  recently introduced products that address the markets targeted
                  by us. We have experienced and expect to continue to
                  experience increased competition from current and potential
                  competitors, many of which have substantially greater
                  financial, technical, sales, marketing and other resources, as
                  well as greater name recognition and larger customer bases
                  than ours. In particular, established companies in the
                  networking or semiconductor industries may seek to expand
                  their product offerings by designing and selling products
                  using competitive technology that could render our products
                  obsolete or have a material adverse effect on our sales.
                  Increased competition may result in further price reductions,
                  reduced gross margins and loss of market share.

                  WE DEPEND ON THIRD-PARTY SOFTWARE THAT WE USE UNDER LICENSES
                  THAT MAY EXPIRE.

                  We rely on certain software that we license from third
                  parties, including software that is integrated with internally
                  developed software and used in our products to perform key
                  functions. Our material software license agreements are with
                  Integrated Systems, which terminates only if we default under
                  the agreement; with Novell, which is renewable annually at the
                  option of both parties, and with Peerless Systems, which
                  expires in 2004 and is subject to year-to-year renewals
                  thereafter at the option of both parties. These third-party
                  software licenses may not continue to be available to us on
                  commercially reasonable terms, and the related software may
                  not continue to be appropriately supported, maintained or
                  enhanced by the licensors. The loss of licenses to use, or the
                  inability of licensors to support, maintain, and enhance any
                  of such software, could result in increased costs, delays or
                  reductions in product shipments until equivalent software is
                  developed or licensed, if at all, and integrated.

                  WE DEPEND ON MANUFACTURING, ASSEMBLING AND PRODUCT TESTING
                  RELATIONSHIPS AND ON LIMITED SOURCE SUPPLIERS, AND ANY
                  DISRUPTIONS IN THESE RELATIONSHIPS MAY CAUSE DAMAGE TO OUR
                  CUSTOMER RELATIONSHIPS.

                  We do not have our own semiconductor fabrication assembly or
                  testing operations or contract manufacturing capabilities.
                  Instead, we rely upon independent contractors to manufacture
                  our components, subassemblies, systems and products.
                  Currently, all of our semiconductor devices are being
                  manufactured, assembled and tested by Atmel Corporation in
                  the United States, and we expect that we will continue to
                  rely upon Atmel to manufacture, assemble and test a
                  significant portion of our semiconductor devices in the
                  future. In the past, we experienced a delay in the
                  introduction of one of our products due to a problem with
                  Atmel's design tools. While we are in the process of
                  qualifying other suppliers, any qualification and
                  pre-production periods could be lengthy and may cause delays
                  in providing products to customers in the event that the sole
                  source supplier of the semiconductor devices fails to meet
                  our requirements. For example, Atmel uses its manufacturing
                  facilities for its own products as well as those it
                  manufactures on a contract basis. There is no assurance that
                  Atmel will have adequate capacity to meet the needs of its
                  contract manufacturing customers. In addition, semiconductor
                  manufacturers generally experience periodic constraints on
                  their manufacturing capacity.

                  We also rely upon limited-source suppliers for a number of
                  other components used in our products. There can be no
                  assurance that these independent contractors and suppliers
                  will be able to meet our future requirements for manufactured
                  products, components and subassemblies in a timely fashion. We
                  generally purchase limited-source components under purchase
                  orders and have no guaranteed supply arrangements with these
                  suppliers. In addition, the availability of many of these
                  components to us is dependent in part on our

                                      18
<PAGE>   19
                  ability to provide our suppliers with accurate forecasts of
                  our future requirements. Any extended interruption in the
                  supply of any of the key components currently obtained from
                  limited sources would disrupt our operations and have a
                  material adverse effect on our business, results of operations
                  and financial condition.

                  Delays or lost sales have been and could be caused by other
                  factors beyond our control, including late deliveries by
                  vendors of components, changes in implementation priorities or
                  slower than anticipated growth in the market for networking
                  solutions for embedded systems. Operating results in the past
                  have also been adversely affected by delays in receipt of
                  significant purchase orders from customers. In addition, we
                  have experienced delays as a result of the need to modify our
                  products to comply with unique customer specifications. In
                  general, the timing and magnitude of our revenues are highly
                  dependent upon our achievement of design wins, the timing and
                  success of our customers' development cycles, and our
                  customers' product sales. Any of these factors could have a
                  material adverse effect on our business, results of operations
                  and financial condition.

                  THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY MAY RESULT IN
                  SUBSTANTIAL PERIOD-TO-PERIOD FLUCTUATIONS.

                  Our semiconductor products provide networking capabilities
                  for intelligent, network-enabled devices and other embedded
                  systems. The semiconductor industry is highly cyclical and
                  subject to rapid technological change and has been subject to
                  significant economic downturns at various times,
                  characterized by diminished product demand, accelerated
                  erosion of average selling prices and production
                  overcapacity. The semiconductor industry also periodically
                  experiences increased demand and production capacity
                  constraints. As a result, we may experience substantial
                  period-to-period fluctuations in future operating results due
                  to general semiconductor industry conditions, overall
                  economic conditions or other factors.

                  OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE
                  TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

                  Our ability to compete depends in part on our proprietary
                  rights and technology. We have no patents and rely primarily
                  on a combination of copyright and trademark laws, trade
                  secrets, confidentiality procedures and contract provisions to
                  protect our proprietary rights. We generally enter into
                  confidentiality agreements with our employees, and sometimes
                  with our customers and potential customers and limit access to
                  the distribution of our software, hardware designs,
                  documentation and other proprietary information. There can be
                  no assurance that the steps taken by us in this regard will be
                  adequate to prevent the misappropriation of our technology.
                  While we have filed one patent application and plan to file
                  various additional applications, such applications may be
                  denied. Any patents, once issued, may be circumvented by our
                  competitors. Furthermore, there can be no assurance that
                  others will not develop technologies that are superior to
                  ours. Despite our efforts to protect our proprietary rights,
                  unauthorized parties may attempt to copy aspects of our
                  products or to obtain and use information that we regard as
                  proprietary. In addition, the laws of some foreign countries
                  do not protect our proprietary rights as fully as do the laws
                  of the United States. There can be no assurance that our means
                  of protecting our proprietary rights in the United States or
                  abroad will be adequate or that competing companies will not
                  independently develop similar technology. Our failure to
                  adequately protect our proprietary rights could have a
                  material adverse effect on our business, results of operations
                  and financial condition.

                  We exclusively license the right to use the NET+ARM trademark
                  from ARM Limited according to a royalty-free agreement
                  expiring in 2008. We depend on ARM to enforce its rights to
                  the trademark against third-party infringement. There can be
                  no assurance that ARM will promptly and adequately enforce
                  these rights which could have a material adverse effect on our
                  business, results of operations and financial condition.

                                      19
<PAGE>   20
                  WE COULD BECOME SUBJECT TO CLAIMS AND LITIGATION REGARDING
                  INTELLECTUAL PROPERTY RIGHTS, WHICH COULD SERIOUSLY HARM US
                  AND REQUIRE US TO INCUR SIGNIFICANT COSTS.

                  The semiconductor industry is characterized by frequent
                  litigation regarding patent and other intellectual property
                  rights. Although we have not been notified that our products
                  infringe any third-party intellectual property rights, there
                  can be no assurance that we will not receive such notification
                  in the future. Any litigation to determine the validity of
                  third-party infringement claims, whether or not determined in
                  our favor or settled by us, would at a minimum be costly and
                  divert the efforts and attention of our management and
                  technical personnel from productive tasks, which could have a
                  material adverse effect on our business, results of operations
                  and financial condition. There can be no assurance that any
                  infringement claims by third parties or any claims for
                  indemnification by customers or end users of our products
                  resulting from infringement claims will not be asserted in the
                  future or that such assertions, if proven to have merit, will
                  not materially adversely affect our business, results of
                  operations or financial condition. In the event of an adverse
                  ruling in any such matter, we would be required to pay
                  substantial damages, cease the manufacture, use and sale of
                  infringing products, discontinue the use of certain processes
                  or be required to obtain a license under the intellectual
                  property rights of the third party claiming infringement.
                  There can be no assurance that a license would be available on
                  reasonable terms or at all. Any limitations on our ability to
                  market our products, or delays and costs associated with
                  redesigning our products or payments of license fees to third
                  parties, or any failure by us to develop or license a
                  substitute technology on commercially reasonable terms could
                  have a material adverse effect on our business, results of
                  operations and financial condition.

                  WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS AND
                  EXPANSION THAT COULD IMPAIR OUR ABILITY TO GROW OUR REVENUES
                  ABROAD.

                  In the fiscal years ended January 31, 2000, 1999 and 1998,
                  international sales constituted approximately 50%, 51% and 30%
                  of our net sales, respectively, and approximately 77%, 46% and
                  31% of our domestic sales, respectively, were to customers
                  headquartered in Asia. We believe that our future growth is
                  dependent in part upon our ability to increase sales in
                  international markets, and particularly to manufacturers
                  located in Japan, which sell their products worldwide. These
                  sales are subject to a variety of risks, including
                  fluctuations in currency exchange rates, tariffs, import
                  restrictions and other trade barriers, unexpected changes in
                  regulatory requirements, longer accounts receivable payment
                  cycles and potentially adverse tax consequences and export
                  license requirements. In addition, we are subject to the risks
                  inherent in conducting business internationally, including
                  political and economic instability and unexpected changes in
                  diplomatic and trade relationships. In particular, the
                  economies of certain countries in the Asia-Pacific region are
                  experiencing considerable economic instability and downturns.
                  Because our sales to date have been denominated in United
                  States dollars, increases in the value of the United States
                  dollar could increase the price in local currencies of our
                  products in non-US markets and make our products more
                  expensive than competitors' products denominated in local
                  currencies. In addition, an integral part of our business
                  strategy is to form strategic alliances for the manufacture
                  and distribution of our products with third parties, including
                  foreign corporations. There can be no assurance that one or
                  more of the factors described above will not have a material
                  adverse effect on our business, results of operations and
                  financial condition.

                  We intend to expand our presence in Europe to address new
                  markets. One change resulting from the formation of a European
                  Economic and Monetary Union ("EMU") required EMU member states
                  to irrevocably fix their respective currencies to a new

                                      20
<PAGE>   21
                  currency, the euro, as of January 1, 1999. During the next
                  three years, business in the EMU member states will be
                  conducted in both the existing national currency such as the
                  French franc or the Deutsche mark, and the euro. As a result,
                  companies operating or conducting business in EMU member
                  states will need to ensure that their financial and other
                  software systems are capable of processing transactions and
                  properly handling these currencies, including the euro. There
                  can be no assurance that the conversion to the euro will not
                  have a material adverse effect on our business, results of
                  operations and financial condition.

                  IF WE LOSE KEY PERSONNEL IT COULD PREVENT US FROM EXECUTING
                  OUR BUSINESS STRATEGY.

                  Our business and prospects depend to a significant degree
                  upon the continuing contributions of our executive officers
                  and our key technical personnel. We do not have employment
                  contracts with any of our key personnel, with the exception
                  of our Vice President, Industrial Automation, Intelligent
                  Device Markets Europe; Vice President, Finance, and Chief
                  Financial Officer; and the Chairman, Chief Executive Officer
                  and President, and we do not maintain any key-man life
                  insurance policies. Competition for such personnel is
                  intense, and there can be no assurance that we will be
                  successful in attracting and retaining qualified personnel.
                  Failure to attract and retain key personnel could result in
                  our failure to execute our business strategy and have a
                  material adverse effect on us.

                  ANY FAILURE TO COMPLY WITH SIGNIFICANT REGULATIONS AND
                  EVOLVING INDUSTRY STANDARDS COULD DELAY INTRODUCTION OF OUR
                  PRODUCTS, WHICH COULD HURT OUR BUSINESS.

                  The market for our products is subject to a significant number
                  of communications regulations and industry standards, some of
                  which are evolving as new technologies are deployed. In the
                  United States, our products must comply with various
                  regulations defined by the Federal Communications Commission
                  and standards established by Underwriters' Laboratories. Some
                  of our products may not comply with current industry
                  standards, and this noncompliance must be addressed in the
                  design of those products. Standards for networking are still
                  evolving. As the standards evolve, we may be required to
                  modify our products or develop and support new versions of our
                  products. The failure of our products to comply or delays in
                  compliance, with the various existing and evolving industry
                  standards could delay introduction of our products, which
                  could have a material adverse effect on our business, results
                  of operations and financial condition.

                  ANY MATERIAL PRODUCT DEFECTS COULD RESULT IN LOSS OF MARKET
                  SHARE, DELAY OF MARKET ACCEPTANCE OR PRODUCT LIABILITY CLAIMS
                  OR LOSSES.

                  Complex products such as those offered by us may contain
                  undetected or unresolved defects when first introduced or as
                  new versions are released. The occurrence of material errors
                  in the future could, and the failure or inability to correct
                  such errors would, result in the loss of market share, the
                  delay or loss of market acceptance of our products, material
                  warranty expense, diversion of engineering and other resources
                  from our product development efforts, the loss of credibility
                  with our customers or product recall. The use of our products
                  for applications in devices that interact directly with the
                  general public, where the failure of the embedded system could
                  cause property damage or personal injury, could expose us to
                  significant product liability claims. Although we have not
                  experienced any product liability or economic loss claims to
                  date, the sale and support of our products may entail the risk
                  of such claims. Any of such occurrences could have a material
                  adverse effect upon our business, results of operations and
                  financial condition.


                  IF WE DO NOT SUCCESSFULLY MANAGE OUR GROWTH, IT COULD HAVE A
                  MATERIAL ADVERSE EFFECT ON US.

                                      21
<PAGE>   22
                  We have limited internal infrastructure and any significant
                  growth would place a substantial strain on our financial and
                  management personnel and information systems and controls.
                  Such growth would require us to implement new and enhance
                  existing financial and management information systems and
                  controls and add and train personnel to operate such systems
                  effectively. Our intention to continue to pursue our growth
                  strategy through efforts to increase sales of existing
                  products and new products can be expected to place even
                  greater pressure on our existing personnel and compound the
                  need for increased personnel, expanded information systems,
                  and additional financial and administrative control
                  procedures. There can be no assurance that we will be able to
                  successfully manage expanding operations. Our inability to
                  manage our expanded operations effectively could have a
                  material adverse effect on our business, results of operations
                  and financial condition.

                  A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK COULD BE
                  SOLD INTO THE PUBLIC MARKET, WHICH COULD DEPRESS OUR STOCK
                  PRICE.

                  Sales of a substantial number of shares of common stock in the
                  public market could adversely affect the market price for our
                  common stock and reported earnings per share and could make it
                  more difficult for us to raise funds through equity offerings
                  in the future.

                  Subject to applicable federal and securities laws and the
                  restrictions set forth below, Osicom may sell any and all of
                  the shares of common stock beneficially owned by it or
                  distribute any or all such shares of common stock to its
                  stockholders. Sales or distributions by Osicom of substantial
                  amounts of common stock in the public market or to its
                  stockholders, or the perception that such sales or
                  distribution could occur, could adversely affect the
                  prevailing market prices for the common stock. Osicom is not
                  subject to any obligation to retain its shares in NETsilicon.
                  As a result, there can be no assurance concerning the period
                  of time during which Osicom will maintain its beneficial
                  ownership of our common stock. Moreover, there can be no
                  assurance that, in any transfer by Osicom of a controlling
                  interest in us, any holders of common stock will be able to
                  participate in such transaction or will realize any premium
                  with respect to their shares of common stock.

                  ANY ACQUISITIONS WE HAVE MADE OR WILL MAKE COULD DISRUPT OUR
                  BUSINESS AND SERIOUSLY HARM OUR FINANCIAL CONDITION.

                  We continue to intend to consider investments in complementary
                  companies, products or technologies. We may buy businesses,
                  products or technologies in the future. In the event of any
                  future purchases, we could:

                           -        issue stock that would dilute our current
                                    stockholders' percentage ownership;

                           -        incur debt;

                           -        assume liabilities;

                           -        incur amortization expenses related to
                                    goodwill and other intangible assets; or

                           -        incur large and immediate write-offs.

                                      22
<PAGE>   23
                  OUR OPERATION OF ANY ACQUIRED BUSINESS WILL ALSO INVOLVE
                  NUMEROUS RISKS, INCLUDING:

                           -        problems combining the purchased operations,
                                    technologies or products;

                           -        unanticipated costs;

                           -        diversion of management's attention from our
                                    core business;

                           -        adverse effects on existing business
                                    relationships with suppliers and customers;

                           -        risks associated with entering markets in
                                    which we have no or limited prior
                                    experience; and

                           -        potential loss of key employees,
                                    particularly those of the purchased
                                    organizations.

                  We cannot assure you that we will be able to successfully
                  integrate any businesses, products, technologies or personnel
                  that we have acquired or that we might acquire in the future
                  and any failure to do so could disrupt our business and
                  seriously harm our financial condition.

                  BECAUSE THE NASDAQ NATIONAL MARKET IS LIKELY TO EXPERIENCE
                  EXTREME PRICE AND VOLUME FLUCTUATIONS, THE PRICE OF OUR COMMON
                  STOCK MAY DECLINE.

                  The market price of our shares is likely to be highly volatile
                  and could be subject to wide fluctuations in response to
                  numerous factors, including the following:

                           -        actual or anticipated variations in our
                                    quarterly operating results or those of our
                                    competitors;

                           -        announcements by us or our competitors of
                                    new products or technological innovations;

                           -        introduction and adoption of new industry
                                    standards;

                           -        changes in financial estimates or
                                    recommendations by securities analysts;

                           -        changes in the market valuations of our
                                    competitors;

                           -        announcements by us or our competitors of
                                    significant acquisitions or partnerships;
                                    and

                           -        sales of our common stock.

                  Many of these factors are beyond our control and may
                  negatively impact the market price of our common stock,
                  regardless of our performance. In addition, the stock market
                  in general, and the market for technology companies in
                  particular, has been highly volatile. Our common stock may not
                  trade at the same levels of shares as that of other technology
                  companies and shares of technology companies, in general, may
                  not sustain their current market prices. In the past,
                  securities class action litigation has often been brought
                  against

                                      23
<PAGE>   24
                  a company following periods of volatility in the market price
                  of its securities. We may be the target of similar litigation
                  in the future. Securities litigation could result in
                  substantial costs and divert management's attention and
                  resources, which could seriously harm our business and
                  operating results.

                  PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER
                  EFFECTS THAT COULD PREVENT A CHANGE OF CONTROL.

                  Provisions of our amended and restated certificate of
                  incorporation and bylaws could make it more difficult for a
                  third party to acquire us, even if doing so would be
                  beneficial to our stockholders.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

                  We own financial instruments that are sensitive to market
                  risks as part of our investment portfolio. The investment
                  portfolio is used to preserve our capital until it is required
                  to fund operations, including our research and development
                  activities. None of these market-risk sensitive instruments
                  are held for trading purposes. We do not own derivative
                  financial instruments in our investment portfolio. The
                  investment portfolio contains instruments that are subject to
                  the risk of a decline in interest rates.

                  Investment Rate Risk. Our investment portfolio includes debt
                  instruments that primarily have durations of less than one
                  year. These bonds are subject to interest rate risk, and could
                  decline in value if interest rates fluctuate. Our investment
                  portfolio also at times includes certain commercial paper
                  which is also subject to interest rate risk. Due to the short
                  duration and conservative nature of these instruments, we do
                  not believe that we have a material exposure to interest rate
                  fluctuations.


                           PART II. OTHER INFORMATION


ITEM 1.   Legal Proceedings

                  On August 31, 2000, Websprocket, LLC filed a suit against the
                  Company in the United States District Court for the Northern
                  District of California (Websprocket, LLC v. NETsilicon, Inc.,
                  Civil Action No. C-00-20915), claiming breach of contract.
                  The complaint alleges that the Company breached a technology
                  development contract that was executed between the Company
                  and Websprocket, LLC in December, 1999. Websprocket, LLC
                  seeks relief including alleged damages of $2,000,000 plus
                  attorney's fees, a declaration of its rights under the
                  technology development contract and an injunction requiring
                  the Company to cease using and return all property of
                  Websprocket, LLC. We believe we have meritorious defenses to
                  the claims and intend to contest the lawsuit vigorously. On
                  or about October 31, 2000, the Company denied the allegations
                  in Websprocket, LLC's complaint and asserted counterclaims
                  against Websprocket, LLC which included breach of contract,
                  fraud, and negligent misrepresentation. An unfavorable
                  resolution of the action could have a material adverse effect
                  on the business, results of operations or financial condition
                  of the Company.

ITEM 2.   Changes in Securities and Use of Proceeds

          None

ITEM 3.   Defaults Upon Senior Securities

          None

                                      24
<PAGE>   25


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

          None

ITEM 5.   Other Information

          None

ITEM 6.   Exhibits and Reports on Form 8-K

         a)       Exhibits

<TABLE>
<CAPTION>
              Exhibit Number       Description
              --------------       -----------
<S>                                <C>
                  27.1             Financial Data Schedule
</TABLE>

         b)    Reports on 8-K

               September 13, 2000 - Preferred share purchase right dividend
               declaration on September 12, 2000 and related Rights Agreement.

               September 15, 2000 - Acquisition of certain assets of Pacific
               Softworks Technology, Inc. on August 31, 2000.

               November 14, 2000 - Amendment No. 1 to Form 8-K filed on
               September 15, 2000 related to the acquisition of certain assets
               of Pacific Softworks Technology, Inc. The amended document
               includes historical audited financial statements of Pacific
               Softworks, Inc. as of and for the periods ended December 31, 1999
               and 1998 and the unaudited pro forma combined balance sheet as of
               July 29, 2000 and unaudited pro forma combined statements of
               operations for the six months ended July 29, 2000 and the year
               ended January 31, 2000.



                                   SIGNATURES

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

                                  NETsilicon, Inc.

                                  ----------------------------------------------
                                  (Registrant)

          December 12, 2000   By  /s/ Cornelius Peterson, VIII
                                  ----------------------------------------------
                                  (Cornelius Peterson, VIII, Chief Executive
                                  Officer and Director)

          December 12, 2000   By  /s/ Daniel J. Sullivan
                                  ----------------------------------------------
                                  (Daniel J. Sullivan, Vice President, Finance,
                                  Chief Financial Officer)



                                      25