UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

    [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)

                   For the fiscal year ended December 31, 1996

                                       OR

    [ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)

                         Commission file number 0-23970

                            NETWORK PERIPHERALS INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                  77-0216135
 (State or other Jurisdiction of      (I.R.S. Employer Identification Number)
 Incorporation or Organization)

                             1371 McCarthy Boulevard
                           Milpitas, California 95035
          (Address, including zip code of principal executive offices)

                                 (408) 321-7300
              (Registrant's telephone number, including area code)

             Securities registered pursuant to Section 12(g) of the
                                      Act:

                                 Title of class
                                  Common Stock

Indicate by checkmark  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 the  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of the registrant's  knowledge,  in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of February 24, 1997 was $178,275,477 based upon the closing price
of the  Registrant's  Common Stock on the Nasdaq  National Market System on that
date.

The number of shares of the Registrant's Common Stock outstanding as of February
24, 1997 was 12,086,473.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  Registrant's  proxy  statement  for  its  annual  meeting  of
stockholders  to be held on April 24, 1997 are  incorporated  by reference  into
Part III of this Annual Report on Form 10-K.


<PAGE>

                                            NETWORK PERIPHERALS INC.

                                                   FORM 10-K


                                               Table of Contents
<TABLE>


<S>      <C>                                                                                                        <C>
PART I                                                                                                              Page

         Item 1.    Business......................................................................................    3
         Item 2.    Properties....................................................................................   11
         Item 3.    Legal Proceedings.............................................................................   11
         Item 4.    Submission of Matters to a Vote of Security Holders...........................................   11

PART II

         Item 5.    Market for the Registrant's Common Stock and Related
                         Stockholder Matters......................................................................   12
         Item 6.    Selected Financial Data.......................................................................   13
         Item 7.    Management's Discussion and Analysis of Financial Condition
                         and Results of Operations................................................................   14
         Item 8.    Financial Statements and Supplementary Data...................................................   18
         Item 9.    Changes in and Disagreements with Accountants on
                         Accounting and Financial Disclosure......................................................   33

PART III

         Item 10.   Directors and Executive Officers of the Registrant............................................   34
         Item 11.   Executive Compensation........................................................................   34
         Item 12.   Security Ownership of Certain Beneficial Owners and Management................................   34
         Item 13.   Certain Relationships and Related Transactions................................................   34

PART IV

         Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................   35
                    Signatures....................................................................................   36
                    Supplemental Schedule.........................................................................   37


</TABLE>

                                                            2


<PAGE>


                                     PART I

Item 1.  Business

Network  Peripherals  Inc.,  ("the  Company") was  incorporated in California in
March 1989 and reincorporated in Delaware in June 1994. The Company's  principal
offices are located at 1371 McCarthy Boulevard,  Milpitas, California 95035, and
its telephone number is (408) 321-7300.

Business

The  Company  designs,  develops,   manufactures,   markets  and  supports  high
performance  client/server  workgroup  networking  solutions  based on  advanced
networking   technologies  and  unique  ASIC  (application  specific  integrated
circuits) components designed by the Company. Network Peripherals' solutions are
designed to deliver substantial  improvements in network performance to users in
departmental   and   workgroup   networks   which  must  satisfy  the  bandwidth
requirements of network  servers,  internetworking  traffic and complex software
applications.  The  products  offered by Network  Peripherals  are  designed  to
preserve customers' investment in existing network equipment, infrastructure and
in particular Ethernet networks commonly found in workgroups.

The Company  introduced its first FDDI network adapter  products in 1990 and has
established  a leading  share of the  installed  FDDI  adapter  market.  Network
Peripherals  introduced  its first FDDI  concentrator  product in 1991 and began
commercial  shipments  of its first  FDDI LAN  (local  area  network)  switching
product,  the EIFO series,  in the first quarter of 1994.  In 1995,  the Company
announced its Fast Ethernet product line and made initial  shipments of its Fast
Ethernet LAN switching products in early 1996.

In March 1996,  the Company  purchased  all of the  outstanding  shares of NuCom
Systems,  Inc.,  a  Taiwan-based  networking  company  focused on Fast  Ethernet
switching  products.  This acquisition enabled the Company to introduce a number
of new Fast Ethernet products during the year and was the principal reason sales
of Fast Ethernet products reached $9.7 million or 18% of net sales in 1996.

Network   Peripherals   markets  its  products  worldwide  through  OEMs,  VARs,
distributors and system integrators.

Products

The Company's  product line  currently  consists of a full line of  NuSwitch(TM)
FD-Series FDDI client/server  switching hubs,  FE-Series Fast Ethernet switching
hubs,   NuCard(TM)   FDDI  and  Fast  Ethernet   network   adapters,   NuHub(TM)
concentrators and NuSight(TM) network management applications.

Network Adapter Products

Network  Adapter  Hardware.  The Company's line of NuCard FDDI network  adapters
connects  high-performance servers or PCs/workstations directly to 100 Mbps FDDI
networks.  The Company has been shipping  certified  FDDI  adapters  since 1990.
NuCard  adapters  support  both fiber and  unshielded  twisted pair (UTP) copper
wiring,  and are available for all popular  platform bus  architectures -- EISA,
AT/ISA,  SBus, Micro Channel Architecture and PCI. Customized versions have been
developed for resale under OEM arrangements with NCR, Network General,  NetFRAME
and Sun Microsystems. The Network General product is a customized version of the
Company's  EISA FDDI  adapter  with  enhanced  features for use with the Network
General Sniffer Network Analyzer.  The product developed for NetFRAME is an FDDI
Network I/O Processor that provides high performance  FDDI  connectivity for the
NetFRAME line of network  super  servers.  The FDDI adapter and custom  software
developed for Sun Microsystems is

                                       3

<PAGE>

based on the Company's  SBus FDDI adapter and supports Sun  Microsystems'  SPARC
and UltraSPARC work station and server product lines.

The  Company  also  offers  a  high-performance  10/100  Fast  Ethernet  network
interface card for PCI-bus architecture  systems.  Combining a 32-bit bus master
implementation  with tightly integrated  software drivers,  the FE-560T provides
the optimal  connection for servers and/or  desktops  migrating from Ethernet to
Fast Ethernet.

The  Company's  NuCard  adapters  incorporate  software  drivers for the leading
network operating  systems:  Novell NetWare,  Microsoft NT, and Sun Microsystems
Solaris.  The  Company  provides  a  standard  set  of  diagnostics,  connection
management  (CMT) and station  management  (SMT)  software  tools.  CMT software
continuously  monitors  network  connections  for bit errors and network faults,
while  SMT  software  provides  network  management  and  gathering  of  network
performance statistics.

The Company's  adapters  connect high  performance  servers or  PCs/workstations
directly to 100 Mbps Fast Ethernet and FDDI networks.  The Company has developed
an FDDI core engine as part of the FDDI  adapter  design which  implements  FDDI
standard  functions  and is optimized for each  standard bus  architecture.  The
Company's FDDI adapters  support fiber and unshielded  twisted pair (UTP) copper
wiring.

LAN Switching Products

LAN  Switching  Products,  The LAN  Switching  products  offered by the  Company
include  product  lines  consisting  of a variety of models  and  configurations
providing  Ethernet  to Fast  Ethernet  LAN  switching,  Fast  Ethernet  to Fast
Ethernet LAN switching and Ethernet to FDDI LAN switching products.

The NuSwitch  FE-Series of Fast Ethernet  switching hubs provides an inexpensive
and reliable method for network  administrators to segment current Ethernet LANs
using switched Ethernet,  and deliver high-speed connections to multiple servers
using Fast Ethernet  uplinks.  The Company  offers a range of models to meet the
requirements of enhancing  existing  Ethernet  networks and to deliver increased
performance to the multiple LAN segments commonly deployed.  The current product
line  includes  six  models of  10Mbps to  100Mbps,  Ethernet  to Fast  Ethernet
switching  products.  Each  model  provides  the  customers  with  a  choice  of
configuration   and  system  price  designed  to  meet  their  existing  network
requirements.  The models in the FE-Series serving this requirement include: the
FE-101,  FE-105,  FE-106,  FE-210,  FE-506 and FE-512.  The  Company  offers the
FE-224C,  a model  featuring  twenty-four  10Mbps Ethernet ports and two 100Mbps
Fast  Ethernet  ports  designed to meet the growing need for  increased  desktop
performance.

The FE-200  Series of 100/100  two-port  switches  allows  users to bridge  Fast
Ethernet  networks  beyond the typical  limitations of Ethernet,  extending Fast
Ethernet  connections  up to two  kilometers.  The Company's  FE-600 and FE-1200
100/100 switching hubs are designed to interconnect multiple high-speed segments
and offer up to 12 100BaseT  switched  ports per unit.  Using a 2Gbps  switching
backplane,  these Fast Ethernet switching hubs can support full-duplex reception
and transmission over all ports, simultaneously.

High  performance  at  relatively  low  cost is  achieved  in  both  the FD- and
FE-Series  through the  development of proprietary  ASIC-based  components and a
distributed  switching  architecture.  Instead of sharing buffer  memory,  as in
typical shared-memory  switching  technologies,  each NuSwitch Ethernet port has
its own dedicated buffer memory.  Competitive switches frequently utilize either
a  central  processor  or  central  ASIC,  which  can lead to  potential  memory
allocation problems that undermine switch performance.

Network  Peripherals'  NuSwitch  FD-Series  switching  hubs  combine FDDI server
uplinks with switched 10Base-T Ethernet  segments for client  connectivity.  The
systems forward data between Ethernet and

                                       4

<PAGE>

FDDI ports at rates up to  157,000  packets  per  second and can filter  400,000
packets per second.  Introduced in 1994,  the Company's  FDDI switching hubs won
LAN Magazine's "Product of the Year" Award in 1995.

The NuSwitch FD-Series offers a number of switch  configurations to connect FDDI
networks with switched 10BaseT  Ethernet ports for client segment  connectivity.
Utilizing a distributed  memory switching  architecture,  the FD-Series forwards
data  between  Ethernet  and FDDI ports at a rate of up to 157,000  packets  per
second.  The  FD-Series  is based upon  Ethernet  and FDDI  industry  standards,
providing  compatibility with other network products including 10BaseT workgroup
hubs and enterprise hubs and routers,  thereby  preserving the users' investment
in existing network  equipment.  The FD-Series offers models with up to six FDDI
ports and 12  Ethernet  ports with each  Ethernet  port  supporting  one network
segment or a single client.

LAN Concentrators.  The Company's NuHub FE-5108 provides eight Class II 100BaseT
Fast Ethernet  ports,  each capable of half- or full-duplex  transmission.  Each
connected  workstation  can have access to all  connected  file servers over the
high-speed   connection   without   changes  to  the  desktop   network.   NuHub
concentrators have the same form factor and management  software as the NuSwitch
switching  hub,  providing  a  convenient   single-vendor  100Mbps  connectivity
solution.

The  Company  has  also  designed  and  currently  manufactures  a  custom  FDDI
concentrator  module for UB  Networks.  This  product,  available in a number of
different  configurations,   is  designed  to  be  integrated  in  UB  Networks'
Access/One enterprise hub.

LAN Network  Management  Software.  The Company believes that network management
software is an important  capability  for  client/server  networks  that enables
network  administrators  to manage,  maintain  and control the  operation of the
network  remotely.  The  Company  provides  standards-based  network  management
software in all of its products.  The  Company's LAN switching  products and LAN
concentrators  are  supplied  with SNMP  software  which allows these hubs to be
controlled and statistics to be gathered from an SNMP  management  station.  The
Company  introduced in 1996 a new network management  application,  NuSight 1.0,
that provides a graphical  view of the  switching  product to enable the network
administrator to manage network connections and configuration, gather statistics
to monitor network  traffic and plan future growth.  NuSight 1.0 is available on
Microsoft Windows 3.1, Windows95 and Windows NT.

The information in the following  paragraph  contains forward looking statements
describing  new products  that are expected to be available  for shipment to the
Company's customers during 1997. The successful completion and shipment of these
products is subject to a number of uncertainties, including verification testing
to  confirm  that  the  products  meet  the  Company's  standards  for  quality,
reliability and interoperability; availability of components; pricing actions by
competitors  that may render it unprofitable  to introduce the products;  market
acceptance  of the  products;  and the  emergence  or  broad  acceptance  of new
technologies that may render the products obsolete.

In addition to the Fast Ethernet  products  described above, in 1997 the Company
intends to develop  and  introduce  a number of  bridging  products  designed to
enable  customers to  interconnect  workgoups to enterprise  backbone  networks,
including  Fast  Ethernet to FDDI,  Fast  Ethernet  to ATM and FDDI to ATM,  and
enhanced versions of FDDI adapters  including standard and custom (OEM) products
based on the PCI bus architecture.

                                       5

<PAGE>


Marketing, Sales and Support

The Company  distributes  and sells its product  worldwide  through OEMs,  VARs,
distributors  and system  integrators.  As of  December  31,  1996,  the Company
employed 71 full-time technically trained marketing, sales and support personnel
located in the United  States,  the  Netherlands,  Singapore  and Taiwan.  These
personnel,  in  addition  to  traditional  marketing  and sales  functions,  are
responsible for developing  relationships  with major end-user accounts and with
network  operating system software leaders such as Novell,  Sun Microsystems and
Microsoft.  The Company  believes that such  relationships  are crucial to early
development  and  deployment  of optimal  solutions  for  client/server  network
applications.

As a result of the Company's strategy to cultivate  business  relationships with
influential   networking  and  system  vendors,  a  majority  of  the  Company's
historical  and  current  sales have been to OEMs.  While the  Company  does not
generally obtain long-term purchase commitments from its OEM customers,  it does
customarily  enter into  contracts with OEM customers to establish the terms and
conditions of sales made pursuant to orders from OEMs.  Several major networking
vendors  have  contracted  with the Company to have the Company  design  complex
custom modules for direct  integration  into their  enterprise  switches,  super
servers and other networking products.

Beginning  in 1995 and  continuing  in 1996,  the Company  implemented  programs
designed  to balance its  distribution  mix by  expanding  sales  through  VARs,
distributors and system integrators in both the North American and international
markets.  The distribution  mix in any particular  period can be affected by the
presence  or  absence of large  orders by OEMs,  VARs,  distributors  and system
integrators, and changes in the distribution mix will affect the Company's gross
margins.

Internationally,   the  Company's   products  are  sold  through  a  variety  of
locally-based  distributors and resellers  specializing in networking solutions,
many of whom also  distribute  networking  products from Bay Networks,  3Com and
Cisco Systems. The Company's products are currently distributed  internationally
in Europe,  Asia,  and the  Middle-East.  The Company  has sales  offices in the
Netherlands,  Taiwan and Singapore.  Sales to customers outside of North America
represented 21% of the Company's net sales in 1996. The geographic  regions with
the major  portions  of export  sales in 1996,  and the  approximate  respective
percentages represented by each, were Europe, 8% and Asia, 13%. All payments for
sales outside the United States are made in U.S. dollars.

Sun  Microsystems,  Tech Data, and UB Networks  accounted for 26%, 15%, and 12%,
respectively,  of net sales in 1996.  In the past,  the Company has  experienced
fluctuations  in the  volume of  activity  with  individual  OEM  customers  and
distributors as well as changes in its OEM customer and distributor base, and it
expects such  fluctuations and changes to continue in the future.  The loss of a
major  customer,  reductions of a major order or delay in a major shipment could
adversely affect the Company's business and financial performance.

OEM customers  typically provide the Company with a rolling forecast with orders
placed two to three months in advance of shipment.  Resellers  typically provide
the Company with orders placed thirty days or less in advance of shipment.  As a
result of these relatively short order cycles,  the Company believes backlog may
not be indicative of revenues in future periods.

The information in the following  paragraph  contains forward looking statements
describing  the  Company's  plans to increase  sales  through  its  distribution
channels and the expected mix of product  shipments  through  various  channels.
There are a number of uncertainties that could affect the success of those plans
including the timely  availability of new products by the Company,  reliability,
price  and  performance  characteristics  of the  components,  new and  existing
products,  the introduction of similar products by competitors,  pricing actions
by competitors  and the inability of the Company to recruit and retain  required
sales and marketing staff with the needed skills.

                                       6

<PAGE>

In 1997 the Company  plans to increase its spending  for  marketing  and selling
activities, both in North America and internationally. This is a continuation of
a  commitment  to growth which began in mid-1995 and is the result of efforts by
the  Company  to  increase  its  sales  through  distributors,  VARs and  system
integrators.

Research and Development

The information in this section contains  forward-looking  statements describing
the Company's  product  development  plans for 1997 and beyond.  The  successful
development  and  introduction  of  new  products  is  subject  to a  number  of
uncertainties,  including the ability of the organization to recruit,  train and
retain  adequate  numbers  of  professional  engineers,   successful  design  of
proprietary  application  specific  circuits  and  computer  software,   design,
development  and  verification  testing to confirm  that the  products  meet the
Company's standards for quality, reliability and interoperability,  availability
of components, pricing actions by competitors that may render it unprofitable to
introduce the products,  unanticipated  technical  obstacles or delays,  and the
emergence or wide acceptance of new technologies  that could render the products
obsolete.

The Company has  developed  certain  core  competencies  applicable  to multiple
network  technologies  such as FDDI,  Fast  Ethernet,  ATM and ASIC  design  and
client/server  operating  system  drivers  and  software  modules.  The  Company
believes its focus on these core competencies has been, and will continue to be,
a  significant  factor in its  competitive  ability  to bring  emerging  network
solutions to the market in a timely manner.

System  Architecture  Interfaces  and  Network  Protocol  Software.  Through the
development  of its  collection  of 100 Mbps network  adapters,  the Company has
gained  expertise in hardware and software support for a variety of standard and
proprietary system bus architectures and network operating systems.

Server Bandwidth  Optimization.  The Company has designed its network  operating
system software to address the specific  characteristics of each type of adapter
and server architecture.  This design provides optimal network bandwidth to high
power servers. As new versions of network operating systems are introduced,  the
Company plans to devote development  efforts not only to maintain  compatibility
with  existing  versions  but also to take  advantage  of enhanced  features and
performance improvements.

Network Bandwidth Switching.  The Company has implemented its Distributed Memory
Switching  Architecture  and ASIC  expertise in products  based on both FDDI and
Fast  Ethernet.  The  Company's  unique  ASIC  components  are  manufactured  by
semiconductor providers such as LSI Logic, TSMC and ATMEL.

As of December  31,  1996,  the Company  employed 63  personnel  in research and
development.  Key members of the Company's  research and  development  team have
been  active  members of the various  network  standard  committees  since 1987,
before Network  Peripherals was founded.  The Company is a charter member of the
Advanced  Network Test Center  (ANTC),  an FDDI  interoperability  certification
center,  is a member of the ANSI FDDI  Standards  Committee,  is a member of the
Gigabit Ethernet Alliance and is a principal member of the ATM Forum.

The Company has developed  products  designed for integration in the proprietary
systems of major networking  companies including Sun Microsystems,  UB Networks,
NetFRAME,  NCR, and Network General. The Company believes that its relationships
with these  network  technology  leaders  establish  credibility  with  end-user
customers who demand  interoperability of their networking devices.  The Company
has active development relationships with Novell, Microsoft and Sun Microsystems
for advanced products for NetWare, Windows NT and Solaris, respectively.

                                       7
<PAGE>

The Company currently has active engineering programs underway involving:

       o  Multiple  development  teams designing  unique ASICs for the Company's
          next generation of LAN switching products;
       o  System  development  teams  designing  the Fast Ethernet LAN switching
          products for delivery in 1997;
       o  PCI bus architectures to develop  proprietary  implementations for the
          Company's future products that offer a PCI interface;
       o  Network  management and other software  required to support the latest
          releases of Microsoft,  Novell and Sun Microsystems operating systems;
          and
       o  Design of next  generation  FDDI adapters to support PCI based systems
          and the Sun Microsystems Sbus based systems.

Competition

The Company  believes that the principal  competitive  factors in the networking
market include the completeness of product offerings, product quality, price and
performance,  adherence to industry  standards,  the degree of  interoperability
with other networking equipment and time to market for new products.

Notwithstanding  the Company's belief that it currently  competes favorably with
respect  to  these  factors,  the  computer  networking  industry  is  intensely
competitive and is significantly  affected by product  introductions  and market
activities  of  industry   participants.   Several   competitors  have  recently
introduced,  or announced their intentions to introduce, new products that would
compete  with  one or  more of the  Company's  products.  Many of the  Company's
current and potential  competitors have significantly  broader product offerings
and greater  financial,  technical,  marketing  and other  resources  and larger
installed bases than the Company.  Increased  competition  could result in price
reductions,  reduced  margins  and loss of  market  share,  all of  which  would
materially and adversely affect the Company's  business,  operating  results and
financial   condition.   The  Company's  FDDI  network  adapters  compete  on  a
product-by-product  basis  with  products  offered  primarily  from  Interphase,
SysKonnect,  Digital Equipment Corporation and 3Com. The Company's client/server
switching  solutions compete with products offered by Cisco,  3Com, Bay Networks
and Cabletron.  A number of the Company's competitors have been acquired.  These
acquisitions   are  likely  to  permit  the  Company's   competitors  to  devote
significantly  greater  resources  to  the  development  and  marketing  of  new
competitive  products and the marketing of existing  products to their installed
bases.  The Company expects that  competition will increase as a result of these
and other industry  consolidations  and alliances.  These competitive  pressures
could adversely affect the Company's business and operating results.

Manufacturing

As of  December  31,  1996,  the  Company  employed 71  full-time  personnel  in
manufacturing.  The Company uses third party  manufacturing  subcontractors  for
assembly,  test and quality control of material,  components,  subassemblies and
systems,  thereby  avoiding  the  significant  capital  investment  required  to
establish and maintain  manufacturing  and assembly  facilities and allowing the
Company to  concentrate  its resources on product  design and  development.  The
Company's  manufacturing team is experienced in advanced  manufacturing and test
engineering,  in ongoing  reliability/quality  assurance  and in managing  third
party manufacturing subcontractors. The Company qualifies subcontractors using a
selection program that assesses a potential  subcontractor's  capacity,  quality
standards and manufacturing process.

The Company performs final assembly, testing, packaging and shipping for most of
its products but uses  qualified  subcontractors  that perform  some, or all, of
these  functions for certain  other of its products.  To ensure the integrity of
the  subcontractors'  quality  assurance  procedures,  the Company has developed
detailed test procedures and test  specifications for each product.  The Company
is currently working towards obtaining an ISO 9001 certification.

                                       8

<PAGE>

Certain key components used in the Company's products,  such as microprocessors,
ASICs,  communications  controller  chips,  FDDI and  Ethernet  media  interface
components and power supplies,  are currently available only from single sources
or limited sources. In particular,  the Company has designed into its products a
standard FDDI chipset  available only from National  Semiconductor.  The Company
has also developed  proprietary ASICs used in its LAN switching  products and in
other  products,  each of which is currently being supplied by a single foundry.
While the  Company  believes it would be able to obtain  alternative  sources of
supply for the ASICs at its election,  any future difficulty in obtaining any of
these key  components  or ASICs could result in delays or  reductions in product
shipments  which, in turn, could have a material adverse effect on the Company's
results of operations.  In addition, the Company's strategy to have its products
assembled and, in certain cases, tested by third parties involves certain risks,
including the potential absence of adequate  capacity,  the unavailability of or
interruptions in access to certain process technologies and reduced control over
delivery schedules,  manufacturing yields,  quality and costs. In the event that
any significant  subcontractor were to become unable or unwilling to continue to
manufacture and/or test the Company's products in required volumes,  the Company
would have to identify  and qualify  acceptable  replacements.  This  process of
qualifying manufacturing subcontractors and other suppliers could be lengthy and
no assurances can be given that any additional sources would become available to
the Company on a timely basis.

Proprietary Rights

The Company's success is dependent upon its proprietary technology. To date, the
Company has relied principally upon patent,  copyright, and trade secret laws to
protect  its  proprietary   technology.   The  Company   generally  enters  into
confidentiality  or  license   agreements  with  its  employees,   distributors,
customers and potential customers and limits access to, and distribution of, the
source code to its software and other proprietary  information.  The Company has
been  issued  one  U.S.  patent  and has  filed  three  additional  U.S.  patent
applications  covering  certain  aspects  of  its  technology.  The  process  of
obtaining  patents  can be  expensive,  and there can be no  assurance  that the
patent  application  will result in the  issuance  of  patents,  that any issued
patents will provide the Company with meaningful competitive advantages, or that
challenges  will not be issued  against the  validity or  enforceability  of any
patent issued to the Company.

The Company  has entered  into  patent  license  agreements  relating to certain
technologies used in FDDI networks.  The Company believes that the terms of such
licenses  are  comparable  to those made  available  to other  companies  in the
networking  industry.  In addition,  certain  technology  used in the  Company's
products is licensed from third  parties,  generally on a  non-exclusive  basis.
These  licenses  generally  require the Company to pay  royalties and to fulfill
confidentiality obligations. Termination of such licenses could adversely affect
the Company's business and operating results.

The Company has agreed in certain cases to indemnify its customers for liability
incurred in connection  with the  infringement  of a third party's  intellectual
property  rights.  Although the Company has not received  notice from any of its
customers  advising the Company of any alleged  infringement  of a third party's
intellectual   property   rights,   there   can  be  no   assurance   that  such
indemnification  of alleged  liability  will not be required from the Company in
the future.

                                        9

<PAGE>

Executive Officers

The executive officers of the Company and their ages are as follows:

<TABLE>
Name                                 Age *          Position
----                                 -----          --------
<S>                                  <C>            <C>
Pauline Lo Alker                     54             President,  Chief Executive Officer, and Director
Truman Cole                          54             Vice President of Finance and Chief Financial Officer
Fred Kiremidjian                     49             Senior Vice President of World Wide Operations
Bob Lyon                             55             Vice President of Human Resources
Donald J. Morrison                   39             Senior Vice President of Marketing
Derek Obata                          38             Vice President of World Wide Sales
Oliver Szu                           40             Vice President and Chief Technology Officer
</TABLE>

*  As of December 31, 1996.

Mrs. Alker has served as the President,  Chief Executive  Officer and a Director
of the Company since January 1991.  Prior to joining the Company,  she served as
President of the Network Computers Division and President of Sales and Marketing
of Acer North American  Operations from October 1987 to September 1990. Prior to
Acer,  Mrs. Alker  co-founded  Counterpoint  Computers,  Inc., a manufacturer of
modular,  multiprocessor UNIX systems,  where she served as Chairman,  President
and Chief Executive Officer until it was acquired by Acer. Prior to Counterpoint
Computers,   Mrs.  Alker  held  various  marketing  and  engineering  management
positions with Intel and with Four Phase Systems and Amdahl Corporation,  all of
which are computer systems manufacturers. From 1980 to 1984, Mrs. Alker was Vice
President of Marketing and  subsequently  Vice President and General  Manager at
Convergent Technologies, Inc., a workstation manufacturer.

Mr. Cole has served as the Vice President of Finance and Chief Financial Officer
of the Company  since  February  1994.  Prior to joining the  Company,  Mr. Cole
worked as an independent consultant from April 1993 to February 1994, and served
as the Vice President,  Chief Administrative Officer and Chief Financial Officer
of Software Publishing Corporation, a desktop software supplier, from April 1990
to March 1993.  From August 1988 to January 1990,  he served as Vice  President,
Controller of Tonka Corporation, a toy manufacturer. Mr. Cole also worked for 16
years for Fairchild  Semiconductor  Corp., a  semiconductor  manufacturer,  most
recently serving as Director of Finance.

Mr.  Kiremidjian has served as an executive officer since joining the Company in
July 1996. Prior to joining the Company, he served as Vice President and General
Manager of Personal Products Business Unit of Xerox Corporation. He has directed
research and development,  engineering and manufacturing  operations efforts for
leading  Silicon  Valley  companies  such  as  Acer,  Convergent   Technologies,
Counterpoint Computers, and Fairchild Semiconductor Corp.

Mr. Lyon has served as an executive  officer since joining the Company in August
1996.  From January 1995 to August  1996,  he served as Vice  President of Human
Resources  and acting  General  Counsel  for Syquest  Technologies,  a removable
cartridge disk drive  manufacturer.  Prior to joining Syquest, he served as Vice
President  of Human  Resources  for Anthem  Electronics  and Vice  President  of
Administration  at Xidex, an Anacomp Company.  Additionally,  Mr. Lyon served as
Labor  Relations  Manager and  International  Human  Resources  Manager at Intel
Corporation  for eight  years.  He also held  several  key  human  resource  and
management consulting positions at LLNL and Maxtor.

Mr.  Morrison has served as an executive  officer  since  joining the Company in
April 1995. Prior to joining the Company, he was the Vice President of Marketing
at Strategic  Mapping,  Inc., a software  applications  start-up  company.  From
October 1988 to December  1993,  he was with The Santa Cruz  Operation,  holding
various  marketing  management  positions,  including  Vice  President  of North
America VAR and Distributor Sales,  responsible for U.S.  reseller,  retail, VAR
and distributor customers and revenues. Before that, Mr.
                                       10

<PAGE>

Morrison held marketing  management  positions  with Altos Computer  Systems and
Fortune Computer Systems.

Mr.  Obata has served as an  executive  officer  since  joining  the  Company in
November  1995.  From April 1993 to April 1995,  he served as Vice  President of
Sales at Ministor Peripherals, a disk drive manufacturer. Before that, he worked
at Conner Peripherals,  a disk drive  manufacturer,  where he held various sales
management positions.

Mr. Szu has served as an executive  officer  since  joining the Company in March
1996, when the Company  acquired NuCom Systems,  Inc. He was one of the founders
of NuCom  Systems,  Inc. Prior to founding NuCom in 1994, he was the director of
the Internetworking  Department at D-Link Systems,  Inc. in Taiwan and served on
the D-Link Board of Directors from 1993 to 1994.

Employees

As of December  31,  1996 the  Company  employed  236  persons  including  63 in
research and development activities, 71 in manufacturing,  service, and support,
71 in sales,  marketing,  customer  support  and related  activities,  and 31 in
finance and  administration.  Additionally,  as of December 31, 1996, 11 persons
provided  services  to the  Company  as  contractors  and  temporary  employees.
Approximately  112  employees  were  in  international  locations.  None  of the
Company's  employees are  currently  represented  by a labor union.  The Company
considers its relations with its employees to be good.  The Company  attempts to
maintain  competitive  compensation  benefits,  equity  participation  and  work
environment  policies to assist in attracting and retaining qualified personnel.
Competition  for employees in the Company's  industry and  geographical  area is
intense and there can be no  assurance  that the Company will be  successful  in
attracting and retaining such personnel.

Item 2.  Properties

The  Company's  principal  executive  offices,  research  and  development,  and
manufacturing  facilities  are located in  Milpitas,  California  and consist of
approximately  49,000  square feet under lease that will expire in October 2000.
Additionally,  the  Company  has  research  and  development  and  manufacturing
facilities  in Taiwan of  approximately  29,000  square  feet.  The  Company has
domestic  sales  offices in  Georgia,  Illinois,  Maryland,  Massachusetts,  New
Jersey, New York, and Texas, and international sales offices in the Netherlands,
Japan, Singapore, and Taiwan. The Company believes that its existing and planned
facilities  and  equipment  are  generally  adequate to meet its  immediate  and
foreseeable needs.

Item 3.  Legal Proceedings

There are no material pending legal proceedings.

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the year ended December 31, 1996.

                                       11

<PAGE>


                                     PART II

Item 5.  Market for the Registrant's Common Stock and Related Stockholder
Matters

The  Company's  Common  Stock is  traded in the  over-the-counter  market on the
Nasdaq National Market.  As of February 24, 1997, there were  approximately  198
stockholders of record.  The following table sets forth,  for the fiscal periods
indicated, the high and low closing prices for the Common Stock, all as reported
by Nasdaq.

       1994                                                High            Low
       ----                                                ----            ---
       Second Quarter (from June 28, 1994)              $   6.50       $    6.00
       Third Quarter                                       14.75            6.00
       Fourth Quarter                                      27.00           14.25

       1995
       ----
       First Quarter                                    $  30.50        $  19.75
       Second Quarter                                      23.13           16.75
       Third Quarter                                       21.75           13.75
       Fourth Quarter                                      16.00            8.88

       1996
       ----
       First Quarter                                    $  14.75         $ 10.25
       Second Quarter                                      18.63           13.00
       Third Quarter                                       16.63           12.25
       Fourth Quarter                                      17.75           14.63


The  Company has never paid or declared  any cash  dividends.  It is the present
policy of the Company to retain  earnings to finance the growth and  development
of the business  and,  therefore,  the Company does not  anticipate  paying cash
dividends on its Common Stock in the foreseeable future.

                                       12

<PAGE>

Item 6.  Selected Financial Data
<TABLE>

                                                                                 Years Ended December 31,
<CAPTION>
                                                         1996             1995             1994             1993             1992
                                                       --------         --------         --------         --------         --------
Statement of Operations Data:                                             (in thousands, except per share amounts)
<S>                                                      <C>              <C>              <C>               <C>              <C>  
Net sales                                              $ 53,080         $ 47,144         $ 33,463         $ 10,687         $  7,214
Cost of sales                                            28,590           24,690           17,507            5,633            3,989
                                                       --------         --------         --------         --------         --------
Gross profit                                             24,490           22,454           15,956            5,054            3,225
                                                       --------         --------         --------         --------         --------
Operating expenses:
     Research and development                             8,570            4,811            3,473            1,962            1,549
     Marketing and selling                               11,849            7,319            4,361            1,865            1,696
     General and administrative                           3,378            2,226            1,618              870              811
     Acquired research and
      development in process and
      product integration costs                          13,732             --               --               --               --
                                                       --------         --------         --------         --------         --------
Total operating expenses                                 37,529           14,356            9,452            4,697            4,056
                                                       --------         --------         --------         --------         --------
Income (loss) from operations                           (13,039)           8,098            6,504              357             (831)
Interest income, net                                      1,745            2,236              577               20               36
                                                       --------         --------         --------         --------         --------
Income (loss) before income taxes                       (11,294)          10,334            7,081              377             (795)
Provision for income taxes                                 (608)          (3,617)          (1,416)             (19)              --
                                                       --------         --------         --------         --------         --------
Net income (loss)                                      $(11,902)        $  6,717         $  5,665         $    358         $   (795)
                                                       ========         ========         ========         ========         ========
Net income (loss) per share (1)                         $ (1.01)        $   0.57          $  0.62          $  0.05
                                                       ========         ========         ========         ========
Weighted average common and
   common equivalent shares (1)                          11,760           11,736            9,199            7,224
                                                       ========         ========         ========         ========


                                                                                       December 31,
<CAPTION>
                                                            1996             1995           1994             1993             1992
                                                            ----             ----           ----             ----             ----
Balance Sheet Data:                                                                     (in thousands)
<S>                                                        <C>             <C>             <C>             <C>              <C>    
Working capital                                            $54,997         $63,269         $55,720         $ 5,280          $ 3,272
Total assets                                                71,434          70,111          65,209           8,728            5,338
Long-term obligations, net of
   current portion                                            --              --              --               172              247
Stockholders' equity (deficit)                              59,857          65,709          57,758          (3,181)          (3,559)








<FN>

(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares
used to compute per share amounts. Net loss per share for the year ended December 31, 1992 is not considered  meaningful and has not
been presented herein.
</FN>
</TABLE>

                                                                 13

<PAGE>

Item 7.  Management's  Discussion  and  Analysis  of  Financial  Condition   and
         Results of Operations


Results of Operations

Acquisition

Effective March 21, 1996, the Company purchased all of the outstanding shares of
NuCom Systems,  Inc., (the "Acquisition").  (See Note 8 of Notes to Consolidated
Financial  Statements).  The Acquisition  had a significant  effect on financial
results in 1996.

As a result of the  Acquisition,  the  Company's  operating  expenses  increased
immediately  whereas the increase in sales from products  under  development  at
NuCom  occurred  gradually,  primarily  during  the last six months of the year.
Additionally,  the  Company's  gross  profit  was  reduced  as a  result  of the
amortization of intangible assets directly related to the Acquisition.

Net Sales

Net  sales  were  $53.1,  $47.1  and  $33.5  million  in 1996,  1995  and  1994,
respectively. The increase in sales in 1996 was primarily attributable to growth
of sales for Fast Ethernet switching products,  partially offset by a decline in
sales of products based on FDDI  technology.  Higher  shipments of FDDI adapters
and FDDI LAN switching  products caused the growth from 1994 to 1995. Demand for
the Company's  adapter  products  increased to 57% of sales in 1996 from 53% and
51% in the previous two years.

In 1996,  sales to  distribution  channels  grew to $22.6  million,  from  $19.2
million and $12.6 million in 1995 and 1994, respectively. Sales to OEM customers
grew to $30.5 million in 1996, from $27.9 and $20.9 million in the preceding two
years, respectively.

Gross Profit/Margin

The gross margin in 1996 was 46.1%,  compared to gross  margins in 1995 and 1994
of 47.6%  and  47.7%,  respectively.  The  gross  margin  in 1996  included  the
amortization  of intangible  assets  related to the  Acquisition.  Excluding the
amortization charges, the gross margin was 47.9%,  consistent with the prior two
years.  Continued changes in the product mix and sales channel mix, variables in
the  development,  introduction  and marketing of new products,  fluctuations in
cost of materials and components,  as well as competitive factors, may adversely
impact the gross margin in future periods.

Research and Development

Research and  development  expenses  represented  16.2%,  10.2% and 10.4% of net
sales in  1996,  1995 and  1994,  respectively.  In  dollars,  the  expenditures
increased  to $8.6  million in 1996 from $4.8 and $3.5 million in 1995 and 1994,
respectively.  The expenses are net of contract  funding from other companies of
$556,000,  $906,000  and  $371,000,  for the  years  of  1996,  1995  and  1994,
respectively.  The increase in 1996 reflected the addition of staff,  facilities
and equipment resulting from the Acquisition. The sequential increases from 1994
to 1996 included costs for the development of new products and technologies, and
enhancements to an expanding product line.

Marketing and Selling

Marketing and selling expenses  represented  22.3%, 15.5% and 13.0% of net sales
in 1996, 1995 and 1994, respectively.  In dollars, the expenditures increased to
$11.8 million in 1996 from $7.3 and $4.4 million in 1995 and 1994, respectively.
The increase in expenditures in 1996 reflected the addition of staff, facilities
and equipment resulting from the Acquisition. The sequential increases from 1994
to 1996 included costs

                                       14

<PAGE>

associated with pursuing the Company's  marketing  strategy to penetrate  global
markets, including Asia and Europe, and to establish brand-name recognition. The
cost of  implementing  this  strategy  includes the  addition of  personnel  and
related overhead costs, and the cost of advertising and promotional campaigns.

General and Administrative

General and administrative expenses represented 6.4%, 4.7% and 4.8% of net sales
in 1996, 1995 and 1994, respectively.  In dollars, the expenditures increased to
$3.4 million in 1996 from $2.2 million and $1.6 in 1995 and 1994,  respectively.
The increase in expenditures in 1996 reflected the addition of staff, facilities
and equipment resulting from the Acquisition. The increases in dollars from 1994
to 1996 included the costs of additional personnel,  increased professional fees
and other overhead costs to support the increased activities of the Company.

Acquired Research and Development In-Process and Product Integration Costs

The Company incurred a one-time charge of $13.7 million for in-process  research
and development and product integration costs related to the Acquisition.

Interest Income

Interest income was $1.7 million in 1996,  compared to $2.2 million and $577,000
in 1995 and 1994,  respectively.  The decline in interest income in 1996 was the
result of a reduced  level of invested  funds  following  the  Acquisition.  The
increase in interest  income from 1994 to 1995 was  attributed  to the increased
level  of  invested  funds  resulting  from  proceeds  of the  Company's  public
offerings of Common Stock in 1994.

Income Taxes

The  Company's  effective tax rates for both 1996 and 1995 were 35% and for 1994
was 20%. The  effective tax rate in 1996  excluded the  non-recurring  charge of
in-process research and development, a non-deductible item for tax purposes. The
effective tax rate applied  throughout  1995 and 1996 was less than the combined
federal and state  statutory  rate due  principally to the effects of tax exempt
interest  income and tax credits  available to the Company.  The rate applied in
1994 was effected by  operating  loss  carryforwards  from prior years that were
used to offset taxable income.

Liquidity and Capital Resources

Cash  provided by operating  activities  for the three years ended  December 31,
1996  totaled  $10.2  million,  and was  primarily  attributable  to net income,
excluding  the  non-recurring  charge of  in-process  research  and  development
resulting from the Acquisition, and increases in current liabilities,  offset in
part by increases  in accounts  receivable  and  inventories.  The  increases in
current liabilities,  accounts receivable and inventories correspond principally
to increases in the volume of sales activities.

Net cash used in  investing  activities  for the three years ended  December 31,
1996 totaled $38.1  million,  of which $10.4 million was for the  acquisition of
NuCom and the remainder for the purchase of short-term  securities  and property
and  equipment,  partially  offset  by  proceeds  from  the  sale of  short-term
investments.

Cash provided by financing activities of $47.3 million for the three years ended
December 31, 1996 was  principally the result of the sale of Common Stock in the
Company's public offerings in 1994.

At December 31, 1996,  the  Company's  principal  sources of liquidity  were its
cash, cash  equivalents and short-term  investments of $45.9 million and its $10
million bank line of credit.  As of December 31, 1996,  there were no borrowings
outstanding  under the line of credit.  The Company  believes  that its existing
cash

                                       15

<PAGE>

balances,  the bank line of credit and funds  provided by  operating  activities
will be sufficient to meet the Company's capital and operating  requirements for
the foreseeable future.


Business Outlook

The  following  forward-looking  statements  are made in reliance  upon the safe
harbor provisions of the Private  Securities  Litigation Reform Act of 1995. The
future events  described in such  statements  involve  risks and  uncertainties,
including:
   o  the timely  development and market acceptance of new products; 
   o  the  market  demand by  customers  for the  Company's  existing  products,
      including demand by OEM customers for custom products;
   o  competitive actions, including pricing actions and the introduction of new
      competitive products, that may affect the volume of sales of the Company's
      products;
   o  uninterrupted supply of key components,  including  semiconductor  devices
      and other materials, some of which may be sourced from a single supplier;
   o  the  ability of the Company to  recruit,  train and retain key  personnel,
      including engineers and other technical professionals;
   o  the development of new technologies  rendering  existing  technologies and
      products obsolete; and
   o  general market conditions.

In evaluating these  forward-looking  statements,  consideration  should also be
given to the Business Risks discussed in a subsequent section of this Form 10-K.

The Company  believes  that any  revenue  growth in 1997 is likely to be derived
from sales of its Fast  Ethernet  switching  products,  which began  shipping in
1996. Higher  performance  versions of the Fast Ethernet  switching products are
planned for release throughout 1997.  Shipments to the distribution  channel, in
North  America,  Asia, and Europe are expected to increase from 1996 levels as a
result of the continuing  marketing and sales efforts.  Among other factors, the
expected  growth in  revenue  is  dependent  upon the  market's  demand for Fast
Ethernet  switching  products,  the  timely  release  of new  products,  and the
effectiveness of its marketing strategy.

The Company  expects gross  margins to increase  slightly in 1997 as a result of
lower levels of  amortization of intangible  assets related to the  Acquisition,
lower cost of raw materials and components,  and an increase in the relative mix
of products  expected to be sold through the  distribution  channels,  offset in
part by  general  price  erosion  of  existing  products.  Products  sold to the
distribution  channel typically have higher prices and thus higher gross margins
than similar products sold to OEM customers.

The Company  expects its operating  expenses to increase in absolute  dollars in
1997,  but may decline as a  percentage  of net sales,  depending  on the actual
sales  achieved  during the year. The dollar  increase  expected in research and
development  expense  will be the result of  increased  resources to support new
product  development  and to  acquire  or develop  new  technologies  in the LAN
switching field.  The dollar increase  expected in marketing and selling expense
will reflect the addition of personnel and other  expenditures  for  advertising
and promotional campaigns, and for the continued development of the distribution
channel,  including  an  increase  in the  number of sales  offices  in Asia and
Europe. The dollar increase expected in general and administrative  expense will
be due to the  addition  of  personnel  and  information  systems to support the
increased activities of the Company.

Business Risks

In  addition  to the  factors  addressed  in  the  preceding  sections,  certain
characteristics  and  dynamics  of  the  Company's  markets,   technologies  and
operations  create risks to the Company's  long-term  success and to predictable
quarterly results. These risks will also affect the Company's ability to achieve
the results  anticipated  by the  forward-looking  statements  contained in this
report.  The  Company's  quarterly  results  have in the  past  varied,  and are
expected in the future to vary significantly as a result of factors such as the

                                       16

<PAGE>

timing  and  shipment  of  significant  orders,  new  product  introductions  or
technological advances by the Company and its competitors,  market acceptance of
new or enhanced versions of the Company's products,  changes in pricing policies
by the Company and its  competitors,  the mix of distribution  channels  through
which the Company's products are sold, the mix of products sold, the accuracy of
resellers'  forecast  of end-user  demand,  the ability of the Company to obtain
sufficient  supplies  of sole or limited  source  components  for the  Company's
products and general economic conditions.  In response to competitive  pressures
or new product introductions,  the Company may take certain pricing or marketing
actions that could  materially  and  adversely  affect the  Company's  operating
results. In the event of a reduction in the prices of its products,  the Company
has committed to providing  retroactive price adjustments on inventories held by
its distributors,  which could have the effect of reducing margins and operating
results.  In  addition,  changes  in the  mix of  products  sold  and the mix of
distribution  channels  through which the Company's  products are sold may cause
fluctuations  in the Company's gross margins.  The Company's  expense levels are
based, in part, on its expectations of its future revenue and, as a result,  net
income  would be  disproportionately  affected  by a reduction  in revenue.  The
absence of significant Company experience with new products limits the Company's
ability to plan for production, market demand and sales and may adversely affect
operating results if the Company misallocates resources to a new product. Due to
the potential quarterly  fluctuation in operating results,  the Company believes
that  quarter-to-quarter  comparisons  of its  results  of  operations  are  not
necessarily  meaningful  and should not be relied upon as  indicators  of future
performance.

The markets for the Company's  products are  characterized  by rapidly  changing
technology,  evolving industry standards, frequent new product introductions and
short product life cycles.  These changes can adversely  affect the business and
operating  results of industry  participants.  The Company's success will depend
upon its ability to enhance its existing  products and to develop and introduce,
on a  timely  and  cost-effective  basis,  new  products  that  keep  pace  with
technological   developments  and  emerging   industry   standards  and  address
increasingly  sophisticated customer requirements.  The inability to develop and
manufacture  new products in a timely  manner,  the  existence  of  reliability,
quality or availability  problems in the products or their component  parts, the
failure to obtain reliable  subcontractors  for volume production and testing of
mature  products,  or the  failure to  achieve  market  acceptance  would have a
material adverse effect on the Company's business and operating results.

The  markets in which the Company  competes  are also  characterized  by intense
competition.  Several of the Company's  competitors have  significantly  broader
product  offerings  and  greater  financial,   technical,  marketing  and  other
resources,  and larger  installed  bases of customers  than the  Company.  These
larger competitors may also be able to obtain higher priority for their products
from  distributors and other resellers that carry products of many companies.  A
number of the Company's  competitors were recently acquired,  which is likely to
permit  these  competitors  to devote  significantly  greater  resources  to the
development and marketing of competitive  products.  These competitive pressures
could adversely affect the Company's business and operating results.

The  Company's  sales are made  through  OEMs,  VARs,  distributors  and  system
integrators.  The  Company  selects  its OEMs,  VARs,  distributors  and  system
integrators  based on a  subjective  evaluation  of a  combination  of  factors,
including potential sales volume, viability and anticipated financial stability,
expertise in the networking industry,  potential distribution channel conflicts,
and geographic scope.  There can be no assurance that the resellers  selected by
the Company will in the future  perform  favorably  with respect to such factors
and, to the extent that they do not, the adverse  effect on the Company could be
material.  The  Company's  VAR,  distributor  and  system  integrator  customers
generally  offer products of several  different  companies,  including  products
which are competitive with the Company's products.  Accordingly, there is a risk
that these  resellers may give higher  priority to products of other  suppliers,
thus reducing their efforts to sell the Company's products.

                                       17

<PAGE>



Item 8.  Financial Statements and Supplementary Data

Index to Consolidated Financial Statements.
<TABLE>
Financial Statements:                                                                          Page

<S>      <C>                                                                                     <C>
         Report of Independent Accountants..................................................     19
         Consolidated Balance Sheets at December 31, 1996 and 1995..........................     20
         Consolidated Statements of Operations for the Years Ended December 31,
            1996, 1995 and 1994.............................................................     21
         Consolidated Statements of Stockholders' Equity  for the Years
            Ended December 31, 1996, 1995 and 1994..........................................     22
         Consolidated Statements of Cash Flows for the Years Ended December 31,
            1996, 1995 and 1994.............................................................     23
         Notes to Consolidated Financial Statements.........................................     24


Financial Statement Schedule:

         For the three years ended  December 31, 1996,  1995 and 1994 Schedule II
            - Valuation and Qualifying Accounts.............................................     37

</TABLE>

Schedules  other than those listed above have been omitted since they are either
not required or the information is included in the financial statements included
herewith.

                                       18

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Stockholders of Network Peripherals Inc.

In our  opinion,  the  financial  statements  listed in the  accompanying  index
present fairly, in all material respects, the consolidated financial position of
Network  Peripherals Inc. and its subsidiaries at December 31, 1996 and 1995 and
the results of their operations and their cash flows for each of the three years
in the period ended  December 31, 1996, in conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.


PRICE WATERHOUSE LLP
San Jose, California
January 21, 1997

                                       19

<PAGE>



                            NETWORK PERIPHERALS INC.
                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

                                                                  December 31,
                                                                1996      1995
                                                               -------   -------
ASSETS
Current assets:
     Cash and cash equivalents                                 $23,523   $27,210
     Short-term investments                                     22,350    24,931
     Accounts receivable, net of allowance for doubtful
          accounts and returns; 1996, $1,154, and 1995, $738     8,359     5,364
     Inventories                                                 8,228     6,420
     Deferred income taxes                                       2,271     2,189
     Prepaid expenses and other current assets                   1,843     1,557
                                                               -----------------
              Total current assets                              66,574    67,671
Property and equipment, net                                      3,575     2,280
Deferred income taxes and other assets                             443       160
Goodwill                                                           842      --
                                                               -----------------
                                                               $71,434   $70,111
                                                               =================

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
     Accounts payable                                          $ 2,736   $   956
     Accrued liabilities                                         8,841     3,446
                                                               -----------------
         Total current liabilities                              11,577     4,402
                                                               -----------------

Stockholders' equity:
     Preferred Stock, $0.001 par value, 2,000,000 shares
       authorized; no shares issued or outstanding                --         --
     Common Stock, $0.001 par value, 20,000,000 shares authorized;
       1996, 11,954,000, and 1995, 11,268,000
       shares issued and outstanding                               12        11
     Additional paid-in capital                                62,614    56,579
     Notes receivable from stockholders                          --         (14)
     Retained earnings (accumulated deficit)                   (2,769)    9,133
                                                               -----------------
         Total stockholders' equity                            59,857    65,709
                                                               -----------------
                                                             $ 71,434  $ 70,111
                                                               =================




The accompanying notes are an integral part of these financial statements.

                                       20

<PAGE>
<TABLE>

                                                      NETWORK PERIPHERALS INC.
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                (in thousands, except per share data)
<CAPTION>


                                                                                                Years Ended December 31,
                                                                                       1996               1995                1994
                                                                                     --------           --------           --------
<S>                                                                                  <C>                <C>                <C>     
Net sales                                                                            $ 53,080           $ 47,144           $ 33,463
Cost of sales                                                                          28,590             24,690             17,507
                                                                                     ----------------------------------------------
     Gross profit                                                                      24,490             22,454             15,956
                                                                                     ----------------------------------------------
Operating expenses:
     Research and development                                                           8,570              4,811              3,473
     Marketing and selling                                                             11,849              7,319              4,361
     General and administrative                                                         3,378              2,226              1,618
     Acquired research and  development in process
        and product integration costs                                                  13,732               --                 --
                                                                                     ----------------------------------------------
         Total operating expenses                                                      37,529             14,356              9,452
                                                                                     ----------------------------------------------
Income (loss)  from operations                                                        (13,039)             8,098              6,504
Interest income                                                                         1,745              2,236                577
                                                                                     ----------------------------------------------
Income (loss)  before income taxes                                                    (11,294)            10,334              7,081
Provision for income taxes                                                               (608)            (3,617)            (1,416)
                                                                                     ----------------------------------------------
Net income (loss)                                                                    $(11,902)          $  6,717           $  5,665
                                                                                     ==============================================

Net income (loss) per share                                                          $  (1.01)          $   0.57           $   0.62

Weighted average common and common
   equivalent shares                                                                   11,760             11,736              9,199



                         The accompanying notes are an integral part of these financial statements.

</TABLE>
                                       21

<PAGE>
<TABLE>

                                                      NETWORK PERIPHERALS INC.
                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                           (in thousands)
<CAPTION>

                                     Common Stock
                                ------------------------
                                                            Additional                    Retained
                                                             Paid-In         Notes        Earnings
                                     Shares       Amount      Capital      Receivable    (Accumulated     Total
                                                                                          Deficit)
                                ---------------------------------------------------------------------------------
<S>                                   <C>        <C>         <C>           <C>          <C>           <C>       
Balance at December 31, 1993          2,893      $    3      $    82       $   (17)     $  (3,249)    $  (3,181)
Issuance of Common Stock to
     employees for notes                
     receivable                         398           -           63           (63)             -            -
Repayment of stockholders'
     notes receivable                     -           -            -            25              -            25
Issuance of Common Stock upon
     exercise of stock
     options and warrants               130           -          110             -              -           110
Issuance of Common Stock
     under employee stock                
     purchase plan                       16           -           84             -              -            84
Issuance of Common Stock upon
     conversion of
     Mandatorily Redeemable
     Convertible Preferred            
     Stock                            3,719           4        9,073             -              -         9,077
Sale of Common Stock to the
     public, net of issuance          
     costs of $1,001                  3,910           4       45,782             -              -         45,786
Income tax benefit associated
     with nonqualified stock              
     options                              -           -          192             -              -           192

Net income                                -           -             -            -           5,665        5,665
                                ---------------------------------------------------------------------------------

Balance as of December 31, 1994      11,066          11       55,386           (55)         2,416       57,758
Repurchase of Common Stock              (15)          -           -              -              -             -
Repayment of stockholders'
     notes receivable                     -           -            -            41              -            41
Issuance of Common Stock upon
     exercise of stock options          161           -          243             -              -           243
Issuance of Common Stock
     under employee stock                
     purchase plan                       56           -          354             -              -           354
Income tax benefit associated            
     with nonqualified stock
     options                              -           -          596             -              -           596

Net income                                -           -            -             -           6,717         6,717
                                ----------- ------------ ------------- -------------- ------------- -------------

Balance at December 31, 1995         11,268          11       56,579           (14)         9,133        65,709
Repayment of stockholders'
     notes receivable                     -           -            -            14              -            14
Issuance of Common Stock upon
     exercise of stock options          200           -          228             -              -           228
Issuance of Common Stock
     under employee stock                
     purchase plan                       45           -          385             -              -           385
Income tax benefit associated
     with nonqualified stock              
     options                              -           -           28             -              -            28
Issuance of Common Stock for
     acquisition of NuCom               
     Systems                            441           1        5,341             -              -         5,342
Foreign currency translation
     adjustment                           -           -           53             -              -            53

Net loss                                  -           -            -             -        (11,902)      (11,902)

Balance at December 31,1996          11,954      $   12      $   62,614       $  -     $   (2,769)      $ 59,857
                                 =================================================================================
<FN>
                    The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                                                 22

<PAGE>
<TABLE>

                                                      NETWORK PERIPHERALS INC.
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          Increase (Decrease) in Cash and Cash Equivalents
                                                           (in thousands)
<CAPTION>

                                                                                                    Years Ended December 31,
                                                                                               1996          1995           1994
                                                                                             --------       --------       --------
<S>                                                                                          <C>            <C>            <C>  
Cash flows from operating activities:
    Net income (loss)                                                                        $(11,902)      $  6,717       $  5,665
    Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
       Depreciation and amortization                                                            2,111          1,309            732
       Amoritzation of goodwill, net                                                              665
       Acquired research and development in-process                                            13,032
       Deferred income taxes                                                                      (56)        (1,221)        (1,012)
       Changes in assets and liabilities (net effect of
       NuCom acquisition):
         Accounts receivable                                                                   (1,845)        (1,061)        (2,673)
         Inventories                                                                             (664)           808         (5,242)
         Prepaid expenses and other assets                                                        862         (1,185)          (249)
         Accounts payable                                                                       1,439         (3,315)         2,865
         Accrued liabilities                                                                    1,623            862          1,932
                                                                                             --------       --------       --------
             Net cash provided by operating activities                                          5,265          2,914          2,018
                                                                                             --------       --------       --------

Cash provided by (used in) investing activities:
    Cash paid for Acquisition, net of cash acquired                                           (10,401)          --             --
    Holdback amount from Acquisition                                                            1,115           --             --
    Proceeds from the sale or maturity                   
        of short-term investments                                                               2,581          4,351           --
    Purchases of short-term investments                                                          --             --          (29,282)
    Purchases of property and equipment                                                        (2,927)        (1,761)        (1,772)
                                                                                             --------       --------       --------
             Net cash provided by (used in) investing
                  activities                                                                   (9,632)         2,590        (31,054)
                                                                                             --------       --------       --------

Cash flows from financing activities:
    Proceeds from issuance of Common Stock                                                        613            597         47,236
    Payments of Common Stock issuance costs                                                      --             --           (1,001)
    Repayment (issuance) of stockholders' notes                                                    
       receivable                                                                                  14             41            (38)
    Repayment of capital lease obligation                                                        --             --             (178)
                                                                                             --------       --------       --------
             Net cash provided by financing activities                                            627            638         46,019
                                                                                             --------       --------       --------
Foreign currency translation                                                                       53           --             --
                                                                                             --------       --------       --------
Net increase (decrease)  in cash and cash equivalents                                          (3,687)         6,142         16,983
                                                                                             --------       --------       --------
Cash and cash equivalents at beginning of period                                               27,210         21,068          4,085
                                                                                             --------       --------       --------
Cash and cash equivalents at end of period                                                   $ 23,523       $ 27,210       $ 21,068
                                                                                             ========       ========       ========

Supplemental disclosure of cash flow information:
    Income taxes paid                                                                        $    245       $  4,852       $  1,800
    Cash paid for interest                                                                   $      7       $     31       $     47
Noncash transactions:                                
    Income tax benefit associated with nonqualified   
        stock options                                                                        $     28       $    596       $    192
    Common stock used for acquisition of NuCom                                               $  5,342       $   --         $   --
<FN>                                                 
                                  The accompanying notes are an integral part of these financial statements 
</FN>
</TABLE>

                                                                 23

<PAGE>

                            NETWORK PERIPHERALS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY

Network Peripherals Inc. (the Company),  a Delaware  corporation,  is engaged in
developing and manufacturing high performance client/server workgroup networking
solutions,  which it markets  primarily  to  original  equipment  manufacturers,
value-added  resellers,  distributors  and  system  integrators.  The  Company's
solutions are designed to be used in departmental and workgroup networks.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

The preparation of financial  statements in accordance  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities  and  disclosures  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Foreign Currency Translation

The  functional  currency  of the  Company's  subsidiary  in Taiwan is the local
currency.  Assets and  liabilities of this  subsidiary are translated  into U.S.
dollars  at  exchange  rates in effect at the  balance  sheet  date.  Income and
expense  items  are  translated  at  average  exchange  rates  for  the  period.
Accumulated net translation  adjustments are recorded in  stockholders'  equity.
Foreign exchange  transaction  gains and losses were not material in all periods
presented, and are included in the results of operations.

Cash, Cash Equivalents and Short-Term Investments

Management  determines  the  appropriate   classification  of  debt  and  equity
securities at the time of purchase and  reassesses  the  classification  at each
reporting date.

The Company considers all highly liquid  investments with maturity of 90 days or
less  to be  cash  equivalents.  All of the  Company's  short-term  investments,
consisting  primarily of fixed  maturity  securities,  have been  classified  as
available for sale. For the years ended  December 31, 1996 and 1995,  there were
no  material  unrealized  gains or losses.  At  December  31,  1996 the  average
maturity  of  the  short-term   investments  was  approximately   seven  months.
Substantially all short-term investments are held in the Company's name by major
financial institutions.

Revenue Recognition

Revenue from product  sales is  recognized  upon  product  shipment  provided no
significant  obligations  remain,  and  collectability is probable.  The Company
provides to certain  distributors  limited rights of return and price protection
on unsold  inventory when specific  conditions  exist.  Provisions for estimated
costs of  warranty  repairs,  returns  and  allowances,  and  retroactive  price
adjustments are recorded at the time products are shipped. Funding under certain
development  contracts is  recognized  based upon the  percentage  of completion
method,  and in some  instances,  based upon  achievement of specified  contract
milestones.  Such funding is recognized as an offset to the related  development
costs and totaled approximately  $556,000,  $906,000, and $371,000 in 1996, 1995
and 1994, respectively.

                                       24

<PAGE>

                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Sales Reserves

The Company provides allowances for accounts  receivables deemed  uncollectible,
and for sales returns and other credits, including credits for retroactive price
adjustments and for sales transacted within 90 days prior to the period-end.  As
of December  31, 1996 and 1995,  the  Company's  allowances  for such  potential
events totaled $1,154,000 and $738,000,  respectively.  As a percentage of sales
transacted  within 90 days prior to December 31, 1996 and 1995,  the  allowances
for sales returns and other credits were 7.2% and 5.2%, respectively.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit  risk  consist   principally  of  cash,  cash   equivalents,   short-term
investments and trade receivables.  The Company's cash investment policies limit
investments to those that are short-term and low risk.  Concentration  of credit
risk with respect to trade  receivables  is  generally  limited due to the large
number of customers  comprising the Company's  customer base,  their  dispersion
across many different geographies,  and the Company's on-going evaluation of its
customers' credit worthiness.

Inventories

Inventories  are  stated at the lower of cost,  using  the  first-in,  first-out
method, or market.

Property and Equipment

Property and equipment are stated at cost.  Depreciation  is computed  using the
straight-line  method over the  estimated  useful  life of the asset,  typically
three years.

Software Development Costs

The Company's  software  products are integrated into its hardware  products and
are typically  available for general  release to customers  within 30 days after
technological feasibility has been achieved.  Accordingly,  the production costs
incurred after the establishment of technological feasibility and before general
release to customers are  immaterial,  thus the Company does not  capitalize any
software development costs.

Income Taxes

The  Company  accounts  for  income  taxes  under the  liability  method,  which
recognizes deferred tax assets and liabilities for the expected tax consequences
of temporary  differences  between the tax basis of assets and  liabilities  and
their financial statement reported amounts.

Goodwill

Goodwill  represents  the excess of the  purchase  price of NuCom  Systems  Inc.
("NuCom",  see Note 8) over  the  fair  value  of the  identifiable  net  assets
acquired,  and is amortized on a straight-line basis over the expected period of
benefit,  which ranges from nine months to five years.  Amortization of goodwill
for the year  ended  December  31,  1996  was  included  in cost of goods  sold.
Periodically,  the Company evaluates the goodwill for impairment,  and estimates
the future  undiscounted  cash flows of the acquired business to ensure that the
carrying value has not been impaired.

                                       25
<PAGE>

                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Employee Benefit Plans

The  Company  has a stock  option  plan  and an  employee  stock  purchase  plan
(described in Note 6),  vacation  benefits which are accrued as they are earned,
and a 401(k) plan that does not require  employer  matching  contributions.  The
Company does not have postretirement or postemployment benefit plans; therefore,
Statements  of  Financial  Accounting  Standards  No. 87, 106 and 112  regarding
pension, other postretirement and postemployment benefit plans do not affect the
financial statements of the Company.

Net Income Per Share

Net income per share is computed using the weighted average number of common and
common  equivalent  shares  outstanding  during the  periods  presented.  Common
equivalent shares consist of Mandatorily  Redeemable Convertible Preferred Stock
(using the if converted  method) and stock  options  (using the  treasury  stock
method).  Pursuant to the Securities and Exchange  Commission  Staff  Accounting
Bulletin,  common and common equivalent shares issued from April 1, 1993 through
the closing of the Company's  initial public  offering on July 3, 1994 have been
included in the 1994 computation using the treasury stock method as if they were
outstanding for all periods prior to the initial public  offering.  Furthermore,
in accordance with SEC staff policy,  common  equivalent shares from Mandatorily
Redeemable Convertible Preferred Stock that converted into Common Stock upon the
closing of the initial  public  offering  are  included  using the if  converted
method.

NOTE 3 -- BALANCE SHEET COMPONENTS (in thousands)

                                                              December 31,
Cash,  cash  equivalent,  and short-term                   1996           1995
investments:                                             -------         -------
     Cash and money market accounts                      $ 5,411         $   567
     Municipal obligations                                18,112          26,643
                                                         -------         -------
       Cash and cash equivalents                          23,523          27,210
                                                         -------         -------

     Certificates of deposit                                --                 7
     Municipal obligations                                21,238          23,919
     Government securities                                 1,112            --
     Preferred stock                                        --             1,005
                                                         -------         -------
        Short-term investments                            22,350          24,931
                                                         -------         -------
                                                         $45,873         $52,141
                                                         =======         =======

                                       26

<PAGE>

                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Inventories:
     Raw materials                                       $ 4,685        $ 3,629
     Work-in-process                                       2,600          1,894
     Finished goods                                          943            897
                                                         -------        -------
                                                         $ 8,228        $ 6,420
                                                         =======        =======
Property and equipment:
     Computer and equipment                              $ 7,271        $ 4,085
     Furniture and fixtures                                  817            607
     Leasehold improvements                                  356            346
                                                         -------        -------
                                                           8,444          5,038
     Less:  accumulated depreciation                      (4,869)        (2,758)
                                                         -------        -------
                                                         $ 3,575        $ 2,280
                                                         =======        =======
Accrued liabilities:
     Salaries and benefits                               $ 2,699        $   915
     Royalty                                               1,154          1,484
     Warranty                                                717            681
     Taxes payable                                         1,268           --
     Holdback amount from Acquisition                      1,115           --
     Payments received in advance                            605           --
     Other                                                 1,283            366
                                                         -------        -------
                                                         $ 8,841        $ 3,446
                                                         =======        =======

NOTE 4 -- LINE OF CREDIT

In  1996,  the  Company  negotiated  a line of  credit  with a bank to  increase
available  borrowings  from $5 million to $10  million.  Interest on  borrowings
under the line are at the lower of the bank's prime rate or the London Interbank
Offered Rate plus 2.5%. The  expiration  date of the agreement is July 31, 1997.
Currently, there are no borrowings under this line of credit.

Borrowings  under  the  line  of  credit  are  collateralized  by the  Company's
receivables,  inventory, and other tangible assets. Under the terms of the line,
the Company is required  to,  among other  things,  maintain  certain  levels of
profitability,  financial ratios of current assets and liabilities,  and debt to
net worth, and maintain  minimum tangible net worth.  Interest on any borrowings
is payable monthly.

NOTE 5 --COMMITMENTS

The Company  leases  approximately  49,000  square feet in Milpitas,  California
under  non-cancelable  operating  leases that expire in October 2000. As part of
the NuCom  acquisition (see Note 8), the Company also assumed certain  operating
leases for buildings,  approximately  29,000 square feet, under lease which will
expire in 1998. These buildings, including a manufacturing facility, are located
in Taiwan. Rent expense for all Company facilities was $868,000,  $529,000,  and
$282,000 in 1996, 1995, and 1994, respectively.

                                       27

<PAGE>

                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Future  minimum  lease  payments  as of  December  31,  1996 are as follows  (in
thousands):

                                      Years ending December 31,
                                 1997                         $   873
                                 1998                             731
                                 1999                             717
                                 2000                             618
                                                              --------
                                                               $2,939
                                                              ========

The Company has entered  into  licensing  agreements  with third  parties to use
certain  technologies in the Company's products.  Under the terms of the license
agreements,  the Company  pays a royalty  based upon a  percentage  of the sales
price or units shipped.  Royalty expenses  incurred are charged to cost of sales
in the period of the related sales and are payable in quarterly installments.

NOTE 6 -- CAPITAL STOCK

Stock Plans

The Company's  1993 Stock Option Plan (the Plan),  as amended,  provides for the
issuance of Common  Stock or the granting of  incentive  or  nonqualified  stock
options to qualified employees, directors and consultants up to 3,500,000 shares
of Common Stock. The price of stock issued and options granted under the Plan is
determined by the  Company's  Board of  Directors.  Incentive  stock options are
granted at not less than the fair market  value of the Common  Stock at the date
of grant and  nonqualified  options are granted at not less than 50% of the fair
market  value of the Common Stock on the date of grant.  Options  under the Plan
vest over a period determined by the Board of Directors, which is generally four
years. Options may be exercised in exchange for cash or, in certain cases at the
discretion  of the Board of  Directors,  for  promissory  notes  payable  to the
Company.  At December  31,  1996,  4,218  shares of Common Stock had been issued
subject to repurchase by the Company;  options to purchase  2,089,256  shares of
Common Stock were  outstanding,  of which  552,602  shares were  exercisable  at
exercise prices of $0.10 to $20.00 per share;  594,816 shares were available for
future grants; and 2,684,072 shares of Common Stock were authorized but unissued
under the Plan.

A total of 250,000  shares has been  reserved for issuance  under the  Company's
Employee  Stock  Purchase  Plan,  which permits  eligible  employees to purchase
Common Stock at a discount through payroll deductions during concurrent 24-month
offering  periods.  Each  offering  period  is  divided  into  four  consecutive
six-month  purchase  periods.  The price at which the Common  Stock is purchased
under the Employee  Stock Purchase Plan is equal to 85% of the fair market value
of the Common Stock on the first day of the  offering  period or the last market
day of the purchase period, whichever is lower. At December 31, 1996, a total of
117,584  shares has been issued at an aggregate  purchase  price of $839,227 and
132,416  shares remain  reserved for future  issuance  under the Employee  Stock
Purchase Plan.

The 1994 Outside Directors Stock Plan, which provides for the automatic granting
of nonqualified  stock options to directors of the Company who are not employees
of the Company  (Outside  Director),  has a total of 150,000 shares reserved for
issuance.  Prior to an amendment to the Plan,  effective  September  1996,  each
current Outside Director was  automatically  granted an option to purchase 2,000
shares of Common Stock on the date of each annual meeting of stockholders.  Each
new  Outside  Director  elected or  appointed  after the  effective  date of the
Outside  Directors Plan was  automatically  granted an option to purchase 10,000
shares of Common  Stock on their  date of  election  or  appointment.  After the
amendment, the Board unanimously approved amending the Outside Directors Plan to
provide for an initial  option grant for the purchase of 15,000 shares of Common
Stock with annual  grants  thereafter  on the date of the annual  meeting in the
amount of 5,000  shares.  The  exercise  price of the  options  will be the fair
market value of the

                                       28

<PAGE>

                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Common  Stock on the date of grant,  and vest over a period  of four  years.  At
December  31,  1996,  options to  purchase  12,000  shares of Common  Stock were
outstanding,  of which 2,499  shares were  exercisable  at an exercise  price of
$20.00 per share;  138,000 shares were available for future grants;  and 150,000
shares of Common Stock were authorized but unissued under the Plan.

In July 1996, the Board of Directors adopted the 1996 Nonstatutory  Stock Option
Plan,  (the "1996  Plan"),  which  provides  for the issuance of Common Stock or
granting of Non-qualified  Stock Options to qualified  employees and consultants
of up to 1,000,000 shares of Common Stock. The price granted under the 1996 Plan
is at the sole discretion of the Board,  provided the price is not less than 50%
of the fair market value of the Common Stock on the date of grant.  Options vest
over a period  determined  by the  Board,  which is  generally  four  years.  At
December  31,  1996,  options to purchase  729,111  shares of Common  Stock were
outstanding, of which no shares were exercisable;  270,889 shares were available
for future  grants;  and 1,000,000  shares of Common Stock were  authorized  but
unissued under the 1996 Plan.

The following table summarizes option activity under the 1993 Stock Option Plan,
the 1994 Outside Directors Plan, and the 1996 Plan:

                                           Options             Price Per Share
                                           -------             ---------------
Balance at December 31, 1993              1,032,100      $    0.10  - $    1.50
Granted                                     338,800           1.50  -     25.25
Exercised                                  (456,647)          0.10  -      0.35
Canceled                                    (24,828)          0.10  -      5.50
                                         -----------
Balance at December 31,1994                 889,425           0.10  -     25.25
Granted                                     533,900          10.25  -     25.00
Exercised                                  (161,382)          0.10  -      7.25
Canceled                                   (141,817)          0.17  -     25.25
                                         -----------
Balance at December 31, 1995              1,120,126           0.10  -     25.25
Granted                                   2,905,155          11.63  -     18.63
Exercised                                  (199,698)          0.10  -     10.25
Canceled                                   (995,216)          0.30  -     25.25
                                         -----------
Balance at December 31, 1996              2,830,367      $    0.10  - $   20.00
                                         ===========

At December 31, 1996, options for the purchase of 555,101 shares of Common Stock
were vested.

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting  Standards  No.  123,  "Accounting  for  Stock-Based   Compensation."
Accordingly,  no  compensation  cost has been  recognized  for the stock  option
plans.  Had  compensation  cost  for  the  Company's  stock  option  plans  been
determined  based on the fair  value at the  grant  date for  awards in 1996 and
1995, consistent with the provisions of SFAS No. 123, the Company's net earnings
and  earnings  per share  would  have  been  reduced  to the pro  forma  amounts
indicated below:

                                                        1996              1995
                                                        ----              ----
                                           (in thousands, except per share data)
Net income (loss) - as reported                       $  (11,902)      $   6,717
Net income (loss) - pro forma                         $  (14,782)      $   5,791
Earnings (loss) per share - as reported               $    (1.01)      $    0.57
Earnings (loss) per share - pro forma                 $    (1.26)      $    0.49

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions used for grants in 1996 and 1995: zero dividend

                                       29

<PAGE>

                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

yield, expected volatility of 69.36%,  risk-free interest rate of 5.48%, and all
options are exercised at vesting.

The following table summarizes  information  about stock options  outstanding at
December 31, 1996:
<TABLE>

                                           Outstanding                                Exercisable
                        ---------------------------------------------------    ---------------------------
                                                              Weighted                       Weighted
  Exercise Price                      Average Remaining        Average                        Average
       Range              Shares       Contractual Life    Exercise Price       Shares    Exercise Price
--------------------    ------------ --------------------- ----------------    ---------- ----------------
<C>                        <C>             <C>                    <C>         <C>                    <C> 
$ 0.10 - $ 5.00            307,314         6.08 years             1.10        244,301                0.74
$ 5.01 - $10.00             13,652         7.54 years             6.98          6,235                6.99
$10.01 - $15.00          1,210,751         9.02 years            13.42        113,750               12.45
$15.01 - $20.00          1,298,650         9.42 years            16.62        190,815               16.07
</TABLE>

Stock  options  expire in 10 years from the date they are granted;  options vest
over service periods that range from one to four years.


<PAGE>


                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7 -- INCOME TAXES

The following is a geographical  breakdown of consolidated  income (loss) before
income taxes (in thousands):
                                               Year ended December 31,
                                       1996              1995              1994
                                     --------          --------         --------
Domestic                             $ (1,626)         $ 10,334         $  7,081
Foreign                                (9,668)             --               --
                                     --------          --------         --------
                                     $(11,294)         $ 10,334         $  7,081
                                     ========          ========         ========

The provision for income taxes consists of the following (in thousands):
                                               Year ended December 31,
                                           1996           1995            1994
                                          -------        -------        -------
Current tax expense:
  Federal                                 $   174        $ 3,862        $ 1,750
  State                                        54            976            647
  Foreign                                     436           --             --
                                          -------        -------        -------
                                              664          4,838          2,397
                                          -------        -------        -------
Deferred tax benefit:
  Federal                                     (46)        (1,058)          (790)
  State                                       (10)          (163)          (191)
                                          -------        -------        -------
                                              (56)        (1,221)          (981)
                                          =======        =======        =======
                                          $   608        $ 3,617        $ 1,416
                                          =======        =======        =======

Deferred tax assets consist of the following (in thousands):

                                                                  December 31,
                                                                1996       1995
                                                               ------     ------
Deferred tax assets:
  Reserves and accruals not currently deductible               $1,286     $1,275
    Inventory                                                     572        510
    Depreciation                                                   18         44
    State taxes and other                                         413        404
                                                               ------     ------
Gross deferred tax assets                                       2,289      2,233
Deferred tax assets valuation allowance                          --         --
                                                               ------     ------
Net deferred tax assets                                        $2,289     $2,233
                                                               ======     ======

Current                                                        $2,271     $2,189
Noncurrent                                                         18         44
                                                               ------     ------
                                                               $2,289     $2,233
                                                               ======     ======

                                       31

<PAGE>

                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The provision for income taxes differs from the amount of income tax  determined
by applying the  applicable  U.S.  statutory  income tax rate to pre-tax  income
(loss) as follows:
                                                       Year ended December 31,
                                                     1996      1995      1994
                                                     ----      ----      ----

Federal statutory rate                              (35.0%)    35.0%     35.0%
State tax, net of federal impact                       .3       5.1       4.2
 Net operating loss carryforward utilized              --        --      (5.2)
Research and development tax credits                 (1.1)     (1.2)     (5.5)
Tax-exempt interest income                           (4.5)     (6.9)     (1.7)
Recognition of deferred tax assets  realized
   in prior years                                      --        --     (10.3)
Nondeductible acquisition costs                      45.6        --        --
Other                                                  .1       3.0       3.5
                                                     ----     -----      ----
                                                      5.4%     35.0%     20.0%
                                                     ====     =====      ====

NOTE 8 - ACQUISITION

Effective March 21,1996, the Company completed its acquisition of NuCom Systems,
Inc., a Taiwan-based  company, by purchasing all the outstanding shares of NuCom
in exchange for  $11,158,134  in cash,  440,748  shares of Network  Peripherals'
common  stock  valued  at  $5,341,866,  plus  product  integration  costs for an
aggregate  purchase price of $17.1 million.  The  transaction  was accounted for
using the purchase method. Accordingly,  the purchase price was allocated to the
assets  acquired and  liabilities  assumed based on their  estimated fair market
values at the date of  acquisition.  The  research  and  development  in process
represents the estimated current fair market value, using a risk-adjusted income
approach,  of  specifically   identified  technologies  which  had  not  reached
technological feasibility. The results of operations of NuCom were included with
those of the  Company  beginning  with the  quarter  ended  June 30,  1996.  The
allocation of the purchase price was as follows (in thousands):

Research and development, in process          $13,032
Other intangible assets                         1,716
Cash and cash equivalents                       1,357
Current assets                                  3,138
Non-current assets                                613
Property and equipment                            479
Current liabilities assumed                    (3,235)
                                              -------
Total                                         $17,100
                                              =======

The total purchase price is as follows:
Cash payment                                  $11,158
Issuance of Common Stock                        5,342
Other expenses                                    600
                                              -------
Total                                         $17,100
                                              =======
NOTE 9- MARKET DATA

The Company operates in one industry segment.  Export sales to customers outside
of North  America  represented  21%, 25% and 15%, of the Company's net sales for
the years ended December 31, 1996, 1995 and 1994, respectively.  As a percentage
of net  sales,  export  sales  to  Europe  and  Asia  represented  8%  and  13%,
respectively, in 1996. In 1995, the sales percentages were 17% and 8% for Europe
and Asia,

                                       32

<PAGE>

                            NETWORK PERIPHERALS INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

respectively,  and in 1994,  the  sales  percentages  were 11%,  3%,  and 1% for
Europe, Middle East, and Asia, respectively.

The following  table  summarizes  the  percentage of sales  accounted for by the
Company's significant customers with sales of 10% or more:

                                               Years ended December 31,
                                            1996          1995          1994
                                             ----          ----          ----
                Customer A                   26%            17%           12%
                Customer B                    -             15%            -
                Customer C                   15%            10%            -
                Customer D                   12%             -            12%
                Customer E                    -              -            15%
                Customer F                    -              -            13%


Item 9.   Changes in  and  Disagreements  with   Accountants  on  Accounting and
          Financial Disclosure.

There is no reportable information under this item.

                                       33



<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

The  information  required by this item  regarding  directors is included  under
"Election of  Directors" in the  Company's  Proxy  Statement for the 1997 Annual
Meeting.


Item 11. Executive Compensation.

The  information  required  by this  item is  included  under  "Compensation  of
Executive  Officers"  and "Report of the  Compensation  Committee  on  Executive
Compensation" in the Company's Proxy Statement for the 1997 Annual Meeting.


Item 12. Security Ownership of Certain Beneficial Owners and Management.

The  information  required by this item is included  under  "Share  Ownership by
Principal  Stockholders  and  Management"  and  "Election of  Directors"  in the
Company's Proxy Statement for the 1997 Annual Meeting.


Item 13. Certain Relationships and Related Transactions.

The information required by this item is included under "Compensation  Committee
Interlocks and Insider Participation Decisions" in the Company's Proxy Statement
for the 1997 Annual Meeting.



                                       34
<PAGE>


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

The information  required by subsections (a)1 and (a)2 of this item are included
in the response to Item 8 of Part III of this Annual Report on Form 10-K.

 (a)     Exhibits
<TABLE>
<S>              <C>                                                  
  3.1(1)         Amended and Restated Certificate of Incorporation.
  3.2(1)         By-Laws.
  4.1(1)         Fourth Amended and Restated Investor Rights Agreement dated July 15, 1993.
 10.1(1)         Form of Indemnity Agreement for directors and officers.
 10.2(1)         Amended and Restated 1993 Stock Option Plan and forms of agreement thereunder.
 10.3(1)         1994 Employee Stock Purchase Plan.
 10.4(1)         1994 Outside Directors Stock Option Plan and form of agreement thereunder.
 10.6(1)         Business Loan Agreement, and collateral agreements, with Silicon Valley Bank dated August 9,
                 1991, as amended May 5, 1992, April 15, 1993,  February 1, 1994
                 and April 4, 1994 and Warrant dated August 10, 1991.
 10.9(1)         Facilities Lease dated August 8, 1991 with John Arrillaga, Trustee, or his Trustee, or his
                 Successor Trustee UTA dated 7/20/77, as amended, and Richard T. Peery, Trustee, or his
                 Successor Trustee UTA dated 7/20/77, as amended.
 10.12(1)(2)     OEM Purchase Agreement with Network General Corporation dated March 4, 1991.
 10.13(1)(2)     Authorized Distributor Agreement with Westcon, Inc. dated March 4, 1993.
 10.14(3)        Amendment No. 1 to Facilities Lease dated June 1, 1994 with John Arrillaga, Trustee,  or his
                 Successor Trustee UTA dated 7/20/77, as amended, and Richard T.
                 Peery,  Trustee, or his Successor Trustee UTA dated 7/20/77, as
                 amended.
 10.15(3)        Facilities Lease dated June 1, 1994 with John Arrillaga, Trustee, or his Successor Trustee
                 UTA dated 7/20/77, as amended, and Richard T. Peery, Trustee, or his Successor Trustee UTA
                 dated 7/20/77, as amended.
 10.16(4)        Salary continuation agreement dated as of March 22, 1995 with Pauline Lo Alker.
 10.18(5)        Purchase Agreement among Network Peripherals Inc., Network Peripherals, Ltd., NuCom Systems,
                 Inc., and the shareholders of NuCom, dated January 31, 1996.
 10.19(6)        Salary continuation agreement dated as of May 1996 with Truman Cole.
 10.20(6)        Salary continuation agreement dated as of May 1996 with Don Morrison.
 10.21           Employment agreement dated January 1997 with Truman Cole.
 10.22           Line of Credit Agreement with Sumitomo Bank dated October 2, 1996.
 10.23           Agreement with Glenn Penisten dated May 15, 1996.
 27              Financial Data Schedule
</TABLE>

(b)      Reports on Form 8-K.
         None


(1)    Incorporated by reference to the corresponding  Exhibit  previously filed
       as an Exhibit to the  Registrant's  Registration  Statement  on Form S-1.
       (File No. 33-78350).
(2)    Confidential treatment has been granted as to part of this Exhibit.
(3)    Incorporated by reference to the corresponding  Exhibit  previously filed
       as an Exhibit to the  Registrant's  Quarterly Report on Form 10-Q for the
       period ended June 30, 1994 (File No. 0-23970).
(4)    Incorporated   by   reference  to  the   corresponding   exhibit  in  the
       Registrant's  Annual Report on Form 10-K for the year ended  December 31,
       1995 (File No. 0-23970).
(5)    Incorporated by reference to the Registrant's report on Form 8-K filed on
       March 31, 1996 (File No. 0-23970).
(6)    Incorporated   by   reference  to  the   corresponding   exhibit  in  the
       Registrant's  Quarterly Report on Form 10-Q for the period ended June 30,
       1996 (File No. 0-23970).

                                       35

<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

                                                     NETWORK PERIPHERALS INC.

                                                     By:  \s\ TRUMAN COLE
                                                     ---------------------------
                                                     Truman Cole
                                                     Vice President, Finance and
                                                     Chief Financial Officer
                                                     (Authorized Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

Signature                              Title

\s\  PAULINE LO ALKER                  President, Chief  Executive  Officer  and
---------------------------               Director (Prinicpal Executive Officer)
Pauline Lo Alker

\s\  TRUMAN COLE                       Vice   President,   Finance   and   Chief
---------------------------               Financial Officer
Truman Cole                               (Principal Financial Officer)

\s\  ANN S. BOWERS                     Director
---------------------------
Ann S. Bowers

\s\  CHARLES HART                      Director
---------------------------
Charles Hart

\s\  KENNETH LEVY                      Director
---------------------------
Kenneth Levy

\s\  GLENN PENISTEN                    Chairman of the Board
---------------------------
Glenn Penisten

\s\  WILLIAM P. TAI                    Director
---------------------------
William P. Tai


                                       36

<PAGE>


<TABLE>
                                                      NETWORK PERIPHERALS INC.
                                           VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                                           (in thousands)


SCHEDULE II

<CAPTION>
                                                                       Additions
                                                  Balance at    Charged to     Charged                 Balance at
                                                   Beginning     Costs and     to Other                       End
                                                     of Year      Expenses     Accounts   Deductions       of Year
                                                     -------      --------     --------   ----------       -------
<S>                                              <C>          <C>         <C>         <C>           <C>
Year ended December 31, 1994
     Allowance for doubtful accounts             $      68    $      -    $    100    $       (3)   $      165
     Allowance for sales returns and
     other credits                                      75           -         769          (100)          744
                                               ----------------------------------------------------------------------
       Total allowances for doubtful accounts
       and sales returns                               143           -         869          (103)          909
     Deferred tax assets valuation allowance         1,484           -          -         (1,484)           -

Year ended December 31, 1995
     Allowance for doubtful accounts                   165           -          88           (53)          200
     Allowance for sales returns and other
     credits                                           744           -       1,664        (1,870)          538
                                               ----------------------------------------------------------------------
       Total allowances for doubtful accounts
       and sales returns                               909           -       1,752        (1,923)          738

Year ended December 31, 1996
     Allowance for doubtful accounts                   200           -          21           (12)          209
     Allowance for sales returns and other
     credits                                           538           -       6,743        (6,336)          945
                                               ----------------------------------------------------------------------
       Total allowances for doubtful accounts
       and sales returns                         $     738        $  -    $  6,764    $   (6,348)   $    1,154
                                               ======================================================================

</TABLE>

                                                                       37