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

                   For the fiscal year ended December 31, 1997

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                         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. [ ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of March 18, 1998 was $94,251,917  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 March
18, 1998 was 12,260,412.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  Registrant's  proxy  statement  for  its  annual  meeting  of
stockholders to be held on May 26, 1998 are  incorporated by reference into Part
III of this Annual Report on Form 10-K.

                                       1

<PAGE>
<TABLE>

                            NETWORK PERIPHERALS INC.

                                    FORM 10-K

                                TABLE OF CONTENTS

<CAPTION>
PART I                                                                                  Page
<S>                                                                                      <C>
ITEM 1.     Business ...............................................................      3

ITEM 2.     Properties .............................................................     10

ITEM 3.     Legal Proceedings ......................................................     10

ITEM 4.     Submission of Matters to a Vote of Security Holders ....................     10

PART II

ITEM 5.     Market for the Registrant's Common Stock and Related Stockholder Matters     11

ITEM 6.     Selected Financial Data ................................................     12

ITEM 7.     Management's Discussion and Analysis of Financial Condition and
                   Results of Operations ...........................................     13

ITEM 8.     Financial Statements and Supplementary Data ............................     17

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 .............................................................     37

            Supplemental Schedule ..................................................     38

</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,  manufactures,  markets and  supports a full range of high
performance   FDDI,  10/100  and  Gigabit  Ethernet   switching   solutions  for
workgroups,  wiring closets and network backbones.  These solutions are designed
to enhance the bandwidth and performance of client/server networks,  embrace all
popular  high-speed  technologies and preserve the end-user's  existing Ethernet
investments.

The Company  introduced its first FDDI network adapter  products in 1990 and has
established a leading share of the installed  FDDI adapter  market.  The Company
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 1997,  the Company  introduced a number of
new  products,   including  switches  designed  to  interconnect  workgroups  to
enterprise backbone networks,  switches with 10/100 auto-sensing  features,  and
standard and custom OEM adapters based on the PCI bus architecture.

In  March  1996,  the  Company  acquired  NuCom  Systems,   Inc.  ("NuCom"),   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 that year. A majority of the  Company's  current Fast  Ethernet
product offerings are based on the switch architecture developed by the research
and development activities in Taiwan.

In April 1997,  the Company  acquired  NetVision  Corporation  ("NetVision"),  a
privately held company located in Long Island, New York.  NetVision  specialized
in the  development  of very high  bandwidth LAN switching and Gigabit  Ethernet
technologies.  This  acquisition  positioned  the  Company to  develop  its next
generation of Ethernet switching products to be introduced in 1998.

The Company markets its products worldwide through OEMs, distributors,  VARs and
system integrators.


PRODUCTS

The Company's  current line of products consists of a range of Fast Ethernet and
FDDI  LAN  switches  and  hubs,  FDDI to Fast  Ethernet  bridges,  FDDI  Network
Interface Cards,  and network  management  software.  Most of these products are
based  on core  technology  and  proprietary  ASIC  components  designed  by the
Company.  The  products are offered in a variety of models,  configurations  and
forms.

The information in the following  paragraphs contains forward looking statements
describing  new products  that are expected to be available  for shipment to the
Company's customers during 1998. 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.

Recently,  the Company re-aligned its products and operations into three groups:
NuSwitch, NuWave and NuCleus, each with its own charter to develop, engineer and
market new and existing  products.  The NuSwitch  group is focused  primarily on
FDDI LAN switching  products and FDDI network adapter  products  currently being
sold  to  OEM  customers  and a  broad  line  of  Fast  Ethernet  products  sold
principally through distribution channels. The NuWave group intends to introduce
new Fast Ethernet and Gigabit  Ethernet  solutions aimed at the  small-to-medium
enterprise  (SME) market in 1998.  The NuCleus  group focuses on low cost 10/100
Mbps Ethernet switches and hubs in motherboard form.

                                       3
<PAGE>


NuSwitch Product Line

Network Adapter Products

The Company's line of FDDI network adapters,  NuCard, connects  high-performance
servers or desktop computers directly to 100 Mbps FDDI networks. The Company has
been a leading  supplier of certified FDDI adapters since shipment  commenced in
1990.  NuCard  adapters  support  both fiber and  unshielded  twisted pair (UTP)
copper wiring and are available for popular platform bus architectures including
SBus and PCI.  Customized  versions  have been  developed  for resale  under OEM
arrangements  with Sun  Microsystems  and Network  Associates.  The adapters and
software developed for Sun Microsystems are based on the Company's standard SBus
architecture  and PCI  architecture.  They support Sun  Microsystems'  SPARC and
UltraSPARC work station and server product lines,  including their current lines
of PCI based  workstations.  The  Network  Associates  product  is a  customized
version of the  Company's  PCI adapter with  enhanced  features for use with the
Network Associates Sniffer Network Analyzer.

The Company's NuCard adapters  incorporate  software drivers for leading network
operating systems including 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.


LAN Switching Products

LAN  Switches.  In 1997,  the Company  added a number of new Fast  Ethernet  LAN
switching  products to its NuSwitch  product line that offer  solutions  ranging
from desktop to backbone  connectivity,  including the FE-208,  a series of Fast
Ethernet  switches with 10/100Mbps  auto-sensing  capability,  and the FE-224, a
recipient  of the  "iAward"  from  Informationweek  magazine.  The Company  also
introduced  two new  high-density  fiber-switching  solutions,  the DS12 and the
DS12TF  in  1997.  These  two  products  are  10/100Mbps  auto-sensing,  12-port
switches, with optional connections to either fiber or UTP. They are designed to
satisfy  the  requirements  of mission  critical  networks  running  high-demand
applications  in campus  environments.  The Company  believes  that they are the
first Fast Ethernet backbone  switches with features and performance  previously
found primarily in high-end, chassis-based switches.

LAN Hubs.  The Company's  NuHub  includes  three LAN switching  hubs designed to
expand  the  network  of  the  100Base-TX  users.  The  FE-5208  provides  eight
100Base-TX  Class II 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.
The NuHub LAN switching hubs have the same form factor and  management  software
as the NuSwitch switching products, providing a convenient single-vendor 100Mbps
connectivity  solution.  The  FE-5516  and the  FE-5216  are  stackable  sixteen
100Base-TX   Class  II  Fast  Ethernet  port  hubs  that  provide  true  network
scalability.  The FE-5516 is  stackable  up to eight units  within one  repeater
count,  expanding  the  network up to 128  high-speed  shared  connections.  The
FE-5216 provides scaleable  expansion with the ability to stack up to five units
without  incrementing  the  repeater  count.  To expand  further,  two stacks of
FE-5216 can be cascaded together through an uplink connector,  the NuLink, which
allows the network to expand up to 158 ports.

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

LAN Network  Management  Software.  The Company believes that network management
software is an  important  tool for network  administrators  who need to manage,
maintain  and control  the  operation  of  client/server  remotely.  The Company
provides  standards-based  network  management  software  in all of its  managed
products.  The Company's LAN switching products come standard with SNMP and RMON
software  that  allows  its  switches  to be  configured  and  monitored  from a
management  station.  In 1997,  the Company  introduced a major  revision of its
NuSight SNMP  management  platform,  which now provides  RMON Manager  tools for
network diagnostics and performance monitoring. NuSight 2.0 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  for  future  growth.  It  operates  in a  Microsoft  Windows
environment,  including  Windows 95, Windows NT  Workstation  4.0 and Windows NT
Server  4.0.  In  addition  to the  NuSight  2.0,  the  Company  introduced  new
management  features across all its switches and hubs that enable the devices to
be managed via a standard web browser.

The Company  intends to introduce a number of new products in 1998,  including a
Fast  Ethernet  to  FDDI  bridge,   other  variations  of  high-density   10/100
auto-sensing switches, and Gigabit Ethernet solutions.

                                       4
<PAGE>

NuCleus Product Line

The NuCleus  products  provide a full range of  wire-speed  10/100  auto-sensing
switching and repeater hub  motherboards,  in 2,4,8 and 12 port  configurations,
based on the Company's third generation NuCleus ASIC chipsets. These board-level
switches and hubs are designed to enable OEM  customers to  differentiate  their
products with the Company's high  performance  technologies and to shorten their
development  cycles to increase time to market.  These products commenced volume
shipment in early 1998.

NuWave Product Line

NuWave is an innovative line of Ethernet,  Fast Ethernet,  and Gigabit  Ethernet
solutions  being  designed  for the SME  market  based on  technology  and ASICs
developed  primarily by the Company.  The  introduction  of the NuWave family of
products is scheduled  for mid-1998,  with shipment  expected to commence by the
fourth quarter of the same year.

The  NuWave  product  family is  expected  to  consist  of very  high  bandwidth
switching  platforms in flexible,  "building block" form that offer high-density
switched/hub   ports  that  are  stackable  and  scalable  in  performance   and
configurations for networks up to 1,500 nodes with complex and stringent network
requirements.  Networks  of this  scale  require  reliability,  scalability  and
flexibility  since as many as 30% of their nodes move or change annually.  Thus,
the devices  themselves need to be intelligent,  fault-tolerant  and flexible in
their configurations while being affordable and simple to use.

The NuWave family of 10/100 and Gigabit  Ethernet  switching  solutions is being
designed with a 64-Gbps switching fabric to deliver wire-speed Layer 2 and Layer
3 (IP/IPX)  switching for 10/100/1000 Mbps Ethernet  networks in a scaleable and
non-blocking  stackable form factor. The new platform is designed to accommodate
options  such as  high-speed  LAN/WAN  uplinks,  advanced  web-based  management
functions, with intuitive,  policy-based network management software,  redundant
power supplies and flexible media  connections  --  capabilities  that are found
currently only in expensive, large-scale enterprise systems.

The  NuWave  switching  family,  with a very  high  bandwidth  architecture  and
flexible configuration plus a comprehensive collection of advanced switching and
network management functionalities, offers networking and system OEM customers a
next  generation  switching  platform.  The Company  plans to utilize the NuWave
product line to penetrate the rapidly  emerging  Gigabit and stackable Layer 2/3
10/100 Ethernet switching market in 1998.


MARKETING, SALES AND SUPPORT

The Company sells its product  worldwide  through OEMs,  VARs,  distributors and
system  integrators.  As of December 31, 1997, the Company employed 36 full-time
technically trained marketing, sales and support personnel located in the United
States,  the  Netherlands,  Singapore,  Japan 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 network applications.

The majority of the Company's  historical and current sales are to OEM customers
with the balance of the sales to distributors  and VARs.  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.  The  Company's
standard  products are  distributed  globally  through the reseller  channels in
North America, Asia and Europe.

In addition to North America,  the Company's products are currently  distributed
internationally,  primarily in Europe and Asia. The Company has sales offices in
the  Netherlands,  Taiwan and  Singapore.  Sales to  customers  outside of North
America  represented  26% of the  Company's  net sales in 1997.  The  geographic
regions  with the major  portions of export sales in 1997,  and the  approximate
respective percentages  represented by each, were Europe, 11% and Asia, 15%. All
payments for sales outside the United States are made in U.S. dollars.

                                       5

<PAGE>


Sun  Microsystems  accounted  for 39% of net  sales in 1997.  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 placed two
to three months in advance of shipment,  while resellers  typically  provide the
Company with orders placed 30 days or less in advance of shipment.  However, due
to order  cancellations  and order  changes and depending on the mix between OEM
and  reseller  orders and the ability or resources of the Company to meet demand
schedules,  the Company's backlog may or may not be indicative of revenue in the
future periods.

The information in the following  paragraph  contains forward looking statements
describing  the Company's  sales and marketing  strategy.  There are a number of
uncertainties  that could  affect the success of the plan  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.

Beginning  1998,  the Company's  sales and  marketing  strategy for its Ethernet
products will emphasize developing an OEM customer base, a potentially lucrative
market,  with a lower level of support  expense.  The Company will  continue its
commitment to support its existing base of resellers and seek new  opportunities
in its reseller channels.


RESEARCH AND DEVELOPMENT

The information in this section contains  forward-looking  statements describing
the Company's  product  development  plans for 1998 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  integrated  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.

Network  Bandwidth  Switching.  The  majority  of  the  Company's  research  and
development  efforts are currently  focused on  developing  its NuWave family of
products.  The Company is designing numerous high-density ASICs that provide the
architectural platform with a 64 Gbps switching fabric for Gigabit and stackable
Layer 2 and 3 (IP/IPX)  10/100  Ethernet  switches.  Through its  acquisition of
NetVision   Corporation  in  April  1997,   the  Company   obtained  a  team  of
technologists   experienced  in  very  high  bandwidth  switching  architecture,
specifically  in Gigabit  Ethernet  technology.  Another  focus of the Company's
research and  development  efforts is an ASICs  chipset for a series of very low
cost,  wire-speed,  10/100, dual speed Ethernet switches and hubs in motherboard
form.  The  Company  has  also  implemented  its  Distributed  Memory  Switching
Architecture  and  ASIC  expertise  in  products  based  on both  FDDI  and Fast
Ethernet.  Semiconductor  foundries  such as LSI  Logic,  TSMC,  MMC  and  ATMEL
manufacture the Company's ASIC components.

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.

                                       6

<PAGE>


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.

As of December  31,  1997,  the Company  employed 62  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 the Company 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,  Newbridge
Networks,  NetFRAME, NCR, and Network Associates.  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.


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.

The computer networking  industry is intensely  competitive and is significantly
affected   by  product   introductions   and  market   activities   of  industry
participants.  A number of competitors  offer  products  which compete,  both in
price and functionality,  favorably 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  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 and others. A number of companies  developing similar technologies
have been acquired by the Company's larger  competitors.  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

Effective   mid-1997,   the  Company  partnered  with  an  established   turnkey
manufacturer in the Silicon Valley to procure material,  assemble, test, package
and ship the Company's products. The manufacturer is ISO certified and is highly
experienced  in  manufacturing  for other  certain  Fortune 500 high  technology
companies.  The Company has ascertained  that the manufacturer has the capacity,
quality  standards  and financial  capital to meet the  Company's  manufacturing
needs.  By partnering with a turnkey  manufacturer,  the Company has reduced its
manufacturing costs and avoided  significant  capital  investment,  allowing the
Company to  concentrate  its resources on product  design and  development.  The
Company  qualifies  its turnkey  manufacturers  using a selection  program  that
assesses  a  potential   subcontractor's   capacity,   quality   standards   and
manufacturing process. The Company also has an in-house manufacturing team of 26
full time  personnel in Taiwan,  which  manufactures  most of its Fast  Ethernet
products.   This  team  is  experienced  in  advanced   manufacturing  and  test
engineering in ongoing  reliability/quality  assurance.  The Company is ISO 9001
certified.

                                       7

<PAGE>


The  Company's  strategy to have certain of its  products  produced by a turnkey
manufacturer  involves certain risks including the 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  was 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.  In addition,
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. 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.


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.

                                       8

<PAGE>

<TABLE>

EXECUTIVE OFFICERS*

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

<CAPTION>
Name                         Age           Position
----                        -----          --------
<S>                         <C>            <C>
Pauline Lo Alker            55             President,  Chief Executive Officer, and Director
Robert Hersh                44             Vice  President  of  Operations  and  Chief   Financial
                                           Officer
Fred Kiremidjian            50             Senior Vice President - NuWave Group
James Sullivan              45             Vice President - NuSwitch Group
Oliver Szu                  41             Vice President - NuCleus Group
</TABLE>

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.  Ms.  Alker  has
announced  her  intention  to  retire  from her  position  as  President,  Chief
Executive Officer and Director of the Company in 1998 after a successor has been
selected.

Mr. Hersh has served as an executive  officer since joining the Company in March
1997. Prior to joining the Company, he served as the Chief Financial Officer and
Vice President of Finance, of SEEQ Technology, Inc., a designer and manufacturer
of  integrated  circuits  from October 1995 to February  1997.  Prior to joining
SEEQ, he had held executive officer and management  positions with Alps Electric
(USA), Inc., Widcom, Inc., and UNISYS Corporation, all technology companies.

Mr.  Kiremidjian has served as an executive officer since joining the Company in
July 1996.  Prior to joining the Company,  he served as the Vice  President  and
General Manager of Personal  Products  Business Unit of Xerox  Corporation  from
October 1995 to June 1996. 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.  Sullivan has served as an executive  officer  since  joining the Company in
July 1997. Prior to joining the Company, he was with Novell, Inc. from July 1995
to July 1997 where he held several sales  management  positions,  including Vice
President of Worldwide OEM Sales and Senior  Director of North American  Channel
Sales.  Prior to joining  Novell,  he held various  sales  positions  with Arrow
Electronics, Canon and Lanier Business Products.

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.

*  As of December 31, 1997


                                       9

<PAGE>


EMPLOYEES

As of December  31,  1997 the  Company  employed  152  persons  including  62 in
research and development  activities,  30 in  manufacturing  and support,  36 in
sales,  marketing and technical support,  and 24 in finance and  administration.
Approximately  80  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  and  research  and  development
facilities  are located in  Milpitas,  California  and consist of  approximately
18,000 square feet under lease that will expire in October  2000.  Additionally,
the Company has research and  development  facilities in Taiwan and Long Island,
New York. The Company has international sales offices in the Netherlands, Japan,
Singapore,  and Taiwan.  The Company  believes that its existing  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, 1997.

                                       10
<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 March 6,  1998, there were  approximately 4,800
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.


          1995                                            High            Low
         --------------------------------------- -------------- --------------

          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


          1997
         --------------------------------------- -------------- --------------
          First Quarter                                $ 20.88           8.63
          Second Quarter                                 10.94           6.50
          Third Quarter                                   7.94           5.38
          Fourth Quarter                                  7.25           4.94


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.

                                       11

<PAGE>

<TABLE>

ITEM 6.           SELECTED FINANCIAL DATA
<CAPTION>

                                                                                     Years Ended December 31,
                                                                1997            1996            1995           1994           1993
                                                             ----------------------------------------------------------------------
                                                                   (in thousands, except per share amounts)
<S>                                                          <C>             <C>             <C>            <C>            <C>
Statement of Operations Data:
Net sales                                                    $ 34,798        $ 53,080        $ 47,144       $ 33,463       $ 10,687
Cost of sales                                                  25,341          28,590          24,690         17,507          5,633
                                                             ----------------------------------------------------------------------
Gross profit                                                    9,457          24,490          22,454         15,956          5,054
                                                             ----------------------------------------------------------------------
Operating expenses:
     Research and development                                   9,757           8,570           4,811          3,473          1,962
     Marketing and selling                                     13,242          11,849           7,319          4,361          1,865
     General and administrative                                 3,982           3,378           2,226          1,618            870
     Acquired research and development in
      process and product integration costs                     6,462          13,732            --             --             --
     Restructuring expense                                      3,662            --              --             --             --
                                                             ----------------------------------------------------------------------
Total operating expenses                                       37,105          37,529          14,356          9,452          4,697
                                                             ----------------------------------------------------------------------
Income (loss) from operations                                 (27,648)        (13,039)          8,098          6,504            357
Interest income, net                                            1,680           1,745           2,236            577             20
                                                             ----------------------------------------------------------------------
Income (loss) before income taxes                             (25,968)        (11,294)         10,334          7,081            377
Provision for (benefit from) income taxes                      (3,526)            608           3,617          1,416             19
                                                             ----------------------------------------------------------------------
Net income (loss)                                            $(22,442)       $(11,902)       $  6,717       $  5,665       $    358
                                                             ======================================================================

Net income (loss) per share:
    Basic                                                    $  (1.85)       $  (1.01)       $   0.60       $   1.72       $   0.12
                                                             ======================================================================
    Diluted                                                  $  (1.85)       $  (1.01)       $   0.57       $   0.64       $   0.05
                                                             ======================================================================

Weighted average common shares:
    Basic                                                      12,154          11,760          11,147          3,302          2,895
                                                             ======================================================================
    Diluted                                                    12,154          11,760          11,736          8,906          6,641
                                                             ======================================================================


                                                                                            December 31,
                                                                1997            1996            1995           1994           1993
                                                             ----------------------------------------------------------------------
                                                                                            (in thousands)
Balance Sheet Data:
Working capital                                              $ 34,439        $ 54,997        $ 63,269       $ 55,720       $  5,280
Total assets                                                   45,889          71,434          70,111         65,209          8,728
Long-term obligations, net of current portion                    --              --              --             --              172
Stockholders' equity (deficit)                                 38,679          59,857          65,709         57,758         (3,181)

</TABLE>
                                       12

<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

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:

*    the timely development and market acceptance of new products;

*    the  market  demand  by  customers  for the  Company's  existing  products,
     including demand by OEM customers for custom products;

*    competitive actions,  including pricing actions and the introduction of new
     competitive products,  that may affect the volume of sales of the Company's
     products;

*    uninterrupted supply of key components, including semiconductor devices and
     other materials, some of which may be sourced from a single supplier;

*    uninterrupted service by subcontractors;

*    the  ability of the  Company to  recruit,  train and retain key  personnel,
     including engineers and other technical professionals;

*    the development of new  technologies  rendering  existing  technologies and
     products obsolete; and

*    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 annual
report.


RESULTS OF OPERATIONS

Net Sales

Net  sales  were  $34.8,  $53.1  and  $47.1  million  in 1997,  1996  and  1995,
respectively.  The decrease in 1997 sales compared to 1996 sales was principally
attributed  to decreased  shipments of FDDI  adapters,  and to a lesser  extent,
decreased shipments of FDDI LAN switching products. The decreased shipments were
primarily the result of declining  demand for products based on FDDI  technology
since  1996.  Partially  offsetting  decreased  FDDI sales were  increased  unit
shipments  of Fast  Ethernet  switching  products.  However,  declining  average
selling prices countered the increased  volume.  Despite  decreasing  demand for
FDDI  products,  net sales in 1996  increased from 1995 as a result of growth in
Fast Ethernet sales.

Sales to OEM customers  were $22.0,  $30.5 and $27.9  million in 1997,  1996 and
1995, respectively,  with the balance of sales to the distribution channel. As a
percentage of net sales, shipments to OEM customers represented 63%, 57% and 59%
in 1997,  1996 and 1995,  respectively.  Sales to the North America  region were
$25.8,  $42.0 and $35.5 million in 1997, 1996 and 1995,  respectively,  with the
balance of sales to the Asia and Europe regions.

The Company  expects the declining sales of FDDI products and the slowing growth
in sales of its current Fast Ethernet  products to be offset,  in part, by sales
of its NuWave and NuCleus products, to be introduced in 1998. NuWave is the next
generation of Gigabit  Ethernet and Fast Ethernet  switches  targeting small and
medium  size  enterprise  environments.  NuCleus  is a full  range of  low-cost,
commodity  switches  and hubs in  motherboard  and chip form.  Both of these new
product  lines are  positioned  primarily to broaden the  Company's OEM customer
base.

                                       13

<PAGE>


Gross Profit/Margin

The gross margin in 1997 was 27%,  compared to gross margins in 1996 and 1995 of
46% and 48%,  respectively.  The decrease in the 1997 gross  margin  compared to
gross  margins  in 1996 and 1995  reflected  charges  for  excess  and  obsolete
inventory in 1997, offset in part by efficiency gains in manufacturing  overhead
in the final quarter of the year. The inventory  charges included a $5.1 million
charge to reserve for slow moving and obsolete inventory,  as well as a $200,000
charge  for  scrapping  of  FDDI  products.  Additionally,  competitive  pricing
pressures on Fast Ethernet  switching  products and high  overhead  costs in the
early part of the year further  eroded the gross  margin.  The decrease in gross
margin in 1996 resulted from the inclusion of amortization of intangible  assets
related to the acquisition of NuCom in 1996.

With the intangible  assets related to the  acquisition of NuCom and inventories
of slow-moving products written-off in 1997 and a measurable  improvement in the
management of inventory and overhead,  the Company  expects gross margin in 1998
to improve from 1997.  However,  the Company does not expect future gross margin
to  attain  the  historical  levels  of 1996  and  1995 as  competitive  pricing
continues to pressure the Company's current products.  Furthermore,  the NuCleus
line of products will be sold at commodity-like prices.

Research and Development

Research and  development  expenses were $9.8,  $8.6 and $4.8 million,  in 1997,
1996 and 1995,  respectively.  As a  percentage  of  respective  net sales,  the
expenses  were 28%, 16% and 10%.  The  expenses  are net of contract  funding of
$217,000,  $556,000  and  $906,000  in 1997,  1996 and 1995,  respectively.  The
increase  in  spending  in 1997 and 1996  reflected  the  addition  of staff and
overhead associated with the acquisition of NetVision and NuCom (refer to Note 8
of Notes to Consolidated  Financial Statements),  respectively.  The increase in
1997 was  partially  offset  by a  reduction  in staff as part of the  Company's
restructuring  in the  third  quarter  of  1997  (refer  to Note 9 of  Notes  to
Consolidated  Financial  Statements).  The Company  believes it is  essential to
increase its financial and technical resources in developing the next generation
Ethernet products,  and thus it expects to invest  substantially in research and
development in 1998 to develop the NuWave and NuCleus product lines.

Marketing and Selling

Marketing and selling expenses  increased to $13.2 million in 1997,  compared to
$11.8  and $7.3  million  in 1996 and 1995,  respectively.  As a  percentage  of
respective  net sales,  the  expenses  were 38%,  22% and 16%.  The  increase in
expenditures  in 1997 and 1996  reflected  the  addition  of staff and  overhead
resulting from the  acquisition of NuCom,  in addition to escalating  efforts to
develop the distribution  channel through mid-1997.  This increase was partially
offset by a  reduction  in staff and  closure  of sales  offices  as part of the
Company's  restructuring  in the  third  quarter  of 1997.  With  the  Company's
re-aligned strategy to focus on broadening its OEM customer base and as a result
of cost reductions related to the  restructuring,  the Company expects marketing
and selling expenses to decrease in 1998 from prior levels.

General and Administrative

General and  administrative  expenses were $4.0,  $3.4 and $2.2 million in 1997,
1996 and 1995,  respectively.  The  expenses  represented  11%, 6% and 5% of net
sales for each  respective  year.  The  additional  staffing and overhead  costs
associated with the acquisition of NuCom resulted in an increase in expenditures
in 1997 and 1996.  Higher costs related to the information  systems function and
staffing  issues,   offset  in  part  by  reduction  in  headcount,   were  also
contributing  factors  in the  increase.  To  continue  efficiency  gains in the
Company's  operations,  the Company  implemented an Enterprise Resource Planning
(ERP) system and enhanced its information  system  infrastructure  in 1997, with
the  depreciation  costs  associated with these  improvements to be reflected in
1998 and future years.  The Company does not expect  general and  administrative
costs to increase substantially 1998.

As a result of implementing  an ERP system and enhancing its information  system
infrastructure  in 1997,  the  Company's  systems  are substantially  year  2000
compliant (i.e. software applications  functioning properly in the year 2000 and
beyond).

                                       14

<PAGE>


Acquired Research and Development In Process and Product Integration Costs

Effective  April 1997, the Company  acquired  NetVision  Corporation,  a company
specializing  in LAN switching and Gigabit  Ethernet  technologies.  The Company
expensed  $6.5  million in acquired  research  and  development  in process as a
result of the acquisition.

Effective March 1996, the Company  acquired NuCom Systems,  Inc., a Taiwan-based
company  developing Fast Ethernet LAN switching  products.  The Company expensed
$13.7  million in  acquired  research  and  development  in process  and product
integration costs as a result of the acquisition.

See Note 8 of Notes to  Consolidated  Financial  Statements  for more details in
connection with the acquisitions discussed above.

Restructuring

During 1997, the Company incurred a charge of $3.7 million for the restructuring
of its business.  The restructuring  included a reduction in work force, closure
of  facilities,   retirement  of  impaired  assets  and  write-off  of  goodwill
associated  with the  acquisition of NuCom.  See Note 9 of Notes to Consolidated
Financial Statements.

Interest Income

The  Company  maintained  a  comparable  return  on  investment  of its cash and
short-term  securities of $1.7 million in 1997  compared to 1996,  despite lower
funds being invested in 1997. This higher rate of return resulted primarily from
transitioning   short-term  investments  of  tax-exempt  securities  to  taxable
securities,  which provide higher  returns.  Interest  income of $1.7 million in
1996  decreased  from $2.2  million in 1995 due  primarily  to a lower  level of
invested funds associated from the acquisition of NuCom.

Income Taxes

The Company's effective tax rate for 1997 was a benefit of 13.6%,  compared to a
provision of 5.4% and 35% in 1996 and 1995, respectively. The effective tax rate
in 1997  included  the  establishment  of a full  valuation  allowance  provided
against  deferred  tax assets  because  such  deferred  taxes,  based on current
available  evidence,  are not expected to be realized in the foreseeable future.
The  effective  tax rates in 1997 and 1996  excluded  the charge for  in-process
research and development, a non-deductible item for tax purposes.


LIQUIDITY AND CAPITAL RESOURCES

During 1997, the Company's  operating,  investing and financing  activities used
$7.4 million of cash,  compared to using cash of $3.7 million  during 1996,  and
generating cash of $6.1 million during 1995.

During  1997,  $6.9  million  of cash was used in  operations,  compared  to the
generation of $5.3 million in 1996,  and $2.9 million in 1995.  The $6.9 million
of cash used by operations  during 1997 was mainly  attributable to the net loss
for the year of $22.4  million,  offset by non-cash  charges of $3.3 million for
deprecation  and  amortization,   the  write-off  of  in-process   research  and
development  associated  with the NetVision  acquisition  of $6.5  million,  the
write-off of deferred tax assets of $2.3 million,  and the reduction of accounts
receivable  of $3.2  million  and  inventories  of $6.8  million  (including  an
additional charge of $5.1 million for slow moving and obsolete  inventory).  The
$5.3 million of cash generated by operations during 1996 resulted primarily from
the net loss  for the  year of $11.9  million,  after  adjustment  for  non-cash
charges of $2.8 million for  depreciation  and amortization and the write-off of
in-process research and development associated with the NuCom acquisition of $13
million.  Increases in accounts payable and accrued  liabilities of $1.4 million
and $1.6 million, respectively, also contributed to cash generated by operations
in  1996.  The  $2.9  million  of cash  generated  by  operations  in  1995  was
attributable to the net income of $6.7 million,  adjusted for  depreciation  and
amortization  of $1.3 million,  and offset by a decrease in accounts  payable of
$3.3 million and an increase in deferred tax assets,  accounts  receivable,  and
prepaid  expenses  and other  assets of $1.2  million,  $1.1  million,  and $1.2
million, respectively.

During 1997, $1.4 million of cash was used in investing activities,  compared to
$9.6 million used in 1996, and $2.6 million generated in 1995. Cash used in 1997
of $1.4 million was  attributable  to the $6.5 million  acquisition of NetVision
and the  purchase  of fixed  assets  for  $2.3  million,  offset  by the sale of
short-term  investments  for $8 million.  Cash used in 1996 of $9.6  million was
attributable  to payments of $10.4 million in the  acquisition  of NuCom and the
purchase  of fixed  assets for

                                       15
<PAGE>


$3.0  million,  offset by the sale of short-term  investments  for $2.6 million.
Cash was  generated  in 1995 from the sale of  short-term  investments  for $4.4
million, which was offset by purchases of fixed assets for $1.8 million.

Cash generated from  financing  activities in 1997,  1996 and 1995 was $861,000,
$627,000, and $638,000, respectively. These funds were raised primarily from the
issuance of Common Stock upon exercise of stock options and purchases made under
the employee stock purchase plan.

At December 31, 1997, the Company's principal sources of liquidity were its cash
and cash  equivalents,  and  short-term  investments  of $16.1 million and $14.4
million,  respectively.  The Company also has a line of credit  agreement  which
provides for  borrowings  up to $10 million,  none of which has been drawn down.
The Company was in  compliance  with all financial  covenants  under the line of
credit agreement.

The Company  believes  that its current  cash and cash  equivalents,  short-term
investments,  and borrowing  capacity will satisfy the Company's working capital
and capital expenditure requirements for the next 12 months.


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 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' and OEM's 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,  the ability of turnkey  manufacturers to meet the Company's
demand, 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.  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  finished   installed  bases  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.

                                       16
<PAGE>


ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<CAPTION>
Financial Statements:                                                                           Page

<S>                                                                                              <C>
         Report of Independent Accountants..................................................     18
         Consolidated Balance Sheets at December 31, 1997 and 1996..........................     19
         Consolidated Statements of Operations for the Years Ended December 31,
            1997, 1996 and 1995.............................................................     20
         Consolidated Statements of Stockholders' Equity for the Years
            Ended December 31, 1997, 1996 and 1995..........................................     21
         Consolidated Statements of Cash Flows for the Years Ended December 31,
            1997, 1996 and 1995.............................................................     22
         Notes to Consolidated Financial Statements.........................................     23


Financial Statement Schedule:

         For the three years ended December 31, 1997, 1996 and 1995
            Schedule II - Valuation and Qualifying Accounts................................      38

</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.

                                       17

<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, 1997 and 1996 and
the results of their operations and their cash flows for each of the three years
in the period ended  December 31, 1997, 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, 1998

                                       18

<PAGE>

<TABLE>
                            NETWORK PERIPHERALS INC.

                           CONSOLIDATED BALANCE SHEETS

                        (in thousands, except share data)

<CAPTION>

                                                                                    December 31,
                                                                                1997            1996
--------------------------------------------------------------------------- -------------- ---------------
<S>                                                                             <C>            <C>
ASSETS

Current assets:
     Cash and cash equivalents                                                  $  16,094      $  23,523
     Short-term investments                                                        14,371         22,350
     Accounts receivable, net of allowance for doubtful accounts and
        returns; 1997, $1,184, and 1996, $1,154                                     5,170          8,359
     Inventories                                                                    1,417          8,228
     Income tax refund receivable                                                   3,983              -
     Deferred income taxes, net                                                         -          2,271
     Prepaid expenses and other current assets                                        614          1,843
                                                                            -------------- ---------------
              Total current assets                                                 41,649         66,574
Property and equipment, net                                                         3,876          3,575
Other assets                                                                          364          1,285
                                                                            -------------- ---------------
                                                                                $  45,889      $  71,434
                                                                            ============== ===============


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                          $    1,415     $    2,736
     Accrued liabilities                                                            5,795          8,841
                                                                            -------------- ---------------
              Total current liabilities                                             7,210         11,577
                                                                            -------------- ---------------

Commitments (Note 5)

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;
        1997, 12,252,000, and 1996, 11,954,000 shares issued and                       12             12
        outstanding
     Additional paid-in capital                                                    63,878         62,614
     Accumulated deficit                                                          (25,211)        (2,769)
                                                                            -------------- ---------------
              Total stockholders' equity                                           38,679         59,857
                                                                            -------------- ---------------
                                                                                $  45,889      $  71,434
                                                                            ============== ===============

<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                       19

<PAGE>

<TABLE>

                            NETWORK PERIPHERALS INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (in thousands, except per share data)

<CAPTION>

                                                                     Years Ended December 31,
                                                              1997             1996             1995
------------------------------------------------------- ----------------- ---------------- ----------------
<S>                                                        <C>               <C>               <C>
Net sales                                                  $   34,798        $   53,080        $  47,144
Cost of sales                                                  25,341            28,590           24,690
                                                        ----------------- ---------------- ----------------
     Gross profit                                               9,457            24,490           22,454
                                                        ----------------- ---------------- ----------------
Operating expenses:
     Research and development                                   9,757             8,570            4,811
     Marketing and selling                                     13,242            11,849            7,319
     General and administrative                                 3,982             3,378            2,226
     Acquired research and development in process and
        product integration costs                               6,462            13,732                -
     Restructuring expense                                      3,662                 -                -
                                                        ----------------- ---------------- ----------------
         Total operating expenses                              37,105            37,529           14,356
                                                        ----------------- ---------------- ----------------
Income (loss) from operations                                 (27,648)          (13,039)           8,098
Interest income                                                 1,680             1,745            2,236
                                                        ----------------- ---------------- ----------------
Income (loss) before income taxes                             (25,968)          (11,294)          10,334
Provision for (benefit from) income taxes                      (3,526)              608            3,617
                                                        ----------------- ---------------- ----------------
Net income (loss)                                          $  (22,442)       $  (11,902)      $    6,717
                                                        ================= ================ ================


Net income (loss) per share:
    Basic                                                 $      (1.85)    $      (1.01)      $      0.60
                                                        ================= ================ ================
    Diluted                                               $      (1.85)    $      (1.01)      $      0.57
                                                        ================= ================ ================

Weighted average common shares:
    Basic                                                       12,154           11,760            11,147
                                                        ================= ================ ================
    Diluted                                                     12,154           11,760            11,736
                                                        ================= ================ ================


<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                       20

<PAGE>

<TABLE>

                                                          NETWORK PERIPHERALS INC.

                                               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                               (in thousands)

<CAPTION>

                                                                                             Retained
                                                              Additional                     Earnings
                                          Common Stock           Paid-In         Notes   (Accumulated
                                       Shares      Amount        Capital    Receivable       Deficit)        Total
                                  ------------ ------------ ------------- ------------- -------------- -------------
<S>                                    <C>         <C>        <C>            <C>          <C>            <C>
Balance at 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               56            -          354             -             -            354
     plan
Income tax benefit associated                            -
     with nonqualified stock                -                       596             -             -            596
     options
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               45            -          385             -             -            385
     plan
Income tax benefit associated
     with nonqualified stock                -            -           28             -             -             28
     options
Issuance of Common Stock for
     acquisition of NuCom                 441            1        5,341             -             -          5,342
     Systems
Foreign currency translation                -            -           53             -             -             53
     adjustment
Net loss                                    -            -            -             -       (11,902)       (11,902)
                                  ------------ ------------ ------------- ------------- -------------- -------------

Balance at December 31,1996            11,954           12       62,614             -        (2,769)        59,857
Issuance of Common Stock upon
     exercise of stock options            224            -          410             -             -            410
Issuance of Common Stock under
     employee stock purchase               74            -          451             -             -            451
     plan
Income tax benefit associated
     with nonqualified stock                -            -          403             -             -            403
     options
Net loss                                    -            -            -             -       (22,442)       (22,442)
                                  ------------ ------------ ------------- ------------- -------------- -------------

Balance at December 31, 1997           12,252        $  12    $  63,878      $      -   $   (25,211)   $    38,679
                                  ============ ============ ============= ============= ============== =============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                       21

<PAGE>

<TABLE>

                            NETWORK PERIPHERALS INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                Increase (Decrease) in Cash and Cash Equivalents
                                 (in thousands)

<CAPTION>

                                                                          Years Ended December 31,
                                                                      1997          1996           1995
----------------------------------------------------------------- ------------- -------------- -------------
<S>                                                                <C>           <C>            <C>
Cash flows from operating activities:
    Net income (loss)                                              $ (22,442)    $ (11,902)     $   6,717
    Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
       Depreciation and amortization                                   1,969         2,111          1,309
       Amortization of goodwill                                        1,350           665              -
       Acquired research and development in process                    6,462        13,032              -
       Deferred income taxes                                           2,289           (56)        (1,221)
       Changes in assets and liabilities:
         Accounts receivable                                           3,189        (1,845)        (1,061)
         Inventories                                                   6,811          (664)           808
         Income tax refund receivable                                 (3,580)            -              -
         Prepaid expenses and other assets                             1,026           862         (1,185)
         Accounts payable                                             (1,321)        1,439         (3,315)
         Accrued liabilities                                          (2,644)         1,623            862
                                                                  ------------- -------------- -------------
             Net cash provided by (used in) operating activities      (6,891)         5,265         2,914
                                                                  ------------- -------------- -------------

Cash flows from investing activities:
    Cash paid for acquisition, net of cash acquired                   (6,449)      (10,401)             -
    Holdback amount from acquisition                                    (659)        1,115              -
    Proceeds from sales or maturity of short-term investments          7,979         2,581          4,351
    Purchases of property and equipment                               (2,270)       (2,927)        (1,761)
                                                                  ------------- -------------- -------------
             Net cash provided by (used in) investing activities      (1,399)       (9,632)         2,590
                                                                  ------------- -------------- -------------

Cash flows from financing activities:
    Proceeds from issuance of Common Stock                               861           613            597
    Repayment of stockholders' notes receivable                            -            14             41
                                                                  ------------- -------------- -------------
             Net cash provided by financing activities                   861           627            638
                                                                  ------------- -------------- -------------

Effect of exchange rate changes on cash                                    -            53              -
                                                                  ------------- -------------- -------------

Net increase (decrease) in cash and cash equivalents                  (7,429)       (3,687)         6,142
Cash and cash equivalents, beginning of year                          23,523        27,210         21,068
                                                                  ------------- -------------- -------------

Cash and cash equivalents, end of year                              $ 16,094      $ 23,523       $ 27,210
                                                                  ============= ============== =============

Supplemental disclosure of cash flow information
    Cash paid during the year for:
       Income taxes                                                $     158    $      245      $   4,852
    Noncash transactions:
       Income tax benefit associated with nonqualified stock       $     403    $       28      $     596
         options
       Common Stock issued for acquisition of NuCom                $      -      $   5,342      $      -
<FN>

The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                       22

<PAGE>


                            NETWORK PERIPHERALS INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - THE COMPANY

Network  Peripherals  Inc., a Delaware  corporation  (the  "Company"),  designs,
develops,  and manufactures  high  performance  networking  solutions,  which it
markets primarily to original equipment manufacturers, distributors, value-added
resellers and system  integrators.  The Company's solutions are designed for use
in workgroups, wiring closets and backbones.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of Estimates

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.

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  purchased with an original
maturity  of 90  days  or less  to be  cash  equivalents.  All of the  Company's
short-term investments, which consist of securities with maturities greater than
90 days and less than one year, have been classified as available-for-sale.  For
the years ended  December 31, 1997 and 1996,  there were no material  unrealized
gains  or  losses.  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 that 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 (see Sales  Reserves
below).

Funding  under  certain  development  contracts  is  recognized  based  upon the
achievement of specified contract  milestones.  Such funding is recognized as an
offset to the  related  development  costs and totaled  approximately  $217,000,
$556,000, and $906,000 in 1997, 1996 and 1995, respectively.

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, 1997 and 1996,  the  Company's  allowances  for such  potential
events totaled $1.2 million.  As a percentage of sales transacted within 90 days
prior to December 31, 1997 and 1996,  the allowances for sales returns and other
credits were 18.0% and 7.2%, respectively.

                                       23
<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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,  the Company's  on-going  evaluation of its
customers' credit worthiness,  and the established  long-term  relationship with
certain customers.

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.  Depreciation of the Enterprise  Resource  Planning systems and the
information systems  infrastructure is based on an estimated useful life of five
years.

Goodwill

Goodwill  represents the excess of the purchase price over the fair value of the
identifiable net assets acquired and is amortized on a straight-line  basis over
the expected period of benefit, generally five years. 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.  As of  December  31,  1997 and  1996,  goodwill,  net of  accumulated
amortization,  was $173,000 and  $1,258,000,  respectively,  and was included in
other assets.

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.

Foreign Currency Translation

For 1997, the functional currency of the Company's  subsidiary in Taiwan was the
US  dollar.   For  1996,  the  functional   currency  was  the  local  currency.
Accordingly,  gains or losses arising from the  translation of foreign  currency
statements and transactions are included in determining  consolidated results of
operations.  Gains or losses arising from the  translation  of the  subsidiary's
statements  prior  to  1997  were  recorded  as  a  separate  component  of  the
stockholders' equity.

Employee Benefit Plans

The Company has stock option  plans,  an employee  stock  purchase  plan,  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  ("SFAS")  No.  87, 106 and 112
regarding pension,  other postretirement and postemployment benefit plans do not
affect the Company's financial statements.

                                       24
<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Stock-based Compensation

The Company  accounts for  stock-based  awards to employees  using the intrinsic
value method in  accordance  with  Accounting  Principles  Board Opinion No. 25,
"Accounting  for Stock Issued to Employees"  ("APB 25"), as permitted  under the
provisions of SFAS No. 123,  "Accounting  for Stock-Based  Compensation"  ("SFAS
123").  Under APB 25, if the  exercise  price of the  Company's  employee  stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

Net Income Per Share

The Company  adopted SFAS No. 128,  "Earnings  Per Share,"  which  requires dual
presentation  of  basic  earnings  per  share  ("EPS")  and  diluted  EPS on all
statements  of earnings  issued after  December  15, 1997 for all entities  with
complex capital structures. Basic EPS is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential  dilution  that could occur from common  shares  issuable
through  stock-based  compensation  including  stock options,  restricted  stock
awards,  warrants,  and other  convertible  securities  using the treasury stock
method.  The  Company  has  restated  all prior  years' EPS to conform  with the
provisions of the SFAS No. 128.

During 1997 and 1996, the Company  incurred  losses,  such that the inclusion of
potential  common shares would result in an  antidilutive  per share amount.  As
such,  no  adjustment  is made to basic EPS to arrive at the  diluted  EPS.  The
reconciliation  of the basic and the  diluted  EPS  computations  for 1995 is as
follows (in thousands):

         Net income as reported                              $  6,717
                                                         =============

         Denominator  used to  compute  basic  EPS             11,147
         Effect  of  dilutive securities:
         Shares issuable upon exercise of stock options           589
                                                         -------------
         Denominator used to compute diluted EPS               11,736
                                                         =============

         Basic EPS                                           $   0.60
                                                         =============

         Diluted EPS                                         $   0.57
                                                         =============

Recently Issued Accounting Standards

In June 1997, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting  Comprehensive Income" ("SFAS 130"), which establishes standards
for  reporting  and  display  of  comprehensive   income,   its  components  and
accumulated balances.  Comprehensive income is defined to include all changes in
equity,  except those resulting from investments by owners and  distributions to
owners.  Among other  disclosures,  SFAS 130  requires  that all items which are
required to be recognized  under current  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information"  ("SFAS 131") which supersedes SFAS No. 14,
"Financial   Reporting  for  Segments  of  a  Business   Enterprise."  SFAS  131
establishes standards for public companies to report information about operating
segments in annual  financial  statements  and  requires  reporting  of selected
information about operating  segments in interim financial  statements issued to
the public. It also establishes standards for disclosures regarding products and
services,  geographic  areas and major  customers.  SFAS 131  defines  operating
segments as components of a company about which separate  financial  information
is available that is evaluated  regularly by the chief operating  decision maker
in deciding how to allocate resources and in assessing performance.

                                       25

<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Both SFAS 130 and SFAS 131 are effective for  financial  statements  for periods
beginning  after  December  15, 1997 and  require  comparative  information  for
earlier years presented to be restated.  The Company's results of operations and
financial position will be unaffected by implementation of these standards.

Reclassifications

Certain  amounts in 1996 and 1995 have been  reclassified to conform to the 1997
presentation.


NOTE 3 - BALANCE SHEET COMPONENTS (in thousands)

                                                               December 31,
                                                            1997         1996
--------------------------------------------------------------------------------
Cash, cash equivalent, and short-term investments:
        Cash and money market accounts                    $ 16,094     $  5,411
        Municipal obligations                                 --         18,112
                                                          --------     --------
               Cash and cash equivalents                    16,094       23,523
                                                          --------     --------

        Corporate debt securities                           14,371         --
        Municipal obligations                                 --         21,238
        Government securities                                 --          1,112
                                                          --------     --------
                Short-term investments                      14,371       22,350
                                                          --------     --------
                                                          $ 30,465     $ 45,873
                                                          ========     ========

Inventories:
     Raw materials                                        $    158     $  4,685
     Work-in-process                                           898        2,600
     Finished goods                                            361          943
                                                          --------     --------
                                                          $  1,417     $  8,228
                                                          ========     ========

Property and equipment:
     Computer and equipment                               $  6,918     $  7,181
     Furniture and fixtures                                    895          907
     Leasehold improvements                                    303          356
                                                          --------     --------
                                                             8,116        8,444
     Accumulated depreciation                               (4,240)      (4,869)
                                                          --------     --------
                                                          $  3,876     $  3,575
                                                          ========     ========
Accrued liabilities:
     Salaries and benefits                                $  1,750     $  2,699
     Reserve for contract settlements                        1,000         --
     Royalty                                                   746        1,154
     Restructuring expense                                     597         --
     Warranty                                                  513          717
     Holdback amount from acquisition                          456        1,115
     Customer deposits                                          38          605
     Income taxes                                             --          1,268
     Other                                                     695        1,283
                                                          --------     --------
                                                          $  5,795     $  8,841
                                                          ========     ========

                                       26

<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 4 - LINE OF CREDIT

The Company has a bank line of credit for $10 million  which expires on July 31,
1998.  Borrowings  under the line of credit  bear  interest  at the lower of the
bank's prime rate or the London Interbank Offered Rate plus 2.5% and are secured
by the Company's receivables,  inventory,  and other tangible assets. There were
no  borrowings  under the line of credit in 1997 and 1996.  As of  December  31,
1997, the Company was in compliance with the financial covenants required by the
line of credit agreement.


NOTE 5 - COMMITMENTS

The Company  leases its  corporate  headquarters  under an operating  lease that
expires in October  2000.  The Company  also has research  and  development  and
manufacturing  facilities in Taiwan under various operating leases which  expire
in  February  2002.  Rent  expense  for all  Company  facilities  was  $931,000,
$868,000, and $529,000 in 1997, 1996, and 1995, respectively.

Future  minimum  lease  payments  as of  December  31,  1997 are as follows  (in
thousands):

                  Years ending December 31,
                             1998                     $ 610
                             1999                       588
                             2000                       550
                             2001                       321
                             2002                        68
                                                    -------
                                                    $ 2,137
                                                    =======

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

Employee Stock Purchase Plan

The Company has an Employee  Stock  Purchase  Plan (the  "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 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. The Company has reserved
250,000 shares of Common Stock for issuance under the Plan. Through December 31,
1997,  the Company has issued  191,714  shares of Common  Stock for an aggregate
purchase  price of  $1,289,806,  and 58,286  shares  remain  reserved for future
issuance under the Plan.

                                       27

<PAGE>

                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Stock Option Plans

In April 1997, the Company adopted the 1997 Stock Plan (the "1997 Plan"),  which
provides  for the  granting of  incentive  and  nonstatutory  stock  options and
restricted stock awards to eligible  employees,  directors and consultants.  The
Company has reserved 1,500,000 shares of the Company's Common Stock for issuance
under the 1997 Plan.  Pursuant to the 1997 Plan, the exercise price per share of
each stock option is determined by the  Company's  Board of Directors,  provided
that (i) the exercise  price for an incentive  stock option is not less than the
fair market  value of a share of Common  Stock on the date of the grant and (ii)
the exercise price for a  nonstatutory  stock option is not less than 85% of the
fair market value of a share of Common  Stock on the date of the grant.  Options
under the 1997 Plan vest  over a period  determined  by the Board of  Directors,
which is generally  four years.  As of December  31,  1997,  options to purchase
664,700 shares of Common Stock were  outstanding;  835,300 shares were available
for future grants; and 1,500,000 shares were authorized but unissued.

Upon adoption of the 1997 Plan in April 1997,  the Company  terminated  the 1993
Stock Option Plan (the "1993 Plan") and the 1996 Nonstatutory  Stock Option Plan
(the "1996 Plan"). No further stock options were granted under the 1993 Plan and
the 1996 Plan.  Outstanding  options  and shares  issued  upon the  exercise  of
options  granted  continue  to be governed  by the terms and  conditions  of the
respective  plans.  As of  December  31,  1997,  options to  purchase a total of
1,893,862  shares  of  Common  Stock  under the 1993 Plan and the 1996 Plan were
outstanding.

The 1994  Outside  Directors  Stock Option Plan (the "1994  Plan"),  as amended,
which  provides for the  automatic  granting of  nonqualified  stock  options to
directors of the Company  ("Outside  Director"),  has a total of 150,000  shares
reserved for issuance. Pursuant to the 1994 Plan, the Company grants to each new
Outside Director an option to purchase 15,000 shares of Common Stock and to each
Outside  Director an option to purchase 5,000 shares of Common Stock on the date
of each annual meeting of stockholders.  The exercise price of the stock options
will be the fair  market  value of the  Common  Stock on the date of grant,  and
options  vest over a period of four years.  At  December  31,  1997,  options to
purchase  38,000 shares of Common Stock were  outstanding;  112,000  shares were
available for future grants;  and 150,000 shares of Common Stock were authorized
but unissued under the 1994 Plan.

The  Company has  elected to  continue  to follow APB 25 in  accounting  for its
employee stock options and adopted the disclosure-only requirements of SFAS 123.
SFAS 123 requires the  disclosure of pro forma net income and earnings per share
as if the Company had  accounted  for its employee  stock options under the fair
value method in  accordance  with SFAS 123.  The fair value of these  options is
estimated on the date of grant using the Black-Scholes option-pricing model with
the  following  weighted-average  assumptions:  zero  dividend  yield;  expected
volatility  of  77.24%  in 1997 and  69.36%  in both  1996 and  1995;  risk-free
interest rate of 5.36% in 1997 and 5.48% in both 1996 and 1995;  and all options
are exercised at vesting.

Had  compensation  cost  for  the  Company's  employee  stock-based  plans  been
determined based on the fair value at the grant date for awards  consistent with
the  provisions  of SFAS 123,  the  Company's  net income and earnings per share
would have been:

<TABLE>
<CAPTION>

                                                             1997           1996           1995
            ---------------------------------------------------------------------------------------
                                                           (in thousands, except per share data)
<S>                                                         <C>            <C>              <C>
            Net income (loss) - as reported                 $ (22,442)     $ (11,902)       $ 6,717
            Net income (loss) - pro forma                     (28,003)       (14,782)         5,791

            Basic earnings (loss) per share - as                (1.85)         (1.01)          0.60
            reported
            Basic earnings (loss) per share - pro forma         (2.30)         (1.26)          0.52

            Diluted earnings (loss) per share - as              (1.85)         (1.01)          0.57
            reported
            Diluted earnings (loss) per share - pro             (2.30)         (1.26)          0.49
            forma

</TABLE>
                                       28

<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Due to the broad  decline  in the market  price of the  Company's  Common  Stock
during 1997, a substantial  amount of stock options  granted had exercise prices
above the current market price.  On July 25, 1997 and  subsequently  October 31,
1997, the Company  offered stock option plan  participants  the right to replace
any  remaining  unexercised  stock options with an equal number of options at an
exercise price equal to the closing market price on such dates.

<TABLE>
The following table summarizes  information  about stock options  outstanding at December 31, 1997:

<CAPTION>
                                            Outstanding                                Exercisable
                        ----------------------------------------------------    ---------------------------
                                        Weighted Average       Weighted                       Weighted
     Range of                              Remaining            Average                        Average
  Exercise Prices          Shares       Contractual Life    Exercise Price       Shares    Exercise Price
--------------------    ----------------------------------------------------    ---------------------------
<S>                        <C>             <C>                   <C>              <C>           <C>
  $  0.30 - $  4.99        2,183,754       8.73 Years            $4.77            239,566       $3.60
     5.00 -    9.99          234,785       9.23 Years             6.56             27,423        6.65
    10.00 -   14.99          174,023       8.89 Years            11.55             42,758       13.11
    15.00 -   20.00            4,000       7.32 Years            20.00              2,666       20.00
                        -------------                                           ----------
                           2,596,562       8.78 Years             5.41            312,413        5.31
                        =============                                           ==========
</TABLE>

Stock options generally expire in 10 years from the date they are granted.

<TABLE>

The following table summarizes stock option  activities for all of the Company's stock option plans:
<CAPTION>

                                                                         Options       Weighted Average
                                                                       Outstanding       Exercise Price
       ---------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>
       Balance at December 31,1994                                         889,425           $3.31
       Granted                                                             533,900           19.79
       Exercised                                                          (161,382)           1.78
       Canceled                                                           (141,817)          12.81
                                                                    -----------------
       Balance at December 31, 1995  (374,239  shares  exercisable
         at a weighted average price of $1.75 per share)                 1,120,126           10.19
       Granted                                                           2,905,155           14.72
       Exercised                                                          (199,698)           1.14
       Canceled                                                           (995,216)          15.76
                                                                    -----------------
       Balance at December 31, 1996  (555,417  shares  exercisable
         at a weighted average price of $8.47 per share)                 2,830,367           13.52
       Granted                                                           1,592,700            7.31
       Exercised                                                          (224,160)           1.89
       Canceled                                                         (1,602,345)          11.83
                                                                    -----------------
       Balance at December 31, 1997                                      2,596,562            5.41
                                                                    =================
</TABLE>
The weighted  average  estimated  grant date fair value, as defined by SFAS 123,
for options granted under the stock option plans during 1997, 1996 and 1995 were
$3.29, $5.66 and $8.69,  respectively. The weighted average estimated grant date
fair  value,  as defined by SFAS 123,  for  purchase  rights  granted  under the
employee  stock purchase plan during 1997,  1996 and 1995 were $1.43,  $2.89 and
$2.41, respectively.

                                       29
<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 7 - INCOME TAXES

<TABLE>
The following is a geographical  breakdown of consolidated  income (loss) before income taxes (in thousands):
<CAPTION>

                                                                              Years ended December 31,
                                                                        1997            1996           1995
------------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>               <C>
  Domestic                                                        $  (21,761)    $    (1,626)      $  10,334
  Foreign                                                             (4,207)        ( 9,668)              -
                                                                 ------------- --------------- -------------
                                                                  $  (25,968)     $  (11,294)      $  10,334
                                                                 ============= =============== =============
</TABLE>
<TABLE>

Provision  for  (benefit  from)  income  taxes  consists  of the  following  (in
thousands):
<CAPTION>

                                                                              Years ended December 31,
                                                                        1997            1996          1995
------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>          <C>
  Current:
     Federal                                                       $  (5,815)       $    174     $   3,862
     State                                                                  -             54           976
      Foreign                                                               -            436             -
                                                                 ------------- --------------- -------------
                                                                      (5,815)            664         4,838
                                                                 ------------- --------------- -------------
  Deferred:
     Federal                                                           1,993             (46)       (1,058)
     State                                                               296             (10)         (163)
                                                                 ------------- --------------- -------------
                                                                       2,289             (56)       (1,221)
                                                                 ------------- --------------- -------------
                                                                   $  (3,526)        $   608     $   3,617
                                                                 ============= =============== =============
</TABLE>

<TABLE>
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:

<CAPTION>
                                                                            Years ended December 31,
                                                                        1997            1996          1995
------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>              <C>
  Federal statutory rate                                             (35.0%)         (35.0%)          35.0%
  State tax, net of federal impact                                    (6.0)             .3             5.1
  Research and development tax credits                                 (.8)           (1.1)           (1.2)
  Tax-exempt interest income                                          (1.0)           (4.5)           (6.9)
  Provision for valuation allowance on deferred tax assets            22.1               -              -
  Nondeductible acquisition costs                                      8.6            45.6              -
  Other                                                               (1.5)             .1            3.0
                                                                 ------------- --------------- -------------
                                                                     (13.6%)           5.4%          35.0%
                                                                 ============= =============== =============
</TABLE>
                                       30
<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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

                                                                December 31,
                                                             1997         1996
--------------------------------------------------------------------------------
Net operating loss and credits carryforwards                $ 1,575      $  --
Reserves and accruals not currently deductible                1,947        1,286
Inventory                                                     1,789          572
Other                                                           432          431
                                                            -------      -------
    Gross deferred tax assets                                 5,743        2,289
      Valuation allowance                                    (5,743)        --
                                                            -------      -------
    Net deferred tax assets                                 $  --        $ 2,289
                                                            =======      =======

Current                                                     $  --        $ 2,271
Noncurrent                                                     --             18
                                                            -------      -------
    Net deferred tax assets                                 $  --        $ 2,289
                                                            =======      =======

Management  believes that, based on a number of factors,  it is more likely than
not  that  the  deferred  tax  assets  will not be  utilized,  such  that a full
valuation allowance has been recorded.

As  of  December  31,  1997,   the  Company  has  Federal  net  operating   loss
carryforwards of approximately  $2.6 million which expire in 2012. For state tax
purposes, the Company has net operating loss carryforwards of approximately $5.2
million which expire in 2002.


NOTE 8 - ACQUISITIONS

Effective   April  29,  1997,  the  Company   acquired   NetVision   Corporation
("NetVision"),  a privately held company engaged in the development of very high
bandwidth  LAN switching and Gigabit  Ethernet  technologies,  at a cost of $6.5
million, including payments to NetVision stockholders, the assumption of certain
liabilities,  and  transaction  expenses.  Effective March 21, 1996, the Company
completed its  acquisition  of NuCom  Systems,  Inc.  ("NuCom"),  a Taiwan-based
company, by purchasing all the outstanding shares of NuCom in exchange for $11.2
million in cash,  440,748  shares of the  Company's  Common Stock valued at $5.3
million, plus product integration costs for an aggregate purchase price of $17.1
million.  These  transactions were accounted for using the purchase method,  and
the purchase price was allocated to the assets acquired and liabilities  assumed
based on the estimated  fair market values at the date of  acquisition.  In each
transaction,  the research and development in process  represented the estimated
current  fair  market  value of  specified  technologies  which had not  reached
technological  feasibility and had no future uses. The results of the operations
acquired were  included with those of the Company from the date of  acquisition.
The allocation of the purchase price was as follows (in thousands):

         Acquisition of NetVision:

           Research and development, in process          $  6,462
           Goodwill                                           200
           Assets                                              44
           Liabilities assumed                               (257)
                                                      --------------
               Total                                     $  6,449
                                                      ==============

                                       31

<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         Acquisition of NuCom:
           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
                                                      =============

The pro forma combined results of operations of the Company, NetVision and NuCom
for the years ended  December  31,  1997 and 1996,  as if the  acquisitions  had
occurred at the  beginning  of the  respective  years,  after  giving  effect to
certain pro forma  adjustments,  are as follows (in thousands,  except per share
amount):

                                           1997            1996
           ---------------------------------------------------------
           Net sales                     $  34,798       $  53,080
                                       ============= ===============

           Net income (loss)              $(15,214)      $   1,884
                                       ============= ===============

           Net income (loss) per share:
               Basic                    $    (1.29)     $     0.17
                                       ============= ===============
               Diluted                  $    (1.29)     $     0.16
                                       ============= ===============

The  foregoing pro forma results of  operations  excluded  the  amortization  of
goodwill and the  write-off of acquired  research  and  development  in  process
resulting from the acquisitions.

NOTE 9 - RESTRUCTURING

<TABLE>
In the third  quarter of 1997,  the Company  announced  and began to implement a
restructuring  plan aimed at reducing costs and restoring  profitability  to the
Company's  operations.  The  restructuring  plan was  necessitated  by decreased
demand for the Company's  products and the Company's adoption of a new strategic
direction.  These actions resulted in a net charge of approximately $3.7 million
to the consolidated  statement of operations in 1997. The restructuring  actions
principally  consisted of termination of approximately 70 employees,  closure of
certain sales and manufacturing facilities,  cancellation of the related leases,
and  write-off  of excess  manufacturing  equipment  and  goodwill.  The Company
expects that most of the contemplated restructuring actions will be completed in
1998 and will be financed through working capital. The following table lists the
restructuring  accrual  activities  from July 1, 1997 to  December  31, 1997 (in
thousands):
<CAPTION>


                                                                    Reduction                  Write-off
                                                      Write-off     in Work     Closure of       Excess
                                                     of Goodwill     Force      Facilities       Assets        Other         Total
                                                     -------------------------------------------------------------------------------
<S>                                                   <C>           <C>           <C>           <C>           <C>           <C>
Reserve provided                                      $   962       $   500       $   200       $ 1,500       $   500       $ 3,662
  Reserve utilized in third quarter                      (962)         --            (100)         --            --          (1,062)
  Reserve utilized in fourth quarter                     --            (373)           (8)       (1,122)         (500)       (2,003)
                                                      -------       -------       -------       -------       -------       -------
    Balance at December 31, 1997                      $  --         $   127       $    92       $   378       $  --         $   597
                                                      =======       =======       =======       =======       =======       =======
</TABLE>
                                       32

<PAGE>


                            NETWORK PERIPHERALS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 10 - MARKET DATA

The Company operates in one industry segment.  Export sales to customers outside
of North  America  represented  26%, 21%, and 25% of the Company's net sales for
the years ended December 31, 1997, 1996 and 1995, respectively.  As a percentage
of net sales,  export sales to Europe and Asia for 1997,  1996 and 1995 were 11%
and 15%; 8% and 13%; and 17% and 8%, respectively.

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

                                     Years ended December 31,
                                 1997          1996           1995
     ------------------------------------------------------------------
           Customer A            39%            26%           17%
           Customer B             -              -            15%
           Customer C             -             15%           10%
           Customer D             -             12%            -


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 1998 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 1998 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 1998 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 1998 Annual Meeting.

                                       34
<PAGE>


                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


<TABLE>
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.

<CAPTION>
(a)      Exhibits
<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.
          10.9(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.
          10.14(3)      Amendment No. 1, dated June 1, 1994, to Facilities Lease 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.
          10.18(4)      Purchase  Agreement  among  Network   Peripherals  Inc.,  Network Peripherals,  Ltd., NuCom Systems, Inc.,
                        and the shareholders of NuCom, dated January 31, 1996.
          10.22 (5)     Line of Credit Agreement with Sumitomo Bank dated October 2, 1996.
          10.23 (5)     Agreement with Glenn Penisten dated May 15, 1996.
          10.26 (7)     Purchase  Agreement among Network  Peripherals  Inc.,  NetVision  Corporation,  and the
                        shareholders of NetVision , dated April 29, 1997.
          10.27 (6)     1997 Stock Option Plan.
          10.28 (6)     Amended 1994 Outside Directors Option Plan.
          10.29 (8)     Development  and Purchase  Agreement with Sun  Microsystems,  Inc.,  dated February 25,
                        1994.
          10.30 (8)     Amendment No. 1, dated April 5, 1996, to the  Development  and Purchase  Agreement with
                        Sun Microsystems, Inc.
          10.31 (8)     Amendment No. 2, dated  December 20, 1996, to the  Development  and Purchase  Agreement
                        with Sun Microsystems, Inc.
          10.32 (8)     Corporate Supply Agreement with Sun Microsystems, Inc., dated March 31, 1997.
          10.33 (8)     Amendment,   dated  April  30,  1997,  to  the  Corporate  Supply  Agreement  with  Sun
                        Microsystems, Inc.
          10.34         Modification Agreement,  dated August 29, 1997, to amend  certain  terms  of the  Line of  Credit  Agreement
                        with Sumitomo Bank of California.
          10.35         Second Modification Agreement,  dated November 17, 1997,  to amend certain  terms of the Line of Credit
                        Agreement with Sumitomo Bank of California.
          10.36         Amended and Restated Salary Continuation  Agreement with Pauline Lo Alker dated October
                        31, 1997.
          10.37         Amended and Restated Salary Continuation  Agreement with Robert Hersh dated October 31,
                        1997.
          10.38         Salary Continuation Agreement with Glenn Penisten dated October 31, 1997.
          10.39         Salary Continuation Agreement with Fred Kiremidjian dated October 31, 1997.
          10.40         Salary Continuation Agreement with James Sullivan dated October 31, 1997.
          10.41         Consent of Independent Accountants dated March 27, 1998.
          27            Financial Data Schedule.

                                       35

<PAGE>


(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 Registrant's report on Form 8-K filed on March 31, 1996 (File No. 0-23970).
         (5)    Incorporated by reference to the  corresponding  exhibit in the  Registrant's  Annual Report on Form 10-K for
                the year ended December 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, 1997 (File No. 0-23970).
         (7)    Incorporated by reference to the Registrant's report on Form 8-K filed on May 14, 1997 (File No. 0-23970).
         (8)    This exhibit will be submitted with an amendment to Item 14, "Exhibits, Financial Statement Schedules and Reports
                on Form 8-K," of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 (File
                No. 0-23970). The Registrant intend`s to seek confidential treatment with respect to portions of this Agreement.
                                       36

</TABLE>


<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\ROBERT HERSH
                                             ----------------------------------
                                             Robert Hersh
                                             Vice President of Operations 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 (Principal Executive
 Pauline Lo Alker                           Officer)


 \s\  ROBERT HERSH                      Vice President of Operations and
--------------------------------             Chief Financial Officer
 Robert Hersh                                (Principal Financial Officer)


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

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

 \s\  JOSEPH MARENGI                    Director
--------------------------------
 Joe Marengi

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

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

                                       37


<PAGE>

<TABLE>

                                           NETWORK PERIPHERALS INC.

                                       VALUATION AND QUALIFYING ACCOUNTS

                                                (in thousands)

SCHEDULE II

<CAPTION>

                                                                      Additions
                                                              --------------------------
                                                  Balance at    Charged to   Charged to                   Balance at
                                                   Beginning     Costs and        Other                          End
                                                     of Year      Expenses     Accounts  Deductions          of Year
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>           <C>          <C>               <C>
Year ended December 31, 1995
    Allowance for doubtful accounts                 $    165    $        -    $      88    $     (53)        $   200
    Allowance for sales returns and other                744             -        1,664       (1,870)            538
   credits
                                               -------------- ------------- ------------ ------------- --------------
     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                538             -        6,743       (6,336)            945
   credits
                                               -------------- ------------- ------------ ------------- --------------
     Total allowances for doubtful accounts
     and sales returns                                   738             -        6,764       (6,348)          1,154

Year ended December 31, 1997
    Allowance for doubtful accounts                      209             -          138          (49)            298
    Allowance for sales returns and other                945             -        3,593       (3,652)            886
   credits
                                               -------------- ------------- ------------ ------------- --------------
     Total allowances for doubtful accounts
     and sales returns                               $ 1,154    $        -       $3,731      $(3,701)        $ 1,184
                                               ============== ============= ============ ============= ==============
</TABLE>

                                       38