<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 April 29, 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 0-21177

                                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., SUITE 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.

6,115,400 shares of Voting Common Stock, $0.01 par value, as of June 7, 2000
7,500,000 shares of Non-Voting Common Stock, $0.01 par value, as of June 7, 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
             April 29, 2000 and January 31, 2000.................................................  1

             Condensed Consolidated Statements of Income
             Three Months Ended April 29, 2000 and April 30, 1999................................  2

             Condensed Consolidated Statements of Cash Flows
             Three Months Ended April 29, 2000 and April 30, 1999................................  3

             Notes to Condensed Consolidated Financial Statements................................  4

ITEM 2.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations..........................................................  5

ITEM 3.   Quantitative and Qualitative Disclosure About Market Risk.............................. 20

PART II.  OTHER INFORMATION

ITEM 1.   Legal Proceedings...................................................................... 20

ITEM 2.   Changes in Securities and Use of Proceeds.............................................. 21

ITEM 3.   Defaults Upon Senior Securities........................................................ 21

ITEM 4.   Submission of Matters to a Vote of Security Holders.................................... 21

ITEM 5.   Other Information...................................................................... 21

ITEM 6.   Exhibits and Reports on Form 8-K....................................................... 21

Signatures....................................................................................... 21

Exhibit 27.1
</TABLE>


<PAGE>   3


                          PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

                                 NETSILICON, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                APRIL 29, 2000        JANUARY 31, 2000
                                                                                --------------        ----------------
<S>                                                                             <C>                   <C>
                                      ASSETS
CURRENT ASSETS
       Cash and equivalents                                                      $  6,833,200           $ 11,096,500
       Short-term investments                                                      11,284,400              8,203,700
       Accounts receivable, net                                                     3,455,900              2,266,000
       Inventory, net                                                               4,865,300              4,322,400
       Prepaid expenses and other current assets                                    1,031,100                798,900
                                                                                 ------------           ------------

            TOTAL CURRENT ASSETS                                                   27,469,900             26,687,500

PROPERTY AND EQUIPMENT, NET                                                         1,778,400              1,466,400

OTHER ASSETS                                                                        1,927,200              1,626,600
                                                                                 ------------           ------------

TOTAL ASSETS                                                                     $ 31,175,500           $ 29,780,500
                                                                                 ============           ============


                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
       Short term debt                                                           $         --           $    779,700
       Accounts payable                                                             3,142,700              3,013,200
       Due to affiliate                                                                55,600                 56,900
       Other current liabilities, including short term portion of
       capital lease obligation                                                     4,248,800              3,322,700
                                                                                 ------------           ------------
            TOTAL CURRENT LIABILITIES                                               7,447,100              7,172,500
                                                                                 ------------           ------------

CAPITAL LEASE OBLIGATION - Less current portion                                        22,200                125,100
                                                                                 ------------           ------------
            TOTAL LIABILITIES                                                       7,469,300              7,297,600
                                                                                 ------------           ------------

STOCKHOLDERS' EQUITY
       Preferred stock, $0.01 par value; 5,000,000 authorized;
          non issued                                                                       --                     --

       Common stock, $0.01 par value; 35,000,000 authorized; issued and
          outstanding:
            Voting (6,098,375 and 6,037,500 shares)                                    61,000                 60,400
            Non-Voting (7,500,000 shares)                                              75,000                 75,000
       Additional paid-in capital                                                  25,181,700             24,755,400
       Accumulated other comprehensive loss                                           (10,600)               (26,400)
       Accumulated deficit                                                         (1,600,900)            (2,381,500)
                                                                                 ------------           ------------
            TOTAL STOCKHOLDERS' EQUITY                                             23,706,200             22,482,900
                                                                                 ------------           ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                       $ 31,175,500           $ 29,780,500
                                                                                 ============           ============
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       1
<PAGE>   4


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

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED
                                                         APRIL 29, 2000        APRIL 30, 1999
                                                         --------------        --------------

<S>                                                       <C>                   <C>
NET SALES                                                 $  9,009,700          $  5,814,500
COST OF SALES                                                3,395,900             3,120,100
                                                          ------------          ------------

GROSS MARGIN                                                 5,613,800             2,694,400
                                                          ------------          ------------

OPERATING EXPENSES
     Selling and marketing                                   2,567,800             1,325,600
     Engineering, research and development                   1,509,600               502,100
     General and administrative                                980,000               612,800
                                                          ------------          ------------

          TOTAL OPERATING EXPENSES                           5,057,400             2,440,500
                                                          ------------          ------------


OPERATING INCOME                                               556,400               253,900

     Interest income (expense)                                 224,200              (238,400)
                                                          ------------          ------------

INCOME BEFORE TAXES
     ON INCOME                                                 780,600                15,500

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


NET INCOME                                                $    780,600          $     15,500
                                                          ============          ============


NET INCOME PER COMMON SHARE
          Basic                                           $       0.06          $       0.00
          Diluted                                                 0.05                  0.00

SHARES USED IN PER SHARE CALCULATION
          Basic                                             13,568,576            10,000,000
          Diluted                                           15,864,715            10,000,000
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>   5


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

<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED
                                                                      APRIL 29, 2000         APRIL 30, 1999
                                                                      --------------         --------------
<S>                                                                   <C>                    <C>
CASH FLOW FROM OPERATING ACTIVITIES:
     Net income                                                        $    780,600           $     15,500
     Adjustments to reconcile net income to
     net cash provided by operating activities:
          Depreciation and amortization                                     327,300                170,000
          Changes in operating assets and liabilities:
              Accounts receivable                                        (1,189,900)              (517,700)
              Inventories                                                  (542,900)              (359,800)
              Other current assets                                         (232,200)               108,400
              Accounts payable                                              129,500                793,100
              Other current liabilities                                     962,600                336,800
                                                                       ------------           ------------
                  NET CASH PROVIDED BY OPERATING ACTIVITIES                 235,000                546,300
                                                                       ------------           ------------
CASH FLOW USED IN INVESTING ACTIVITIES:
     Purchases of short-term investments                                 (3,064,900)                    --
     Purchases of property and equipment                                   (523,600)               (77,400)
     Software development costs                                            (161,100)              (315,500)
     Other assets                                                          (255,200)              (103,400)
                                                                       ------------           ------------
                  NET CASH USED IN INVESTING ACTIVITIES                  (4,004,800)              (496,300)
                                                                       ------------           ------------
CASH FLOW USED IN FINANCING ACTIVITIES:
     Repayments of affiliate advances                                        (1,300)              (866,200)
     Proceeds (repayments) of short-term debt, net (including
     repayment of capital lease obligation)                                (919,100)               263,100
     Proceeds from exercise of stock options                                426,900                     --
                                                                       ------------           ------------
                  NET CASH USED IN FINANCING ACTIVITIES                    (493,500)              (603,100)
                                                                       ------------           ------------
DECREASE IN CASH AND EQUIVALENTS                                         (4,263,300)              (553,100)

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

CASH AND EQUIVALENTS - END OF PERIOD                                   $  6,833,200           $     29,500
                                                                       ============           ============
</TABLE>


         See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   6

                                NETsilicon, Inc.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)



1.   Basis of presentation:

          In the opinion of management, the accompanying condensed 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 this interim period. 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. 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>
                 Inventory              April 29, 2000     January 31, 2000
                                       ------------------------------------

<S>                                     <C>                <C>
                 Raw material             $3,507,000          $2,518,600
                 Work in process           1,095,000           1,693,400
                 Finished Goods              263,300             110,400
                                          ----------          ----------
                 Total Inventory          $4,865,300          $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.

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


                                       4
<PAGE>   7


<TABLE>
<CAPTION>
                                                          Three months ended
                                                    ----------------------------------
                                                    April 29, 2000      April 30, 1999
                                                    --------------      --------------

<S>                                                 <C>                 <C>
          Net income available to common
          shareholders, basic and diluted            $   780,600          $    15,500
                                                     ===========          ===========

          Weighted-average number of
          common shares used in basic
          earnings per share                          13,568,576           10,000,000

          Effect of dilutive securities -
          stock options                                2,296,139                   --
                                                     -----------          -----------

          Weighted-average number of common
          shares and dilutive potential
          common stock used in dilutive
          earnings per share                          15,864,715           10,000,000
                                                     ===========          ===========
</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
          with exercise prices in excess of the average market price for the
          period are excluded because their effect would be anti-dilutive.

4.   Recently issued accounting standards:

          In June 1998, the FASB issued Statement of Financial Accounting
          Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
          Hedging Activities," which provides a comprehensive and consistent
          standard for the recognition and measurement of derivatives and
          hedging activities and requires all derivatives to be recorded on the
          balance sheet at fair value. SFAS No. 133, as amended, is effective
          for years beginning after June 15, 2000. Adoption of SFAS No. 133, as
          amended, is not expected to have a material impact on our results of
          operations, financial position or cash flows.


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


          Some of the information in this discussion and analysis contains
          forward-looking statements within the meaning of the federal
          securities laws. These statements include statements regarding our
          financial performance, product development plans, projected capital
          expenditures, liquidity and business strategy. Forward-looking
          statements typically are identified by use of terms such as may, will,
          expect, anticipate, estimate and similar words, although some
          forward-looking statements are expressed differently. You should be
          aware that our actual results could differ materially from those
          contained in the forward-looking statements due to a number of
          factors, including delays in product introductions, interruptions in
          supply and competitive product introductions. You should also consider
          carefully the "Business" and "Risk Factors" sections contained in the
          Company's 2000 Form 10-K as filed with the SEC and the "Risk Factors"
          section contained herein, which address additional factors that could
          cause our actual results to differ from those set forth in the
          forward-looking statements.

          You should read this discussion together with the unaudited financial
          statements and other information included in this document.


          OVERVIEW


                                       5
<PAGE>   8


          We develop and market semiconductor devices and software products
          designed to meet the networking requirements of embedded systems. 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.

          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 of 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
          month periods ended April 29, 2000 and April 30, 1999.

<TABLE>
<CAPTION>
                                           Three months ended
                                     ------------------------------
                                     April 29, 2000  April 30, 1999
                                     --------------  --------------
<S>                                  <C>             <C>
Net sales                                100.0%           100.0%
Cost of sales                             37.7             53.7
                                         -----            -----
Gross margin                              62.3             46.3
                                         -----            -----

Operating expenses:
  Selling and marketing                   28.5             22.8
  Engineering, research and               16.8              8.6
  General and administrative              10.9             10.5
                                         -----            -----
Total operating expenses                  56.2             41.9
                                         -----            -----

Operating income                           6.1              4.4

Interest (income) expense                 (2.5)             4.1
                                         -----            -----

Income before taxes on income              8.6              0.3

Taxes on income                             --               --

Net income                                 8.6%             0.3%
                                         =====            =====
</TABLE>


          Three Months Ended April 29, 2000 Compared to Three Months Ended April
          30, 1999

          Net sales. Net sales increased to $9.0 million for the three months
          ended April 29, 2000 from $5.8 million for the three months ended
          April 30, 1999, representing an increase of 55.0%. The increase in net
          sales was due primarily to an increase in OEM customers to which we
          shipped product from 27 for the three months ended April 1999 to 46
          for the three months ended April 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. Backlog for our products and
          services was approximately $9.5 million and $8.4 million at April 29,
          2000 and April 30, 1999, respectively, all of which was scheduled to
          be shipped within 12 months.

          Cost of sales; gross margin. Costs of goods sold consists principally
          of the cost of raw material components and subcontract labor assembly
          from outside manufacturers and suppliers. Gross margin increased to
          $5.6 million, or 62.3% of net sales, for the three months ended April
          29, 2000 from $2.7 million, or 46.3% of net sales, for the three
          months ended April 30, 1999, representing an increase of 108.4%. The
          increase in gross margin percent for the three months ended April 29,
          2000 from the prior year period was due primarily to (i) material and
          subcontract labor cost reductions which were partially


                                       6
<PAGE>   9


          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
          embedded market products, including our new NET+OS product which was
          released in April, 2000.

          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 $1.3 million, or 22.8% of net sales, for the
          three months ended April 30, 1999 to $2.6 million, or 28.5% of net
          sales, for the three months ended April 29, 2000, representing an
          increase of 93.7%. 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 27 employees in April of 1999 to 44 employees in April of
          2000 and (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.

          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 $1.5 million, or 16.8% of net sales, for the three months ended
          April 29, 2000 from $502,000, or 8.6% of net sales, for the three
          months ended April 30, 1999, representing an increase of 200.7%. This
          increase is due primarily to increased payroll costs associated with
          an increase in headcount, as well as 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. Furthermore, the
          increase is due to higher recruiting costs and increased depreciation
          and amortization of purchased software tools.

          General and administrative expenses. General and administrative
          expenses consist mainly of salaries, employee-related expenses, legal
          expenses, audit fees and reserves for accounts receivable allowances.
          General and administrative expenses increased to $980,000, or 10.9% of
          net sales, for the three months ended April 29, 2000 from $613,000, or
          10.5% of net sales, for the three months ended April 30, 1999, an
          increase of 59.9%. The increase in 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 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 for the three months ended April 29, 2000 was $224,000, or 2.5%
          of net sales, and consisted of interest earned on cash and short-term
          investment balances which was offset in part by approximately $16,000
          of interest expense. Interest expense for the three months ended April
          30, 1999 was $238,000, or 4.1% of net sales, and consisted of interest
          on borrowings from both our line of credit and Osicom. The increase in
          interest income and the decrease in interest expense from the three
          month period ended April 30, 1999 to the three month period ended
          April 29, 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.


                                       7
<PAGE>   10


          Provision for income taxes. There was no net provision for income
          taxes for the three months ended April 29, 2000 and April 30, 1999 as
          the provision was 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 April 29, 2000 we
          had working capital of $20.0 million and cash and cash equivalents of
          $6.8 million.

          Our operating activities provided cash of $235,000 and $546,000 for
          the three month periods ended April 29, 2000 and April 30, 1999,
          respectively. Cash provided by operating activities in the three month
          period ended April 29, 2000 was attributable to net income, the
          non-cash impact of depreciation and amortization and an increase in
          other current liabilities, offset in part by increases in accounts
          receivable and inventories which were related to the growth in sales
          and demand for our products. Cash provided in the three month period
          ended April 30, 1999 was attributable to increases in accounts payable
          and other current liabilities, offset in part by increases in accounts
          receivable and inventories.

          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 $4.0 million and $496,000 during
          the three months ended April 29, 2000 and April 30, 1999,
          respectively. Cash used in investing activities during the three
          months ended April 29, 2000 related primarily to purchases of $3.1
          million of short-term investments and $524,000 of property and
          equipment. Cash used in investing activities during the three months
          ended April 30, 1999 related primarily to software development costs
          of $316,000.

          Cash used in financing activities was $494,000 and $603,000 during the
          three months ended April 29, 2000 and April 30, 1999, respectively.
          Cash used in financing during the period ended April 29, 2000 related
          to repayments of short-term debt in the amount of $919,000 which were
          offset in part by proceeds from the exercise of stock options of
          $427,000. Cash used in the period ended April 30, 1999 was
          attributable to $866,000 of repayments of affiliate advances which
          were offset in part by net proceeds from short-term debt of $263,000.

          During the three months ended April 29, 2000 we repaid the balance due
          on our line of credit with Coast Business Credit and terminated the
          credit facility. We are in the process of negotiating and securing a
          replacement credit facility.

          During the fiscal year ended January 31, 2000, we entered into a
          technology development agreement with an entity and made a payment of
          $500,000, representing a deposit for future services, in accordance
          with the agreement. This payment is included in other


                                       8
<PAGE>   11


          assets in the accompanying balance sheet at April 29, 2000. Additional
          payments totaling $2,000,000 are required under the agreement. The
          timing of the additional payments is based on delivery and acceptance
          of product. Payments required under this agreement are for products
          for which technological feasibility has been established. Accordingly,
          all payments will ultimately be recorded as capitalized software costs
          and amortized over the estimated two to three year lives of the
          underlying products.

          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, subject to the provisions of our 365-day lock-up agreement
          with the underwriters of our initial public offering, 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
          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. To the extent that the funds generated from this
          offering, together with existing resources and cash generated from
          operations, are insufficient to fund our future activities, we may
          need to raise additional funds through public or private financings or
          borrowings. 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 the "Risk Factors" section
          contained in the Company's 2000 Form 10-K and 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.


                                       9
<PAGE>   12


          We incurred net losses from continuing operations for the fiscal years
          ended January 31, 1997, 1998 and 1999. At April 29, 2000, we had an
          accumulated deficit of $1.6 million. Although we were profitable in
          fiscal year 2000, 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.

          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:


                                       10
<PAGE>   13


               -    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 EMBEDDED SYSTEMS MANUFACTURERS WILL
          ADVERSELY AFFECT OUR FINANCIAL RESULTS.

          Our financial performance and future growth is dependent upon our
          ability to sell our products to embedded systems developers 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 embedded systems 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 growth and 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.


                                       11
<PAGE>   14


          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 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. 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.


                                       12
<PAGE>   15


          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 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 existing Company 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


                                       13
<PAGE>   16


          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 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


                                       14
<PAGE>   17


          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. We recently 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 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 devices provide networking capabilities for 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


                                       15
<PAGE>   18


          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.

          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


                                       16
<PAGE>   19


          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 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, Embedded 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


                                       17
<PAGE>   20


          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.

          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, except that in connection with our initial
          public offering, Osicom agreed not to sell or otherwise dispose of any
          shares of common stock for a period of 365 days after September 15,
          1999, without the prior written consent of CIBC World Markets Corp. 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


                                       18
<PAGE>   21


          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 MAKE COULD DISRUPT OUR BUSINESS AND SERIOUSLY HARM
          OUR FINANCIAL CONDITION.

          We intend to consider investments in complementary companies, products
          or technologies. While we have no current agreements to do so, 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.

          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 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;


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<PAGE>   22


               -    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 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


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<PAGE>   23


     None

ITEM 2. Changes in Securities and Use of Proceeds

     Not applicable.

ITEM 3. Defaults Upon Senior Securities

     None

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

          Exhibit Number        Description
          --------------        -----------
          27.1                  Financial Data Schedule

     b)   Reports on 8-K

          None



                                   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

Date  June 12, 2000                    By /s/ Cornelius Peterson VIII
     ----------------                     ------------------------------------
                                          Cornelius Peterson VIII, President,
                                          Chief Executive Officer and Director
                                          (Principal Executive Officer)

Date  June 12, 2000                   By  /s/ Daniel J. Sullivan
     ----------------                     ------------------------------------
                                          Daniel J. Sullivan, Vice President,
                                          Finance, Chief Financial Officer
                                          (Principal Financial and
                                          Accounting Officer)


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