<PAGE>   1
                                  UNITED STATES
                       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 QUARTER ENDED JUNE 30, 1997

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934


                         Commission file number 0-19856



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


         CALIFORNIA                                   95-4221884
 (State or other jurisdiction of               (IRS Employer Identification No.)
 incorporation or organization)



                           2300 CORPORATE CENTER DRIVE
                         THOUSAND OAKS, CALIFORNIA 91320
               (Address of principal executive offices & zip code)

           REGISTRANT'S TELEPHONE NUMBER:               (805) 376-9300



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 [ ]

  There were 22,660,938 shares of the registrant's $.001 par value Common Stock
                       outstanding as of August 6, 1997.
<PAGE>   2
                                  XIRCOM, INC.

                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----

<S>                                                                         <C>
PART I.  FINANCIAL INFORMATION

     Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets                                  3

         Condensed Consolidated Statements of Operations                        4

         Condensed Consolidated Statements of Cash Flows                        5

         Notes to Condensed Consolidated Financial Statements                 6-8


     Item 2.  Management's Discussion and Analysis
                of Financial Condition and Results of Operations             9-16


PART II.  OTHER INFORMATION

     Item 1. Legal Proceedings                                                 17

     Item 2. Changes in Securities                                             17

     Item 3. Defaults Upon Senior Securities                                   17

     Item 4. Submission of Matters to a Vote of Security Holders               17

     Item 5. Other Items                                                       17

     Item 6. Exhibits and Reports on Form 8-K                                  17

SIGNATURES                                                                     18
</TABLE>

                                       2
<PAGE>   3
                                  XIRCOM, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                  (Unaudited)
                                                 June 30, 1997    September 30, 1996
                                                 -------------    ------------------
<S>                                              <C>              <C>
Current assets:
     Cash and cash equivalents                       $ 78,232        $ 21,377
     Accounts receivable, net                          39,642          25,006
     Income tax receivable                                  -           2,652
     Inventories                                       22,482          13,771
     Deferred income taxes                             11,544           5,409
     Other current assets                               2,876           3,330
                                                     --------        --------
Total current assets                                  154,776          71,545
Equipment and improvements, net                        17,798          18,136
Net assets of discontinued operations                       -          17,151
Other assets                                              390             369
                                                     --------        --------
Total assets                                         $172,964        $107,201
                                                     ========        ========

Current liabilities:
     Notes payable to bank                          $       -        $  5,100
     Accounts payable                                  13,619          10,260
     Accrued liabilities                               23,676          18,986
     Current portion of long-term obligations           1,787           1,422
     Accrued income taxes                               2,715           1,066
                                                     --------        --------
Total current liabilities                              41,797          36,834
Long-term obligations                                   1,494           1,860
Deferred income taxes                                   2,904           2,904

Shareholders' equity:
     Common stock                                          23              20
     Paid-in capital                                  141,419          83,221
     Accumulated deficit                             ( 14,673)       ( 17,638)
                                                     --------        --------
Total shareholders' equity                            126,769          65,603
                                                     --------        --------
Total liabilities and shareholders' equity           $172,964        $107,201
                                                     ========        ========
</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>   4
                                  XIRCOM, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                  (In thousands, except per share information)


<TABLE>
<CAPTION>
                                                 Three months ended          Nine months ended
                                                       June 30                     June 30
                                                  1997        1996           1997          1996
                                               ---------    --------       --------      --------

<S>                                           <C>           <C>           <C>            <C>
Net sales                                     $ 50,226      $ 43,919      $ 163,675      $ 117,702
Cost of sales                                   33,315        28,615        104,208         76,921
                                              --------      --------      ---------      ---------
Gross profit                                    16,911        15,304         59,467         40,781

Operating expenses:
     Research and development                    3,162         2,570          8,841          7,262
     Sales and marketing                        11,579         7,811         32,062         23,560
     General and administrative                  2,018         1,649          5,607          4,861
                                              --------      --------      ---------      ---------
          Total operating expenses              16,759        12,030         46,510         35,683
                                              --------      --------      ---------      ---------
Operating income from continuing
  operations                                       152         3,274         12,957          5,098
Other income (expense), net                        479          (455)           565         (1,086)
                                              --------      --------      ---------      ---------
Income from continuing operations
  before income taxes                              631         2,819         13,522          4,012
Provision for income taxes                         189           903          4,056          1,333
                                              --------      --------      ---------      ---------
Income from continuing operations                  442         1,916          9,466          2,679
Discontinued operations:
     Operating income (loss), net of
       related tax effects                           -           619         (  226)           469
     Loss on disposal, net of related tax
       effects                                  (6,275)            -         (6,275)             -
                                              --------      --------      ---------      ---------
Net income (loss)                             $ (5,833)     $  2,535      $   2,965      $   3,148
                                              ========      ========      =========      =========

Weighted average shares outstanding             22,916        19,999         21,808         19,648
Net income (loss) per share:
  Continuing operations                       $   .02       $    .10      $     .43      $     .14
  Discontinued operations                       ( .27)           .03          ( .29)           .02
                                              --------      --------      ---------      ---------
  Net income                                  $ ( .25)      $    .13      $     .14      $     .16
                                              ========      ========      =========      =========
</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       4
<PAGE>   5
                                  XIRCOM, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                               Nine months ended
                                                                                   June 30
                                                                             1997           1996
                                                                             ----           ----
<S>                                                                       <C>           <C>
Operating activities:
     Income from continuing operations                                     $  9,466      $  2,679
     Adjustments to reconcile income from continuing operations
       to net cash provided by continuing operating activities:
         Depreciation and amortization                                        4,928         4,717
         Changes in assets and liabilities:
              Accounts receivable                                          ( 14,636)       (7,488)
              Income tax receivable                                           2,652         7,926
              Inventories                                                   ( 8,711)       (5,698)
              Other current assets                                              413          (692)
              Accounts payable and accrued liabilities                        8,050         3,200
              Income taxes payable                                            3,727         1,599
                                                                           --------      --------
     Net cash provided by continuing operating activities                     5,889         6,243
                                                                           --------      --------

     Income (loss) from discontinued operating activities                    (6,501)          469
     Adjustments to reconcile income (loss) from discontinued
       operations to net cash used in discontinued operating
       activities:
         Depreciation and amortization                                        1,777         1,500
         Deferred income taxes                                               (2,329)            -
         Change in net assets of discontinued operations                      1,068        (5,317)
                                                                           --------      --------
     Net cash used in discontinued operating activities                    (  5,985)       (3,348)
                                                                           --------      --------
     Net cash provided by (used in) operating activities                      (  96)        2,895
                                                                           --------      --------

Investing activities:
     Proceeds from sale of Netaccess, Inc.                                   11,000             -
     Purchases of equipment and improvements                                 (4,659)       (7,024)
     Other                                                                       89           121
                                                                           --------      --------
     Net cash provided by (used in) continuing investing activities           6,430        (6,903)
     Net cash used in investing activities of discontinued operations:
         Purchases of equipment and improvements                               (501)         (257)
                                                                           --------      --------
     Net cash provided by (used in) investing activities                      5,929        (7,160)
                                                                           --------      --------

Financing activities:
     Net borrowings (repayments) under line-of-credit agreement              (5,100)        1,360
     Proceeds from issuance of long-term debt                                   960         3,219
     Long-term debt repayments                                                 (961)        ( 536)
     Proceeds from issuance of capital stock                                 56,123         3,492
                                                                           --------      --------
     Net cash provided by financing activities                               51,022         7,535
                                                                           --------      --------

Net increase in cash                                                         56,855         3,270
Cash and cash equivalents at beginning of period                             21,377        13,043
                                                                           --------      --------
Cash and cash equivalents at end of period                                 $ 78,232      $ 16,313
                                                                           ========      ========
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       5
<PAGE>   6
                                  XIRCOM, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1997


BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared
by the Company without audit (except for the balance sheet information as of
September 30, 1996, which was derived from audited consolidated financial
statements) pursuant to Securities and Exchange Commission regulations. In the
opinion of management, the financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the consolidated financial position at June 30, 1997 and the consolidated
results of operations for the three- and nine-month periods ended June 30, 1997
and 1996, and cash flows for the nine-month periods ended June 30, 1997 and
1996, in accordance with generally accepted accounting principles. The
accompanying financial statements are condensed and do not include footnotes and
certain financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's 1996 annual report on
Form 10-K.

The results of operations for the three- and nine-month periods ended June 30,
1997 are not necessarily indicative of the results to be expected for the entire
fiscal year.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed using the weighted average number of
shares of common stock and dilutive common stock equivalents (stock options)
outstanding. Fully diluted amounts for each period do not materially differ from
the amounts presented herein.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS 128") was issued in February 1997 and must be adopted by the Company on
December 31, 1997. Early adoption is not permitted, however all prior year
earnings per share data must be restated upon adoption to conform to the new
standard. SFAS 128 simplifies the calculation of earnings per share data by
replacing primary and fully diluted earnings per share with basic and diluted
earnings per share, respectively. Basic earnings per share excludes dilutive
securities including stock options, and is calculated using the weighted average
common shares outstanding for the period. Diluted earnings per share, which is
generally consistent with the fully diluted calculation under present accounting
rules, reflects the dilution to earnings that would occur if securities, stock
options and other dilutive securities resulted in the issuance of common stock.
The Company anticipates that prior period earnings per share, when restated for
SFAS 128, will remain unchanged or will be slightly higher. If the Company had
been permitted to adopt SFAS 128 in the third quarter of 1997, there would have
been no change in the amount reported as earnings from continuing operations per
common share. The Company therefore does not expect the impact of SFAS 128 on
fully diluted earnings per share to be material on future calculations.


                                        6
<PAGE>   7
                                  XIRCOM, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1997



Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information" were issued in June
1997. In accordance with the provisions of these statements, the presentation
and disclosures required will be adopted by the Company in fiscal year 1999.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                        June 30      September 30
                         1997           1996
                         ----           ----
<S>                    <C>           <C>
Finished goods         $10,509        $ 5,723
Subassemblies            2,108          1,348
Work-in-process          2,106            543
Component parts          7,759          6,157
                       -------        -------
                       $22,482        $13,771
                       =======        =======
</TABLE>


REVENUE RECOGNITION

The Company recognizes revenue from product sales when shipped. The Company
generally provides a lifetime limited warranty against defects in the hardware
component and a two-year limited warranty on the software component of its
network adapters and modem products. In addition, the Company provides telephone
support to purchasers of its products as needed to assist them in installation
or use of the products. The Company makes provisions for these costs in the
period of sale. The Company also has policies and/or contractual agreements
which permit distributors and dealers to return products under certain
circumstances. The Company makes a provision for the estimated amount of product
returns that may occur under these programs and contracts in the period of sale.

CASH AND CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents and are carried at cost
plus accrued interest.

DISCONTINUED OPERATIONS

On June 30, 1997, the Company completed the sale of Netaccess, Inc.
("Netaccess"), its remote access subsidiary, which resulted in a loss of $6.3
million or $0.27 per share. The accompanying financial statements have been
prepared to reflect the historical financial position and results of operations
of Netaccess as discontinued operations.


                                        7
<PAGE>   8
                                  XIRCOM, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1997



Operating income (loss) from discontinued operations is summarized as follows
(in thousands):

<TABLE>
<CAPTION>
                                           Three months                    Nine months
                                               ended                          ended
                                              June 30                        June 30

                                        1997           1996            1997            1996
                                       ------         ------          ------          ------

<S>                                   <C>             <C>           <C>               <C>
Net sales                             $ 3,120         $8,304        $   13,185        $17,544
                                      =======         ======        ==========        =======
Operating income (loss) before
  income taxes                        $     -         $  909        $   ( 323)        $   713
Loss on disposal before income
  taxes                                (8,604)             -           (8,604)              -
Income tax provision (benefit)         (2,329)           290           (2,426)            244
                                      --------        ------        ---------         -------
Net income (loss)                     $(6,275)        $  619        $ ( 6,501)        $   469
                                      ========        ======        =========         =======
</TABLE>


The net assets of Netaccess, comprised principally of accounts receivable,
inventory, fixed assets, goodwill and other intangibles, offset by trade
accounts payable and other liabilities, have been classified as Net assets of
discontinued operations in the accompanying Condensed Consolidated Balance
Sheet.

SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow disclosures are as follows:

<TABLE>
<S>                                                    <C>             <C>
Cash paid for interest                                 $  399          $  390
Cash paid for income taxes                             $   82          $   20
Tax benefit related to employee stock options          $2,078          $1,050
</TABLE>


                                        8
<PAGE>   9
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



This Quarterly Report contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the trend
analysis and other forward-looking statements contained herein, as a result of
the risk factors set forth below and elsewhere in this report.

RESULTS OF OPERATIONS

The following table sets forth the statements of operations as a percentage of
net sales:

<TABLE>
<CAPTION>
                                                    Three months                      Nine months
                                                       ended                             ended
                                                      June 30                           June 30
                                               1997              1996             1997           1996
                                               ----              ----             ----           ----

<S>                                         <C>                <C>              <C>            <C>
Net sales                                     100.0%            100.0%           100.0%         100.0%
Cost of sales                                  66.3%             65.2%            63.7%          65.4%
                                            -------            -------          -------        -------
Gross profit                                   33.7%             34.8%            36.3%          34.6%

Operating expenses:
     Research and development                   6.3%              5.8%             5.4%           6.2%
     Sales and marketing                       23.1%             17.8%            19.6%          20.0%
     General and administrative                 4.0%              3.7%             3.4%           4.1%
                                            -------            -------          -------        -------
                                               33.4%             27.3%            28.4%          30.3%
                                            -------            -------          -------        -------
Operating income from continuing
  operations                                    0.3%              7.5%             7.9%           4.3%
Other income (expense), net                     1.0%           (  1.1%)            0.4%       (  0.9%)
                                            -------            -------          -------        -------
Income from continuing operations
  before income taxes                           1.3%              6.4%             8.3%           3.4%
Provision for income taxes                      0.4%              2.0%             2.5%           1.1%
                                            -------            -------          -------        -------
Income from continuing operations               0.9%              4.4%             5.8%           2.3%
Discontinued operations:
     Operating income (loss), net of
       income taxes                                -              1.4%           (0.2%)           0.4%
     Loss on disposal, net of income
       taxes                                 (12.5%)                 -           (3.8%)              -
                                            -------            -------          -------        -------

Net income (loss)                            (11.6%)              5.8%             1.8%           2.7%
                                            =======            =======          =======        =======
</TABLE>



NET SALES

Net sales of LAN adapters, modems and multifunction LAN and modem cards ("Combo
cards") (collectively "client products") for the three- and nine-month periods
ended June 30, 1997 increased 14% and 39%, respectively, from the corresponding
prior-year periods primarily due to growth in overall market demand for these
products. The growth in market demand may be indicative of several factors: an
increased growth


                                        9
<PAGE>   10
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



rate in shipments of portable PCs, which in turn require network connections; a
more competitive pricing strategy adopted by the Company; continuing increased
market acceptance of the Company's Combo cards and Fast Ethernet cards; and
increased sales of the Company's modem-only PC Card products. The lower growth
rate of net sales in the three-month period compared to the nine-month period
was due to a decrease in shipments to distributors in the June 1997 quarter in
order to reduce the level of inventories carried in the distribution channel.
Unit shipments of client products for the three- and nine-month periods ended
June 30, 1997 increased 56% and 77%, respectively, from the corresponding prior
year periods, but average selling prices declined due to increased competition
in the PC Card LAN adapter market, price reductions on the Combo card and modem
products, and a higher mix of LAN-only products which have lower average selling
prices than Combo card and modem products.

INTERNATIONAL SALES. Total international sales (shipments to customers located
outside the U.S.) were 49% of total net sales for each of the three- and
nine-month periods ended June 30, 1997, compared to 50% and 45% from the
comparable prior year periods. PC Card sales in Europe and Asia-Pacific grew at
a faster rate than in the U.S. during most of 1997 primarily because of greater
market growth in Asia and shorter delays between initial shipment of new
products in the U.S. and the shipment of internationally approved versions of
such products.

GROSS PROFIT

Gross profit margins for the three- and nine-month periods ended June 30, 1997
were 33.7% and 36.3%, respectively, compared to 34.8% and 34.6%, respectively,
for the comparable prior-year periods. The decrease in gross profit as a
percentage of net sales was primarily attributable to the increased portion of
sales represented by PC Card products, which have lower gross profit margins
than the Company's parallel port products, and by selling price reductions on
Combo card and modem products. These negative margin impacts were partially
offset by increased shipments and the resulting decrease in fixed costs as a
percentage of total cost of sales, a change in the discount structure on
products sold into the distribution channel beginning in the September 1996
quarter, and the favorable impact of cost reduction efforts including the
successful transition of all the Company's PC Card production to its own
manufacturing facility in Penang, Malaysia. Start-up expenses related to the
Malaysian manufacturing facility had a negative impact on gross margins in the
December 1995 and March 1996 quarters.

OPERATING EXPENSES

Total operating expenses for the three- and nine-month periods ended June 30,
1997 increased by 39% and 30%, respectively, compared to the corresponding
prior-year


                                       10
<PAGE>   11
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



periods primarily due to the continued expansion of product lines and
international operations and an increase in certain sales and marketing
programs. Total operating expenses as a percentage of sales for the three-month
period ended June 30, 1997 increased compared to the prior year period primarily
due to a decrease in shipments to the channel during the quarter without a
corresponding decrease in expenses. Total operating expenses decreased as a
percentage of sales for the nine-month period ended June 30, 1997 primarily due
to increased sales in the first two quarters of fiscal 1997 and more focused
product development activities. Total operating expenses are not expected to
increase materially for the remainder of fiscal 1997 but are expected to
increase in fiscal 1998, and may fluctuate as a percentage of net sales.

Research and development expenses for the three- and nine-month periods ended
June 30, 1997 increased by 23% and 22%, respectively, compared to the
corresponding prior-year periods. Increased expenses for both periods are due to
additional staffing to support expanded product lines, offset partially by
reduced expenses of the Netwave product line, which was sold in August 1996. As
a percentage of sales, research and development expenses decreased for the
nine-month period of 1997 compared to the same period of 1996 due to increased
sales and more focused product development efforts. Research and development
expenses are expected to continue to increase due to planned expenditures on
product enhancements and new product introductions, but may vary as a percentage
of sales.

Sales and marketing expenses for the three- and nine-month periods ended June
30, 1997 increased by 48% and 36%, respectively, compared to the corresponding
prior-year periods. The increases are related to additional headcount, marketing
activities to support the increased sales levels and expanding markets, and
increased distributor-related sales and marketing expenses. As discussed in
"Gross profit" above, the Company changed its discount structure on products
sold into the distribution channel beginning in the September 1996 quarter and,
as a result, improved its gross profit margins. However, the additional gross
profit dollars were applied to product and marketing programs, which increased
the amount of sales and marketing expenses. As a percentage of sales, sales and
marketing expenses decreased slightly for the nine months ended June 30, 1997 as
compared to the similar period in 1996 primarily due to the consolidation of
certain sales operations and reduced overall promotional spending resulting from
a more focused product line. Sales and marketing expenses are expected to
decrease slightly through the remainder of fiscal 1997 as further consolidation
of functions is pursued.

General and administrative expenses for the three- and nine-month periods ended
June 30, 1997 increased by 22% and 15%, respectively, compared to the
corresponding prior-year periods. The increases were due to the need to support
growth in the organization. As a percentage of sales, these expenses decreased
for the nine-month period of fiscal 1997 primarily due to increased sales.
General and administrative expenses are not expected to increase for the
remainder of fiscal 1997 and will vary as a percentage of sales.


                                       11
<PAGE>   12
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



OTHER INCOME (EXPENSE), NET

Net other income or expense includes interest income from the investment of
available cash, early payment discounts earned by the Company offset by early
payment discounts taken by customers, foreign currency transaction gains and
losses, and interest expense on notes payable and capital leases. Net other
income for the fiscal 1997 periods compared to net other expense for the fiscal
1996 periods is due primarily to lower interest expense and higher interest
income as a result of increased cash balances and reduced borrowings under the
Company's credit facilities.

INCOME TAXES

The Company's effective tax rate for the nine months ended June 30, 1997 was
30.0%. The difference between the effective tax rate in the current year and the
35% federal statutory tax rate is due primarily to benefits from the tax holiday
status of the Company's operations in Malaysia. The Company's effective tax rate
for the nine months ended June 30, 1996 was 33% as a result of an expected 32%
tax rate for profitable operations in the second and third quarters of fiscal
1996 and the 23.6% tax benefit related to a pre-tax loss recorded in the first
quarter of fiscal 1996.

DISCONTINUED OPERATIONS

The financial results of Netaccess, which includes remote access server products
sold to original equipment manufacturers ("OEMs") and through two-tier
distribution channels, have been reported as discontinued operations in the
Condensed Consolidated Statements of Operations for all periods. On June 30,
1997, the Company completed the sale of Netaccess resulting in a loss of $6.3
million or $0.27 per share. Operating loss from discontinued operations, net of
income tax benefit, was $226,000 for the nine months ended June 30, 1997,
compared with a profit of $469,000 in the comparable prior year period.
Additional information with respect to discontinued operations is included in
the Notes to Condensed Consolidated Financial Statements.

RISK FACTORS

The market for portable PC LAN adapters has grown rapidly since the Personal
Computer Memory Card International Association (PCMCIA) introduced a standard
form factor for PC Card (originally "PCMCIA") LAN adapters in 1993. Companies
with greater name recognition in the PC, desktop LAN adapter and PC Card modem
industries and with greater financial resources now have a significant presence
in the PC Card adapter market. As a result, the Company's net sales and gross
profit margins have been and could continue to be adversely impacted by several
competitive factors. Such competitive factors include increased price
competition, new product introductions by competitors, promotional efforts by
competitors, any reduction in the Company's percentage market share of the PC
Card adapter markets, and changes in the level of inventories in the Company's
distribution channels. Although competition is expected to remain intense, the
Company believes its share of the PC Card LAN


                                       12
<PAGE>   13
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



adapter market stabilized in 1996 and the first nine months of fiscal 1997. The
Company believes such stabilization was achieved primarily due to a more
competitive pricing strategy for PC Card products adopted during fiscal 1995,
the success of its combination Ethernet LAN and Modem PC Card, and the
introduction of several new PC Card products in late 1996 and 1997. Such new
products include the Company's Fast Ethernet PC Card which began shipping in
June 1996, its CardBus Ethernet adapter which began shipping in October 1996,
its fourth-generation Combo cards which began shipping in September 1996, and
its Fast Ethernet+Modem 56 Combo cards which began shipping in June 1997.

The Company believes that the market for PC Card LAN adapters, modems and Combo
cards will continue to be price competitive for the long-term and thus could
continue to result in lower gross profit margins than the Company has earned
from such products in the past. In addition, the Company's manufacturing
facility is operating at a greater efficiency level than in the first nine
months of fiscal 1996. This manufacturing facility began volume production in
early fiscal 1996 and is now producing all of the Company's PC Card products.
While the in-house manufacturing facility is expected to continue to have a
positive impact on cost reduction efforts, the proportion of revenues derived
from the Combo and modem-only PC Cards, which have lower gross profit margins
compared to LAN PC Cards, have negatively impacted overall gross margins and may
continue to offset any improvements from manufacturing and design efficiencies
if such revenue mix changes continue. In addition, there can be no assurances
that cost reductions achieved through increased manufacturing efficiencies will
keep pace with competitors' cost reductions or will be sufficient in the event
of anticipated competitive price reductions to allow price reductions required
to maintain or increase market share without adversely affecting gross profit
margins.

The Company generally ships products within one to six weeks after receipt of
orders and therefore its sales backlog is typically minimal. Accordingly, the
Company's expectations of future net sales are based largely on its own estimate
of future demand and not on firm customer orders. If net sales do not meet
expectations, the Company may not be able to reduce expenses commensurately in
the near-term, and profitability would be adversely affected.

The Company's net sales may be affected by its distributors' decisions as to the
quantity of the Company's products to be maintained in their inventories. As of
June 30, 1997, the Company believes its distributors had what the Company
considers to be normal levels of inventory overall. However, there can be no
assurance that distributors will not choose to reduce inventory levels
nonetheless, which would adversely affect net sales.

There can be no assurances that new products the Company may introduce will
achieve market acceptance or sell through to end users in sufficient quantities
to make them viable for the long-term. In addition, the Company may have
difficulty in establishing its presence in markets in which it does not have
significant brand recognition.


                                       13
<PAGE>   14
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The Company's modem-only PC Card products generally have lower gross profit
margins than PC Card LAN adapters, however, increased sales volume from modems
would have a positive impact on coverage of fixed manufacturing costs, which in
time could partially offset the generally lower margins on modem products.

Because all PC Card products are being manufactured at the Company's own
facilities, interruptions in supply of products could occur if the Company is
unable to accurately forecast or react to changes in product demand, which in
turn could adversely affect future sales. Interruptions could also occur due to
political or economic changes in Malaysia.

In summary, gross profit margins are impacted by a number of factors. Such
factors include the rate of sales growth, competitive pricing pressures, the mix
of product sales, and component and manufacturing costs. In addition, new
products often have lower margins until market acceptance and increased volumes
permit component cost reductions and manufacturing efficiencies. Frequent
product transitions also increase the risk of inventory obsolescence and
interruptions of sales.

The Company's corporate headquarters, research and development facilities and
other critical business operations are located near major earthquake faults.
Operating results could be materially adversely affected in the event of a major
earthquake.

A number of additional factors could have an impact on the Company's future
operating results. The industry in which the Company operates is characterized
by rapid technological change and short product life cycles. While the Company
has historically been successful in developing leading technology for its
products, ongoing investment in research and development will be required to
maintain the Company's technological position and the Company could be required
to increase the rate of such investments depending on competitive factors. Many
of the Company's competitors have greater financial and technical resources than
the Company. It is also possible that networking capability could be included in
the PC itself or in extension modules to PCs, which could cause a reduction in
the demand for add-on networking devices. The Company's results are also
dependent on continued growth in the underlying market for portable networking
products as well as the Company's ability to retain its market share.

The Company is aware that competitors have duplicated certain functionality of
the Company's products. There can be no assurance that the Company's patents,
copyrights, trademarks and other efforts to protect its intellectual property
will prevent duplication of the Company's technology or that they will provide a
competitive advantage. The Company is also aware that there can be no assurance
that a patent issued to the Company would be upheld as valid if litigation over
a patent were initiated. The Company believes that, due to the rapid pace of
technological change in the LAN communications industry, the Company's success
is likely to depend more upon continued innovation, technical expertise,
marketing skills and customer support and service than legal protection of the
Company's proprietary rights.


                                       14
<PAGE>   15
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


With the proliferation of new products and rapidly changing technology in the PC
Card market, there is a significant volume of patents or similar intellectual
property rights held by third parties. Given the nature of the Company's
products and development efforts, there are risks that claims associated with
such patents or intellectual property rights could be asserted by third parties.
These risks may include the following: the cost of licensing a given technology
if the Company believes it may be prudent to secure such rights; the claimant
may not offer such a license on terms acceptable to the Company; the cost of
litigation or settlement of such claims could be substantial regardless of the
merits of the allegations; the Company may not prevail in the event of
litigation; if the Company did not prevail in litigation, it could be required
to pay significant damages, and/or to cease sales and production of infringing
products, and only make future sales of a noninfringing design.

The Company currently includes software licensed from third parties in certain
of its Ethernet+Modem, modem-only and Token Ring products, which, in the
aggregate, accounted for 60% of revenues in the third quarter of fiscal 1997.
The Company's operating results could be adversely affected by a number of
factors relating to this third-party software. Such factors include failure by a
licensor to promote or support the software, delays in shipment of the Company's
products as a result of delays in the introduction of licensed software or
errors in the licensed software, excess customer support costs or product
returns experienced by the Company due to errors in licensed software, or
termination of the Company's relationship with such licensors.

Because of frequent technology changes and rapid industry growth, the cost and
availability of components used to manufacture the Company's products may
fluctuate. Some components, including custom chipsets, are available from only
one supplier. Any interruptions in these supply sources or limitations on
availability could impact the Company's ability to deliver its products and in
turn adversely affect future earnings.

The Company is also subject to additional risk factors as identified in its
Annual Report to Shareholders and filing on Form 10-K for the year ended
September 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997 the Company had $78.2 million in cash and cash equivalents. The
Company's continuing operating activities provided cash of approximately $5.9
million in the nine-month period ended June 30, 1997, primarily as a result of
income from operations, income tax refunds received and an increase in accounts
payable, offset partially by increases in accounts receivable and inventories.
Accounts receivable increased due to higher quarterly revenue and fewer early
payment discounts offered in the June 1997 quarter compared to the September
1996 quarter. Inventories and accounts payable increased primarily due to an
increase in the volume of business. The Company had capital expenditures related
to continuing operations of $4.7 million in the first nine months of fiscal
1997, primarily for manufacturing equipment at its Malaysian manufacturing
facility. The Company has no material fixed commitments and does not expect an
increase in the rate of capital expenditures during the


                                       15
<PAGE>   16
                                  XIRCOM, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



remainder of fiscal 1997 except that it has signed a letter of intent to
purchase its manufacturing facilities in Penang, Malaysia for approximately $5.6
million. The Company is currently evaluating its options for funding the
purchase price.

The Company has a credit facility with a bank that permits borrowings up to
$25.0 million under base rate advances at the prime rate or under London
Interbank Offered Rate ("LIBOR") advances at the related LIBOR rate plus 1-1/4%.
As of June 30, 1997, there were no borrowings outstanding under this agreement.
The agreement expires in December 1998. The Company also has a credit facility
in Malaysia totaling $10.8 million with interest ranging from a fixed rate of
approximately 7.0% to a variable rate of 1/2% to 1-1/2% over the bank's
reference rate. As of June 30, 1997, there were no demand notes and $3.3 million
in term loans outstanding under this facility This facility expires in December
1998. At June 30, 1997 the Company had approximately $26.8 million in borrowings
available under its credit facilities.

On February 28, 1997 Intel Corporation ("Intel") completed the purchase of a
12.5 percent interest in the Company's common stock (2,516,405 newly issued
shares) and acquired a warrant to purchase an additional 7.5 percent of the
Company's common stock (1,509,903 newly issued shares). The value of the initial
Intel equity investment was approximately $52 million. The Company intends to
use the proceeds from the equity investment for working capital purposes.

The Company believes that cash on hand, borrowings available under its existing
facilities or from other financing sources and cash provided by operations will
be sufficient to support its working capital and capital expenditure
requirements for at least the next twelve months. However, there can be no
assurances that future cash requirements to fund operations will not require the
Company to seek additional capital sooner than the twelve months, or that such
additional capital will be available when required on terms acceptable to the
Company.


                                       16
<PAGE>   17
                                    XIRCOM, INC.
                              PART II OTHER INFORMATION


ITEM 1.       LEGAL PROCEEDINGS
              Not applicable.

ITEM 2.       CHANGES IN SECURITIES
              Not applicable.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES
              Not applicable.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              Not applicable.

ITEM 5.       OTHER ITEMS
              In July 1997, Marc M. Devis was appointed Senior Vice President,
              Worldwide Sales, Robert W. Bass was appointed Senior Vice
              President, Worldwide Operations, and Renee Bader was appointed
              Vice President, Worldwide Marketing for the Company.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K
              (a)  Exhibits

                  10.32       Asset Purchase Agreement by and among BTINH
                              Operating Company, Inc. as Buyer, Brooktrout
                              Technology, Inc. as Parent, Netaccess, Inc. as
                              Seller and Xircom, Inc. as Seller's Sole
                              Stockholder, dated June 30, 1997

                  27          Financial Data Schedule

              (b) Reports on Form 8-K

                  A Report on Form 8-K was filed by the Company on April 23,
                  1997 pursuant to Item 5 of Form 8-K ("Other Events"). The
                  report related to a press release for the Company's second
                  quarter 1997 earnings. A copy of the press release was filed
                  as an exhibit to such report.

                  A Report on Form 8-K was filed by the Company on July 3, 1997
                  pursuant to Item 5 of Form 8-K ("Other Events"). The report
                  related to a press release related to the completion of the
                  divestiture of the assets of Netaccess, Inc., the Company's
                  remote access subsidiary. A copy of the press release was
                  filed as an exhibit to such report.


                                       17
<PAGE>   18
                                     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.


                                          XIRCOM, INC.
                                          ------------
                                          (Registrant)


Date: August 12, 1997                     /s/ Dirk I. Gates
      ----------------                    -----------------
                                          Dirk I. Gates
                                          Chairman of the Board, President and
                                          Chief Executive Officer



Date: August 12, 1997                     /s/ Steven F. DeGennaro
      ---------------                     -----------------------
                                          Steven F. DeGennaro
                                          Vice President, Finance and
                                          Chief Financial Officer


                                       18