NETSILICON INC, S-1/A, 1999-07-20

NETSILICON INC
S-1/A, 1999-07-20
COMPUTER PERIPHERAL EQUIPMENT, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1999.

REGISTRATION NO. 333-62231
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

------------------------

AMENDMENT NO. 4
TO
REGISTRATION STATEMENT
ON
FORM S-1
UNDER
THE SECURITIES ACT OF 1933

------------------------

NETSILICON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
MASSACHUSETTS 3674 04-2826579
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
411 WAVERLEY OAKS ROAD,
SUITE 227
WALTHAM, MA 02454
(781) 647-1234
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------------------

CORNELIUS PETERSON VIII
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NETSILICON, INC.
411 WAVERLEY OAKS ROAD, SUITE 227
WALTHAM, MA 02454
(781) 647-1234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

------------------------

COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
W. RAYMOND FELTON, ESQ. N. JEFFREY KLAUDER, ESQ.
GREENBAUM, ROWE, SMITH, RAVIN, DAVIS & HIMMEL LLP MORGAN, LEWIS & BOCKIUS LLP
P.O. BOX 5600 1701 MARKET STREET
WOODBRIDGE, NEW JERSEY 07095 PHILADELPHIA, PENNSYLVANIA 19103-6993
(732) 549-5600 (215) 963-5694
</TABLE>
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]

------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

================================================================================

<PAGE>

SUBJECT TO COMPLETION, DATED JULY 20, 1999

THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

5,000,000 SHARES

[LOGO]

COMMON STOCK
$ PER SHARE

- --------------------------------------------------------------------------------

This is an initial public offering of voting common stock of NETsilicon, Inc. We
are offering 3,000,000 shares and Osicom Technologies, Inc., the sole
stockholder of NETsilicon, is selling 2,000,000 shares. We will not receive any
proceeds from the sale of shares by Osicom. Following the completion of this
offering, Osicom will own 8,000,000 shares of non-voting common stock or 61.5%
(7,500,000 shares of non-voting common stock or 56.6% if the underwriters'
over-allotment option is exercised in full) of the outstanding common stock of
NETsilicon.

We expect that the price to the public in the offering will be between $8.00 and
$10.00 per share. The market price of the shares after the offering may be
higher or lower than the offering price.

We have applied to include the common stock on the Nasdaq National Market under
the symbol 'NSIL.'

INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE 'RISK FACTORS'
BEGINNING ON PAGE 7.

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<CAPTION>
PER SHARE TOTAL
----------- -------------
<S> <C> <C>
Price to Public................................. $ $
Underwriting Discount...........................
Proceeds to NETsilicon..........................
Proceeds to Osicom..............................
</TABLE>

NETsilicon and Osicom have granted an over-allotment option to the underwriters.
Under this option, the underwriters may elect to purchase a maximum of 750,000
additional shares (250,000 from NETsilicon and 500,000 from Osicom) within
30 days following the date of this prospectus to cover over-allotments.

- --------------------------------------------------------------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CIBC WORLD MARKETS U.S. BANCORP PIPER JAFFRAY

The date of this prospectus is , 1999.

<PAGE>

[GRAPHIC]

Graphic titled The NET+Works Comprehensive Solution. The graphic depicts a three
dimensional, four color box divided into quarters. Each quarter is connected to
the clockwise adjacent quarter by an arrow. The four quarters of the box are
labeled as follows (clockwise from lower right): 'NET+Works Development Tools
and Support', Fully Integrated by NETsilicon', 'NET+ARM Hardware', 'NET+Works
Software'. Below the box is a listing of the following NET+ product categories:
NET+ Drivers, NET+Protocols, NET+Services, NET+Industry Applications,
NET+APIs, NET+ DMA. NETsilicon, Inc.'s logo is located in the lower right hand
corner of the graphic.

<PAGE>

[GRAPHIC]

Graphic titled Bringing Internet Connectivity to a New World of Products.
The graphic depicts devices, processes or activities for which embedded
networking has an application. The text at the center of the graphic is as
follows:

"NET+Works'TM' Solutions. NETsilicon's NET+Works family of embedded
networking solutions, when coupled with the physical interface and memory
components, contains all the hardware and networking software necessary to
add Ethernet or Internet connectivity to virtually any electronic product
design.

The NET+Works solution is designed to enable manufacturers to reduce
the cost and improve the time to market of their end products that
incorporate embedded networking capability."

Above the text are two rows of white boxes with the following markets in
which the Company has achieved a NET+Design Win: From the left, first row:
Imaging; Industrial Automation and Process Control; Internet Communications
Devices; Building Controls and Security. From the left, second row: SOHO;
Utility Monitoring; Test and Laboratory; Telephony. Each box details various
possible applications in each of these markets. Below the text is a row of
four gray boxes. The gray boxes indicate future target markets. In the center
of the row, and larger than the gray boxes, is a depiction of the NETsilicon
chip. The two boxes to the left of the chip are, from the left: Distribution
and Inventory; Medical. The two boxes to the right of the chip are, from the
left: Travel and Transportation; Retail/POS/Data Collection. These gray boxes
detail possible applications in each of these areas.

<PAGE>

TABLE OF CONTENTS

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PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
The Company................................................. 21
Forward-Looking Statements.................................. 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 37
Management.................................................. 50
Principal and Selling Stockholders.......................... 58
Certain Relationships and Related Party Transactions........ 59
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 62
Underwriting................................................ 64
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information......................... 66
Index to Financial Statements............................... F-1
</TABLE>

------------------------------------

NETsilicon's executive office is located at 411 Waverley Oaks Road, Suite 227,
Waltham, Massachusetts 02454 and its telephone number is (781) 647-1234.

Information contained on NETsilicon's website, www.netsilicon.com, does not
constitute a part of this prospectus.

Unless otherwise indicated, the information in this prospectus (i) assumes no
exercise of the underwriters' over-allotment option, (ii) assumes an initial
offering price of $9.00 per share, and (iii) assumes a 100,000-for-one stock
split of the Company's common stock which occurred on June 30, 1999. Unless the
context otherwise requires, NETsilicon, Inc. is referred to herein as
'NETsilicon' or the 'Company.' All references in this prospectus to common stock
refer to both voting and non-voting common stock.

'NET+ARM' is a trademark of ARM Limited and is exclusively licensed to the
Company. All other product names referred to herein are the property of their
respective owners.

The underwriters are offering the shares subject to various conditions and may
reject all or part of any order.

<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in the shares. You should read the entire
prospectus carefully.

THE COMPANY

NETsilicon, Inc. develops and markets semiconductor devices and software
solutions designed to meet the networking requirements of embedded systems. The
Company's products are incorporated into the design of embedded systems to
provide them with the ability to communicate over standards-based local area
networks, wide-area networks and the Internet, enabling the development of new
embedded systems applications. The Company believes that it offers the first
comprehensive solution that, in conjunction with the physical interface and
memory, encompasses all of the hardware and software necessary to network enable
embedded systems. The Company's technology is designed to have broad
applicability and therefore may add network functionality to many embedded
systems.

The Company's products are currently contained in a broad array of imaging
products, including printers, scanners, fax machines, copiers and multi-function
peripherals manufactured by 22 OEMs, or original equipment manufacturers, such
as Minolta Corporation, NEC Corporation, Ricoh Company, Ltd., Sharp Corporation
and Xerox Corporation. The Company's products are also in various stages of
being incorporated into the design of products in additional markets, such as
industrial automation equipment, communication devices, data acquisition and
test equipment, Internet devices and utility monitoring equipment.

An embedded system is a computer that is incorporated into a larger electronic
system and responds to external events by performing specific tasks quickly,
predictably and reliably. Over the past decade, manufacturers have increasingly
incorporated embedded systems into a wide variety of products to provide
enhanced features and functionality. Some examples of embedded computers are in
office products such as fax machines, laser printers and photocopiers;
industrial automation equipment such as robots and process control equipment;
building control equipment such as elevator and environmental control systems;
consumer products such as camcorders and video games; medical instrumentation
and imaging systems; vending machines and automated teller machines; and vehicle
anti-lock brakes and navigation systems.

While increasingly powerful, these embedded systems have traditionally been
unable to communicate with other devices. Manufacturers are now seeking ways to
enable the networking and communication of embedded systems to further enhance
their products, extend their capabilities and develop innovative applications.
The Company believes that the embedded systems industry is similar to the
personal computer industry, in which the initial major technological advances
increased the power of individual systems, but the subsequent networking of
these systems provided tremendous benefits and enabled entirely new
applications, such as workgroup collaboration.

The Company's solution is designed to enable manufacturers of embedded systems
to reduce the cost and improve the time to market for their products
incorporating networking capability. The Company provides manufacturers of
embedded systems with its NET+Works solution for networking embedded systems.
The NET+Works solution incorporates semiconductor devices and a suite of
software. The Company also provides software development licenses and
application engineering services to OEMs to enable them to design products
incorporating NET+Works technology. The Company believes its solution is
comprehensive, standards-based, scalable and

<PAGE>

extensible, and provides compelling value to OEMs relative to alternative
solutions or the cost and effort of developing in-house networking expertise.

Key elements of the Company's strategy include:

expanding its existing OEM customer relationships in the imaging industry;

identifying and penetrating additional embedded systems markets;

developing market-specific versions of its products to reinforce its
position in additional embedded systems markets it enters; and

influencing industry standards for network connectivity in additional
embedded systems markets.

The Company was incorporated in Massachusetts in 1984. From its inception, the
Company has developed and marketed products enabling the connection of
electronic devices to networks. The Company began development activities related
to its NET+Works technology in 1996 and introduced its initial NET+Works
product, the NET+ARM semiconductor device, in January 1998.

THE OFFERING

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<S> <C>
Common stock offered by the Company............. 3,000,000 shares
Common stock offered by Osicom.................. 2,000,000 shares
Common stock to be outstanding after the
offering...................................... 13,000,000 shares
Use of proceeds................................. To repay indebtedness due to Osicom, to repay a
portion of its outstanding indebtedness to Coast
Business Credit, to fund product development and
marketing, capital expenditures and working
capital, and for general corporate purposes.
Proposed Nasdaq National Market symbol.......... NSIL
</TABLE>

<PAGE>

SUMMARY FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED APRIL 30,
----------------------------------- -------------------
1997 1998 1999 1998 1999
------- ------- ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $ 7,445 $ 7,920 $13,373 $2,185 $5,814
Operating income (loss) from continuing
operations........................................ (942) (1,228) (1,581) (280) 253
Income (loss) from continuing operations before
income tax benefit................................ (1,078) (1,346) (2,132) (340) 15
Income (loss) from continuing operations............ (109) (853) (2,132) (340) 15
Income (loss) from continuing operations per
share(1):
Basic............................................. $ (0.01) $ (0.09) $ (0.21) $(0.03) $ 0.00
Weighted average number of shares outstanding(1):
Basic............................................. 8,285 10,000 10,000 10,000 10,000
</TABLE>

<TABLE>
<CAPTION>
APRIL 30, 1999
---------------------------
AS
ACTUAL ADJUSTED(2)
------------ ------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 30 $18,950
Working capital (deficit)................................. (3,782) 20,728
Total assets.............................................. 13,726 29,893
Due to Osicom(3).......................................... 5,889 --
Short-term debt........................................... 3,455 1,000
Stockholders' equity (deficit)............................ (1,821) 22,689
</TABLE>

- ---------------------------

(1) See the notes to the Company's financial statements for the years ended
January 31, 1997, 1998 and 1999 and the three months ended April 30, 1998
and 1999 regarding computations of net income (loss) per share.

(2) The 'As Adjusted' balances reflect the sale by the Company of 3,000,000
shares of common stock and the receipt of approximately $24.5 million in
estimated net proceeds from this offering and the application thereof as set
forth in Use of Proceeds. See 'Use of Proceeds' and 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'

(3) Reflects advances from Osicom to the Company as of April 30, 1999. The
Company anticipates repayment of all outstanding amounts due to Osicom,
offset by a $2.8 million receivable due from Osicom, from the Company's
proceeds of the offering. See note F to the notes to the financial
statements.

<PAGE>

RISK FACTORS

You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the shares.

HISTORY OF LOSSES AND ACCUMULATED DEFICIT

The Company has incurred net losses from continuing operations for the fiscal
years ended January 31, 1997, 1998 and 1999. At April 30, 1999, the Company had
an accumulated deficit of $4.4 million. There can be no assurance that the
Company will achieve profitability on a quarterly or annual basis in the future.
In addition, revenue growth is not necessarily indicative of future operating
results and there can be no assurance that the Company will be able to sustain
revenue growth. The Company continues to invest significant financial resources
in product development, marketing and sales, and a failure of such expenditures
to result in significant increases in revenue could have a material adverse
effect on the Company's business, results of operations and financial condition.
Due to the limited history and undetermined market acceptance of the Company's
new products, the rapidly evolving nature of the Company's business and markets,
potential changes in product standards that significantly influence many of the
markets for the Company's products, the high level of competition in the
industries in which the Company operates and the other factors described
elsewhere in 'Risk Factors,' there can be no assurance that the Company's
investment in these areas will result in increases in revenue or that any
revenue growth that is achieved can be sustained. The Company's history of
losses, coupled with the factors described under ' -- Potential Fluctuations in
Operating Results,' make future operating results difficult to predict. The
Company and its prospects must be considered in light of the risks, costs and
difficulties frequently encountered by emerging companies. As a result, there
can be no assurance that the Company will be profitable in any future period.
See the Company's financial statements and the notes thereto and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS

The Company's net sales and operating results have in the past and may in the
future fluctuate substantially from quarter to quarter and from year to year.
This may result from any one or a combination of factors, many of which are
beyond the Company's control. These factors include, among others: the growth
rate of markets into which the Company sells its products; market acceptance of
and demand for the products of the Company and those of the Company's customers;
unanticipated delays or problems in the introduction of the Company's products;
the Company's ability to introduce new products in accordance with OEM design
requirements and design cycles; new product announcements or product
introductions by the Company and the Company's competitors; availability and
cost of manufacturing sources for the Company's products; changes in the mix of
sales to OEMs and sales representatives; incorrect forecasting of future
revenues; the volume of orders that are received and can be filled in a quarter;
the rescheduling or cancellation of orders by customers; costs associated with
protecting the Company's intellectual property; changes in product mix; changes
in product costs and pricing by the Company or its competitors; and changes in
currency exchange rates. Any one or more of these factors could result in
fluctuations in future operating results.

Because a significant portion of the Company's business has been and is expected
to continue to be derived from large orders placed by a limited number of large
customers, variations in the timing of such orders can cause significant
fluctuations in the Company's operating results. Anticipated orders from
customers may fail to materialize and delivery schedules may be deferred or
canceled for a number of reasons, including changes in specific customer
requirements. The Company's expenditures for research and development, sales and
marketing and general and administrative functions are based in part on future
revenue projections. The Company may be unable to adjust spending in a timely
manner in response to any unanticipated declines in revenues, which may have a
material adverse effect on the Company's business, results of

<PAGE>

operations and financial condition. The Company may be required to reduce prices
in response to competitive pressure or other factors or increase spending to
pursue new market opportunities. Any decline in average selling prices of a
particular product which is not offset by a reduction in product costs or by
sales of other products with higher gross margins would decrease the Company's
overall gross profit and adversely affect the Company's business, results of
operations and financial condition.

The Company's backlog at the beginning of each quarter typically is not
sufficient to achieve expected sales for the quarter. To achieve its sales
objectives, the Company is dependent upon obtaining orders during each quarter
for shipment that quarter. Furthermore, the Company's agreements with its
customers typically provide that they may change delivery schedules and non-
imaging customers can cancel orders, within specified time frames, typically 30
days or more prior to the scheduled shipment date pursuant to the Company's
policies, without significant penalty. The Company's customers have in the past
built, and may in the future build, significant inventory in order to facilitate
more rapid deployment of anticipated major products or for other reasons.
Decisions by such customers to reduce their inventory levels have led and could
lead to reductions in purchases from the Company. These reductions, in turn,
have caused and could cause fluctuations in the Company's operating results,
which could have a material adverse effect on the Company's business, results of
operations and financial condition in periods in which the inventory is reduced.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business -- Backlog.'

Delays or lost sales have been and could be caused by other factors beyond the
Company's control, including late deliveries by vendors of components, changes
in implementation priorities or slower than anticipated growth in the market for
networking solutions for embedded systems. In the three months ended
October 31, 1998, the Company experienced delays in the delivery of its product
from Atmel Corporation. Such delays affected the Company's ability to fill its
orders to customers, negatively impacting the Company's third quarter financial
results. Operating results in the past have also been adversely affected by
delays in receipt of significant purchase orders from customers. In addition,
the Company has in the past experienced delays as a result of the need to modify
its products to comply with unique customer specifications. In general, the
timing and magnitude of the Company's revenues are highly dependent upon its
achievement of design wins, the timing and success of its OEMs' development
cycles, and its OEMs' product sales. Any of these factors could have a material
adverse effect on the Company's business, results of operations and financial
condition.

As a result of the factors listed above and other factors, investors in the
Company should not rely solely upon period-to-period comparisons of its
operating results as an indication of future performance. It is likely that in
some future period the Company's operating results or business outlook will be
below the expectations of securities analysts or investors, which would likely
result in a significant reduction in the market price of the shares of common
stock. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'

DEPENDENCE ON OEM CUSTOMERS

The Company's financial performance and future growth is dependent upon its
ability to sell its products to OEMs in various markets. Sales of its products
will depend upon the purchasing decisions of OEMs, which may be based upon
numerous factors, many of which are beyond the Company's control, including
OEMs' decisions to increase inventory supply at the commencement of their
product sales cycles and deplete such inventories prior to additional purchases,
and cancellation or rescheduling delivery of the Company's products in
accordance with the Company's policies for such actions. Furthermore, the
Company's revenues are dependent upon the ultimate success of the end-user
products of the Company's OEM customers. There can be no assurance that the
Company will successfully market its products to OEMs. Even if the Company is
successful in its efforts to market its products to OEMs and achieves a design
win from an OEM, there can be no assurance that the Company will ever achieve
revenue from the sale of products

<PAGE>

as a result of such design win. Furthermore, even if the Company does achieve
revenues from such sales there can be no assurance that such revenues will be
sustainable. Any decline in the financial condition of the Company's OEM
customers or any failure by the Company's OEM customers to successfully sell
their products to end users may have a material adverse effect on the Company's
business, results of operations and financial condition. See 'Business --
Products and Services' and 'Business -- OEM Product Cycle.'

DEPENDENCE ON IMAGING MARKET

The imaging market has historically accounted for substantially all of the
Company's revenues. In the fiscal years ended January 31, 1997, 1998 and 1999,
100%, 100% and 95%, respectively, of the Company's revenues were generated from
customers in the imaging market. In the three months ended April 30, 1999, 97%
of the Company's revenues were generated from customers in the imaging market.
The Company's success has been and continues to be dependent on the continued
growth and success of the imaging market. Many of the Company's OEM customers
face competition from larger, more established companies which may exert
competitive or other pressures on the OEMs. Any decline in sales to the imaging
market would have a material adverse effect on the Company's business, results
of operations and financial condition.

The imaging market is characterized by declining prices of existing products.
Therefore, continual improvements in manufacturing efficiencies and the
introduction of new products and enhancements to existing products are required
for the Company to maintain its gross margins. In response to customer demands
or competitive pressures, or to pursue new product or market opportunities, the
Company may take certain pricing or marketing actions, such as price reductions
or volume discounts. These actions could have a material adverse effect on the
Company's business, results of operations and financial condition. See
'Business -- Manufacturing.'

Substantially all of the Company's OEM customers in the imaging market are
headquartered in Japan. The current economic conditions existing in many Asian
countries, including Japan, are uncertain and may have a significant effect on
the business operations of such OEM customers. Consequently, the Company's
dependence on its OEM customers in the imaging market in Japan and the uncertain
factors affecting Japan's economic condition could have a material adverse
effect on the Company's business, operating results, cash flows and financial
condition. See ' -- Risks Associated with International Operations.'

CUSTOMER CONCENTRATION

The Company's products have historically been sold into the imaging markets for
products such as printers, scanners, fax machines, copiers and multi-function
peripherals. This market is highly concentrated. Accordingly, the Company's
sales are derived from a limited number of customers, with the top five OEM
customers accounting for 73% and 52% of total revenues for the three months
ended April 30, 1999, and the fiscal year ended 1999, respectively. In
particular, sales to Ricoh Electronics and Dimatech Corporation each accounted
for 27% and 18% of total revenues, respectively, for the three months ended
April 30, 1999. Sales to Minolta Corporation and Kyocera Communication Co., Ltd.
accounted for 12% and 12% of total revenues, respectively, for the fiscal year
ended 1999. The Company expects that a small number of customers will continue
to account for a substantial portion of its total revenues for the foreseeable
future. All of the Company's sales are made on the basis of purchase orders
rather than pursuant to long-term agreements, and therefore, any customer could
cease purchasing the Company's products at any time without penalty. The
decision of any key customer to cease using the Company's products or a material
decline in the number of units purchased by a significant customer would have a
material adverse effect on the Company's business, results of operations and
financial condition. See 'Business -- Imaging Customers.'

<PAGE>

LENGTHY SALES CYCLE

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

DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE

The semiconductor and networking industries are characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions, short product life cycles and rapidly changing customer
requirements. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. The Company's future success will depend on its ability to enhance
its existing products, to introduce new products to meet changing customer
requirements and emerging technologies, and to demonstrate the performance
advantages and cost-effectiveness of its products over competing products. Any
failure by the Company to modify its products to support new local-area network
('LAN'), wide-area network ('WAN') and Internet technologies, or alternative
technologies, or any failure to achieve widespread customer acceptance of such
modified products could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company has in the
past and may in the future experience delays in developing and marketing product
enhancements or new products that respond to technological change, evolving
industry standards and changing customer requirements. There can be no assurance
that the Company will not experience difficulties that could delay or prevent
the successful development, introduction and marketing of these products or
product enhancements, or that its new products and product enhancements will
adequately meet the requirements of the marketplace and achieve any significant
or sustainable degree of market acceptance in existing or additional markets.
Failure by the Company, for technological or other reasons, to develop and
introduce new products and product enhancements in a timely and cost-effective
manner would have a material adverse effect on the Company's business, results
of operations and financial condition. In addition, the future introductions or
announcements of products by the Company or one of its competitors embodying new
technologies or changes in industry standards or customer requirements could
render the Company's then-existing products obsolete or unmarketable. There can
be no assurance that the introduction or announcement of new product offerings
by the Company or one or more of its competitors will not cause customers to
defer the purchase of existing Company products. Such deferment of purchases
could have a material adverse effect on the Company's business, results of
operations and financial condition. See 'Business -- Industry Background.'

RISKS RELATED TO PRODUCT TRANSITIONS

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

<PAGE>

RISKS ASSOCIATED WITH ENTERING ADDITIONAL EMBEDDED SYSTEMS MARKETS

A substantial portion of the Company's recent development efforts have been
directed toward the development of new products for use in markets in which
networking solutions for embedded systems have not historically been sold, such
as the industrial automation equipment, data acquisition and test equipment,
internet devices and security equipment markets. The market for networking
solutions for embedded systems in these targeted markets is new and rapidly
evolving. Each product to be used in these industries must be designed to
industry-specific requirements. The Company has limited experience designing its
products to meet the requirements of OEMs in these industries. Moreover, the
Company's products and services have, to date, achieved limited acceptance in
these industries. The Company's future success will depend, to a significant
degree, upon broad acceptance of the Company's products and services within the
targeted industries. Furthermore, the Company's success will also depend on the
ability of its OEM customers in these industries to successfully develop and
market networked embedded system capabilities to end users. There can be no
assurance that (i) the additional embedded systems markets targeted by the
Company for its products and services will develop; (ii) OEMs within each market
targeted by the Company will choose the Company's products and services to meet
their needs; (iii) the Company will successfully develop products to meet the
industry-specific requirements of OEMs in its targeted markets; or (iv) OEMs in
its targeted markets will gain market acceptance for their devices which
incorporate the Company's products. The failure of any of these events to occur
would have a material adverse effect on the Company's business, results of
operations and financial condition.

COMPETITION

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

The Company primarily competes with the internal development departments of
large OEM companies that have developed their own networking solutions as well
as established developers of embedded systems software and chips such as Axis
Communications, Inc., Echelon Corporation, Emulex Corporation, H. Bollmann
Manufacturers Limited (HBM), Hitachi, Ltd., Integrated Systems, Inc., Intel
Corporation, Milan Technology, a division of Digi International Inc., Motorola,
Inc., Samsung Electronics Co., Ltd. and Wind River Systems, Inc. In addition,
the Company is aware of certain companies which have recently introduced
products that address the markets targeted by the Company. The Company has
experienced and expects to continue to experience increased competition from
current and potential competitors, many of which have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and larger customer bases than the Company. In particular,
established companies in the networking or semiconductor industries may seek to
expand their product offerings by designing and selling products using
competitive technology that could render the Company's products obsolete or have
a material adverse effect on the Company's sales. The markets in which the
Company competes currently are subject to intense competition and the Company
expects additional price and product competition as other established and
emerging companies enter these markets and new products and technologies are
introduced. Increased competition may result in further price reductions,
reduced gross margins and loss of market share, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See 'Business -- Competition.'

<PAGE>

DEPENDENCE ON THIRD-PARTY SOFTWARE, MANUFACTURING, ASSEMBLING AND PRODUCT
TESTING RELATIONSHIPS; LIMITED SOURCE SUPPLIERS

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

The Company does not have its own semiconductor fabrication assembly or testing
operations or contract manufacturing capabilities. Instead, the Company relies
upon independent contractors to manufacture its components, subassemblies,
systems and products. Currently, all of the Company's semiconductor devices are
being manufactured, assembled and tested by Atmel Corporation in the United
States and the Company expects that it will continue to rely upon Atmel to
manufacture, assemble and test a significant portion of its semiconductor
devices in the future. The Company experienced delays in the receipt of
semiconductor devices from Atmel which adversely affected the Company's
operating results in the three months ended October 31, 1998. In addition, the
Company recently experienced a delay in the introduction of one of its products
due to a problem with Atmel's design tools. While the Company is in the process
of qualifying other suppliers, any qualification and pre-production periods
could be lengthy and may cause delays in providing products to customers in the
event that the sole source supplier of the semiconductor devices fails to meet
the Company's requirements. For example, Atmel uses its manufacturing facilities
for its own products as well as those it manufactures on a contract basis. There
is no assurance that Atmel will have adequate capacity to meet the needs of its
contract manufacturing customers. In addition, semiconductor manufacturers
generally experience periodic constraints on their manufacturing capacity. The
Company also relies upon limited-source suppliers for a number of other
components used in the Company's products. There can be no assurance that these
independent contractors and suppliers will be able to meet the Company's future
requirements for manufactured products, components and subassemblies in a timely
fashion. The Company generally purchases limited-source components pursuant to
purchase orders and has no guaranteed supply arrangements with these suppliers.
In addition, the availability of many of these components to the Company is
dependent in part on the Company's ability to provide its suppliers with
accurate forecasts of its future requirements. Any extended interruption in the
supply of any of the key components currently obtained from limited sources
would disrupt the Company's operations and have a material adverse effect on its
business, results of operations and financial condition. See 'Business --
Manufacturing.'

CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY

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

<PAGE>

BENEFITS OF OFFERING TO OSICOM

The offering will provide significant benefits to Osicom, which is currently the
sole stockholder of the Company, including (i) receipt of approximately $16.3
million from the sale of its shares in the offering; (ii) the creation of a
public market for the Company's common stock; and (iii) the repayment of the
Company's indebtedness to Osicom of approximately $3.1 million representing the
outstanding balance as of April 30, 1999 of $5.9 million offset by a $2.8
million receivable due from Osicom to the Company. In September 1996, Osicom
acquired the Company by purchasing all of the common stock for $5.0 million of
Osicom common stock. As a result of this offering, Osicom will generally have
greater liquidity with respect to its investment in the Company's common stock.
In addition, upon consummation of the offering, Osicom may be relieved of its
obligation as guarantor of the Company's line of credit. Osicom will own
8,000,000 shares of the Company's non-voting common stock after the completion
of this offering. The non-voting common stock converts to voting common stock
upon sale to non-affiliates of Osicom. Based upon an assumed initial public
offering price of $9.00 per share, such shares owned by Osicom, if converted to
voting common stock, would have an aggregate market value of approximately $72
million. See 'Use of Proceeds,' 'Principal and Selling Stockholders' and
'Certain Relationships and Related Party Transactions.'

CONTRACTUAL RELATIONSHIPS WITH OSICOM

The Company is a party to agreements with Osicom, including (i) a five year
supply agreement pursuant to which Osicom purchases the NET+ARM semiconductor
device, at variable prices, structured to maintain a fixed gross margin and
Osicom through its subsidiary, Uni-Precision Industrial, Ltd., provides
manufacturing services to the Company at the request of the Company; (ii) a
sublease agreement pursuant to which Osicom subleases office space at the
Company's facility in Waltham, Massachusetts through August 1999; and (iii) an
intercompany agreement between the Company and Osicom dated May 1, 1998, as
amended (the 'Intercompany Agreement') pursuant to which the Company transferred
its stand-alone print server product business and associated assets (the
'Stand-Alone Print Server Line') to Osicom, and Osicom has the right to
manufacture and sell stand-alone products and services to distributors. The
Intercompany Agreement also states that the Company will provide certain
manufacturing and engineering services to Osicom in connection with such
business. In accordance with the Intercompany Agreement, on May 1, 1999, Osicom
assumed responsibility for all such manufacturing. Additionally, the
Intercompany Agreement provides that the Company will share certain intellectual
property rights with Osicom. Osicom's rights in such intellectual property are
limited to use in certain products manufactured by Osicom related to the
Stand-Alone Print Server Line and cannot be transferred, resold, licensed or
assigned by Osicom. After the completion of this offering, Osicom will own 61.5%
of the Company's outstanding common stock in the form of non-voting common
stock, assuming no exercise of the over-allotment option. The non-voting common
stock converts into voting common stock upon sale to non-affiliates of Osicom.
See 'Certain Relationships and Related Party Transactions.'

DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS AND TECHNOLOGY

<PAGE>

to file various additional applications, such applications may be denied. Any
patents, once issued, may be circumvented by competitors of the Company.
Furthermore, there can be no assurance that others will not develop technologies
that are superior to the Company's. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competing
companies will not independently develop similar technology. Failure of the
Company to adequately protect its proprietary rights could have a material
adverse effect on the Company's business, results of operations and financial
condition.

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

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

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

In the fiscal years ended January 31, 1997, 1998 and 1999, international sales
constituted approximately 7%, 30% and 51% of the Company's net sales,
respectively, and approximately 8%, 31% and 46% of its domestic sales,
respectively, were to customers headquartered in Asia. For the three months
ended April 30, 1999, international sales constituted approximately 41% of the
Company's net sales and approximately 74% of its domestic sales were to
customers headquartered in Asia. The Company believes that its future growth is
dependent in part upon its ability to increase sales in international markets
particularly to OEMs located in Japan, which sell its products worldwide. These
sales are subject to a variety of risks, including fluctuations in currency
exchange rates, tariffs, import restrictions and other trade barriers,
unexpected changes in regulatory requirements, longer accounts receivable
payment cycles and potentially adverse tax consequences and export license
requirements. In addition, the Company is subject to the risks inherent in
conducting business internationally, including political and economic
instability and unexpected changes in diplomatic and trade relationships. In
particular, the economies of certain countries in the Asia-Pacific region are
experiencing considerable economic instability and

<PAGE>

downturns. Because the Company's sales to date have been denominated in United
States dollars, increases in the value of the United States dollar could
increase the price in local currencies of the Company's products in non-US
markets and make the Company's products more expensive than competitors'
products denominated in local currencies. In addition, an integral part of the
Company's business strategy is to form strategic alliances for the manufacture
and distribution of its products with third parties, including foreign
corporations. There can be no assurance that one or more of the factors
described above will not have a material adverse effect on the Company's
business, results of operations and financial condition.

The Company intends to expand its presence in Europe to address new markets. New
issues are arising in Europe resulting from the formation of a European Economic
and Monetary Union ('EMU'). One change resulting from this union requires EMU
member states to irrevocably fix their respective currencies to a new currency,
the euro, as of January 1, 1999, at which date the euro became a functional
legal currency of these countries. During the next three years, business in the
EMU member states will be conducted in both the existing national currency such
as the French franc or the Deutsche mark, and the euro. As a result, companies
operating or conducting business in EMU member states will need to ensure that
their financial and other software systems are capable of processing
transactions and properly handling these currencies, including the euro. The
Company is assessing the impact that the conversion to the euro will have on its
internal systems, the sale of its products, and the European and global
economies. There can be no assurance that the conversion to the euro will not
have a material adverse effort on the Company's business, results of operations
and financial condition. See 'Management's Discussion and Analysis of Financial
Conditions and Results of Operations.'

DEPENDENCE ON KEY PERSONNEL

The Company's business and prospects depend to a significant degree upon the
continuing contributions of its executive officers and its key technical
personnel. The Company does not have employment contracts with any of its key
personnel, with the exception of its Vice President, Industrial Automation,
Embedded Markets Europe and does not maintain any key-man life insurance
policies. The loss of key management or technical personnel could have a
material adverse effect on the Company's business, results of operations and
financial condition. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting and retaining
qualified personnel. Failure to attract and retain key personnel could have a
material adverse effect on the Company's business, results of operations and
financial condition. See 'Business -- Employees' and 'Management.'

REGULATORY COMPLIANCE AND EVOLVING INDUSTRY STANDARDS

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

RISKS OF PRODUCT DEFECTS; PRODUCT LIABILITY

Complex products such as those offered by the Company may contain undetected or
unresolved defects when first introduced or as new versions are released. The
occurrence of material errors in the future could, and the failure or inability
to correct such errors would, result in the loss of market share, the delay or
loss of market acceptance of the Company's products, material warranty

<PAGE>

expense, diversion of engineering and other resources from the Company's product
development efforts, the loss of credibility with the Company's customers or
product recall. The use of the Company's products for applications in devices
that interact directly with the general public, where the failure of the
embedded system could cause property damage or personal injury, could expose the
Company to significant product liability claims. Although the Company has not
experienced any product liability or economic loss claims to date, the sale and
support of the Company's products may entail the risk of such claims. Any of
such occurrences could have a material adverse effect upon the Company's
business, results of operations and financial condition. See 'Business --
Products and Services.'

MANAGEMENT OF GROWTH

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

YEAR 2000 COMPLIANCE

Many currently installed computer systems, software products and other control
devices are coded to accept only two digit entries in the date code fields, and
will need to accept four digit entries to distinguish dates after December 31,
1999 from prior dates. As a result, many companies' computer systems, software
products and control devices may need to be upgraded or replaced in order to
comply with such 'Year 2000' requirements. The Company relies on its systems,
applications and control devices in operating and monitoring all major aspects
of its business. The Company believes its products are Year 2000 compliant. With
respect to its own systems, the Company relies on the representations of its
primary software vendors that their products are Year 2000 compliant. Based in
part on these representations, the Company believes its other systems, software
and devices are also Year 2000 compliant. Any noncompliance of the Company's
systems, software and devices could severely disrupt the Company's operations
and have a material adverse affect on its business, results of operations and
financial condition.

The Company also relies, directly and indirectly, on external systems of its
customers, suppliers, creditors, financial organizations, utilities providers
and governmental entities, both domestic and international. None of these
systems are under the control of the Company. Consequently, the Company could be
affected through disruptions in the operations of the enterprises with which the
Company interacts. Furthermore, the purchasing frequency and volume of customers
or potential customers may be affected by Year 2000 issues as companies expend
significant resources to make their current systems Year 2000 compliant. Certain
of the Company's customers have requested information from the Company
concerning its exposure to Year 2000 problems, the steps it has taken to resolve
any Year 2000 problems and what level of management attention is being focused
on the issue. Similarly, the Company intends to send inquiries to certain of its
suppliers requesting substantially the same information from them. The Company
has received representations from certain of its suppliers, including some of
its sole source suppliers, as to the Year 2000 compliance of their systems and
products. The Company has not assessed the Year 2000 compliance of its
customers. If the Company's customers encounter Year 2000 problems that prevent
their products from functioning properly, these customers may be forced to
devote significant resources to fixing these problems and may reduce or suspend
the manufacture of new products to be networked

<PAGE>

during such time. As a result, the Company's sales of its products to these
customers could be materially and adversely affected. In addition, if the
Company's suppliers, particularly its sole-source suppliers, are unable to
manufacture or deliver supplies to the Company as a result of Year 2000
problems, the Company's ability to manufacture and sell its products would be
materially and adversely affected. The Company does not currently have in place
any contingency plans for its operations if Year 2000 issues are not resolved in
time or go undetected. The incomplete or untimely resolution of any of these
issues could have a material adverse effect on the Company's business, results
of operations and financial condition.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING

The Company anticipates that its available cash resources following the offering
will be sufficient to meet its presently anticipated capital requirements
through the next 12 months. Nonetheless, the Company may elect to sell
additional equity securities, subject to the provisions of the Underwriting
Agreement, or to obtain additional credit. The Company's future capital
requirements may vary materially from those now planned and will depend on many
factors, including, but not limited to, the levels at which the Company
maintains inventory and accounts receivable; the market acceptance of the
Company's products; the levels of promotion and advertising required to launch
products or enter markets and attain a competitive position in the marketplace;
volume pricing concessions; the Company's business, product, capital expenditure
and research and development plans and technology roadmap; capital improvements
to new and existing facilities; technological advances; the response of
competitors to the Company's products; and the Company's relationships with
suppliers and customers. In addition, the Company may require an increase in the
level of working capital to accommodate planned growth, hiring and
infrastructure needs. Additional capital may be required for consummation of any
acquisitions of businesses, products or technologies. To the extent that the
funds generated from this offering, together with existing resources and cash
generated from operations, are insufficient to fund the Company's future
activities, the Company may need to raise additional funds through public or
private financings or borrowings. No assurance can be given that additional
financing will be available or that, if available, such financing can be
obtained on terms favorable to the Company and its shareholders. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of then current stockholders of the Company will be reduced and such
equity securities may have rights, preferences or privileges senior to those
holders of the Company's common stock. If adequate funds are not available to
satisfy short-term or long-term capital requirements, the Company may be
required to limit its operations significantly. See 'Use of Proceeds' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales of common
stock by the Company, or the availability of common stock for future sales, will
have on the market price of common stock prevailing from time to time. Sales of
a substantial number of shares of common stock in the public market could
adversely affect the market price for the Company's common stock and reported
earnings per share and could make it more difficult for the Company to raise
funds through equity offerings in the future.

Subject to applicable federal and securities laws and the restrictions set forth
below, after completion of the offering, Osicom may sell any and all of the
shares of common stock beneficially owned by it or distribute any or all such
shares of common stock to its stockholders. Sales or distribution by Osicom of
substantial amounts of common stock in the public market or to its stockholders,
or the perception that such sales or distribution could occur, could adversely
affect the prevailing market prices for the common stock. Osicom has advised the
Company that its current intent is to continue to hold all of the common stock
beneficially owned by it following the offering. However, Osicom is not subject
to any obligation to retain its interest in the Company, except that Osicom has
agreed not to sell or otherwise dispose of any shares of common stock for a
period of 365 days after the date of this prospectus without the prior written

<PAGE>

consent of CIBC World Markets Corp. See 'Underwriting.' As a result, there can
be no assurance concerning the period of time during which Osicom will maintain
its beneficial ownership of common stock owned by it following the offering.
Moreover, there can be no assurance that, in any transfer by Osicom of a
controlling interest in the Company, any holders of common stock will be able to
participate in such transaction or will realize any premium with respect to
their shares of common stock.

Certain restrictions on shares of common stock are applicable to (i) any shares
of common stock purchased in this offering by affiliates of the Company, which
may generally only be sold in compliance with the limitations of Rule 144 under
the Act, except for the holding period requirements thereunder, (ii) 432,500
shares of common stock subject to options, which will be subject to lock-up
agreements prohibiting the sale or other disposition of such shares until
180 days after the date of this prospectus without the prior written consent of
CIBC World Markets Corp. and (iii) 8,000,000 shares of common stock beneficially
owned by Osicom which will be subject to lock-up agreements prohibiting the sale
or other disposition of such shares until 365 days after the date of this
prospectus without the prior written consent of CIBC World Markets Corp. As a
result, no shares other than those offered by this prospectus are available for
immediate sale on the date of this prospectus, 432,500 shares of common stock
subject to options and 8,000,000 shares of common stock beneficially owned by
Osicom will become eligible for sale 180 days and 365 days after the date of
this prospectus, respectively. See 'Shares Eligible For Future Sale.'

A total of 6,000,000 shares of common stock is reserved for issuance under the
Stock Option Plan (as defined in 'Management -- Stock Option Plan'). It is
anticipated that the Company will grant options to purchase approximately
2,990,000 shares under the Stock Option Plan after the consummation of this
offering. After the completion of this offering, but not prior to 180 days after
the completion of this offering, the Company intends to file a Form S-8
registration statement covering the common stock that may be issued pursuant to
the exercise of options granted by the Company. As a result, shares of common
stock that are so acquired or offered thereafter pursuant to the Form S-8
registration statement generally may be resold in the public market without
restriction or limitation. See 'Management -- Stock Option Plan,' 'Management --
Director Stock Option Plan,' 'Shares Eligible For Future Sale' and
'Underwriting.'

BROAD DISCRETION IN APPLICATION OF PROCEEDS

The Company intends to use the net proceeds from this offering to reduce the
outstanding principal balance under its line of credit and certain other
indebtedness, including approximately $3.1 million of indebtedness to Osicom
which is $5.9 million offset by a $2.8 million receivable due from Osicom to the
Company as of April 30, 1999, and approximately $2.5 million of the
approximately $3.5 million outstanding balance as of April 30, 1999 under the
Company's line of credit, and for product development and marketing, capital
expenditures, working capital and general corporate purposes. In addition, a
portion of the net proceeds may be used to make acquisitions. The Company has
not specifically allocated approximately $18.9 million of the net proceeds for
any particular uses. Accordingly, the specific uses for a substantial portion of
the net proceeds will be at the complete discretion of the Board of Directors of
the Company and may be allocated from time to time based upon a variety of
circumstances. There can be no assurance that the Company will deploy such funds
in a manner that will enhance the financial condition of the Company.

ACQUISITION RISKS

In the future, the Company may pursue acquisitions of product lines,
technologies or businesses. Future acquisitions by the Company may result in the
use of significant amounts of cash, potentially dilutive issuances of equity
securities, incurrence of debt and amortization expenses related to goodwill and
other intangible assets, each of which could materially adversely affect the
Company's business, results of operations and financial condition. In addition,
acquisitions present

<PAGE>

numerous risks, including inaccurate assessment of the benefits to be provided
by an acquired business, the assumption of unexpected liabilities, significant
transaction costs and expenses, costs and expenses involved in the integration
of the operations, technology, products and services of an acquired business,
diversion of management's attention from other business concerns, the risks of
entering markets in which the Company has limited or no prior experience and the
potential loss of key employees of the acquired business. There are currently no
negotiations, commitments or agreements with respect to any acquisition. In the
event that an acquisition does occur, such acquisition may have a material
adverse effect on the Company's business, results of operations and financial
condition. See 'Use of Proceeds.'

NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the common stock of
the Company. The initial public offering price will be determined by
negotiations among the Company, Osicom and the Underwriters and may not be
indicative of the price that will prevail on the open market. See 'Underwriting'
for a discussion of the factors to be considered in determining the initial
public offering price. There can be no assurance that an active public market
will develop or be sustained after this offering or that the market price of the
common stock will not decline below the initial public offering price. Future
announcements concerning the Company or its competitors, quarterly or annual
variations in operating results, the announcement of technological innovations,
the introduction of new products or changes in product pricing policies by the
Company or its competitors, proprietary rights or product liability litigation,
changes in earnings estimates by analysts, or general market conditions in the
industries served by the Company's products could cause the market price of the
common stock to experience significant price and volume fluctuations that have
particularly affected the market prices for the securities of technology
companies. In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against such company. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, results of operations and financial condition.

ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation and By-Laws include provisions that may
be deemed to have anti-takeover effects and may delay, defer or prevent a
takeover attempt that shareholders might consider in their best interests. These
provisions include a classified Board of Directors and the ability to issue
shares of preferred stock in the future without stockholder approval and upon
such terms as the Board of Directors may determine. The rights of the holders of
the common stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued in the future.
The issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding stock of the Company
and potentially prevent the payment of a premium to stockholders in an
acquisition transaction. There are no shares of preferred stock outstanding and
the Company has no present plans to issue any shares of preferred stock. See
'Description of Capital Stock.'

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price will be substantially higher than the book
value per share of the currently outstanding common stock. Purchasers of the
common stock offered hereby will suffer immediate and substantial dilution of
$7.31 per share in the net tangible book value of the common stock from the
initial public offering price (at an assumed initial public offering price of
$9.00 per share). Moreover, the Company may at any time in the future sell
additional securities or rights to purchase such securities, grant additional
warrants, stock options or other forms of equity-based incentive compensation to
the Company's management or employees to attract and

<PAGE>

retain such personnel or in connection with the obtaining of financing, such as
debt or leasing arrangements accompanied by warrants to purchase equity
securities of the Company. Any of these actions, including the exercise of stock
options currently outstanding by officers, directors and employees of the
Company, would have a dilutive effect upon the holders of the common stock. See
'Dilution' and 'Management -- Executive Compensation.'

NO DIVIDENDS

To date, the Company has not paid any cash dividends on its common stock, and
does not expect to declare or pay any cash or other dividends in the foreseeable
future. In addition, the Company's credit agreement contains a financial
covenant that prohibits the payment of cash dividends. See 'Dividend Policy.'

<PAGE>

THE COMPANY

The Company commenced its operations in 1984 as Digital Products, Inc. and has
been operated by its current management throughout its history. From its
inception, the Company has developed and marketed networking solutions for
embedded systems that enable the connection of electronic devices to networks.
In 1994, the Company introduced the Digital Products Option ('DPO') Interface
Specification and its network interface card ('NIC'), two network connectivity
products used by printer controller designers and OEMs of imaging devices. DPO
was designed using the same networking technology found in the Company's
previous products.

In 1996, the Company began developing its NET+Works family of networking
products designed to network-enable a broad array of embedded systems in a
variety of markets. In September 1996, the Company was acquired by Osicom, a
designer and manufacturer of carrier, enterprise and customer premise networking
equipment. The Company has been a wholly-owned subsidiary of Osicom since the
acquisition. Supported by Osicom's funding of working capital, the Company
completed the development of its NET+Works family of products, and began
shipping that family of products in March 1998.

Effective as of May 1, 1998, pursuant to the Intercompany Agreement, the Company
transferred its Stand-Alone Print Server Line to Osicom. Therefore, with respect
to the Company, the Stand-Alone Print Server Line is treated as a discontinued
operation. However, the Company continues to provide significant manufacturing
and engineering services to Osicom for the Stand-Alone Print Server Line for
which Osicom pays the Company on a fixed margin basis. On May 1, 1999, Osicom
assumed manufacturing responsibility for the Stand-Alone Print Server Line
products which it sells. Osicom assumed responsibility for engineering support
of the Stand-Alone Print Server Line on July 1, 1999. As of July 1, 1999, the
Company does not provide contracted services to Osicom with respect to the
Stand-Alone Print Server Line. See 'Certain Relationships and Related Party
Transactions.' All references herein to the 'Company' refer to NETsilicon, Inc.
and do not include the business and assets of the Stand-Alone Print Server Line
unless the context otherwise requires.

FORWARD-LOOKING STATEMENTS

Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, the following: future product development plans, use of proceeds,
projected capital expenditures, liquidity and business strategy. These
statements may be found under 'Prospectus Summary,' 'Risk Factors,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and 'Business.' Forward-looking
statements typically are identified by use of terms such as 'may,' 'will,'
'expect,' 'anticipate,' 'estimate' and similar words, although some
forward-looking statements are expressed differently. You should be aware that
the Company's actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including delays in
product introductions, interruptions in supply and competitive product
introductions. You should also consider carefully the statements under 'Risk
Factors' and other sections of this prospectus, which address additional factors
that could cause the Company's actual results to differ from those set forth in
the forward-looking statements.

<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of common
stock offered hereby are estimated to be approximately $24.5 million at an
assumed initial offering price of $9.00 per share, after deducting the
underwriting discount and estimated offering expenses. See 'Underwriting.' The
Company will not receive any of the proceeds from the sale of shares being
offered by Osicom.

The Company expects to repay a portion of its indebtedness to Osicom and one of
Osicom's subsidiaries in the approximate amount of $5.9 million which will be
offset by a $2.8 million receivable due from Osicom. This indebtedness bears
interest at the prime rate plus three percent per year (10.8% per year at
April 30, 1999) and is payable upon demand by Osicom. The proceeds of the
Company's borrowings from Osicom were used primarily for research and
development. In addition, the Company intends to use a portion of the net
proceeds from this offering to repay approximately $2.5 million of the amounts
due to Coast Business Credit under its line of credit. As of April 30, 1999, the
Company had $3.5 million outstanding under its line of credit. The $5.0 million
line of credit, which was incurred to finance working capital borrowings by the
Company, bears interest at the lender's prime rate plus 2.5% per year, not to be
less than 8.0% per year (10.3% per year at April 30, 1999). The Company intends
to maintain a balance of $1.0 million under its line of credit in order to meet
the minimum balance requirements and avoid additional fees under the terms of
its agreement with Coast Business Credit. The Company's line of credit expires
February 1, 2001. The remainder of the net proceeds will be used for product
development and marketing, capital expenditures, working capital and general
corporate purposes. The Company may also use a portion of the net proceeds from
this offering to expand its business through acquisitions. The Company may from
time to time explore prospective acquisition opportunities; however, the Company
does not currently have any acquisition commitments. Other than the repayment of
outstanding indebtedness, the Company has not made any determination regarding
the amounts or timing of the use of any proceeds from this offering. See 'Risk
Factors -- Broad Discretion in Application of Proceeds; Acquisition Risks.' The
amounts and the timing of any such use may vary significantly depending upon a
number of factors, including the Company's revenue growth, asset growth, cash
flows and acquisition activities. Pending such uses, the net proceeds of this
offering will be invested in short-term, investment-grade, interest-bearing
securities. The Company currently anticipates that the net proceeds to be
received by the Company from this offering, together with amounts available
under its existing line of credit, cash generated from operations and existing
cash balances will be sufficient to satisfy its operating cash needs for at
least 12 months following the consummation of this offering. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources.'

DIVIDEND POLICY

To date, the Company has not paid or declared any cash dividends on its common
stock. The Company currently intends to retain future earnings for use in its
business and, therefore, does not anticipate paying or declaring any cash or
other dividends in the foreseeable future. The payment of future dividends, if
any, will depend among other things, on the Company's results of operations,
cash flows and financial condition and on such other factors as the Company's
Board of Directors may, in its discretion, consider relevant. In addition, the
Company's credit agreement with Coast Business Credit contains a financial
covenant that prohibits the payment of any dividends without their consent.

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
April 30, 1999, (i) on an actual basis, and (ii) as adjusted to reflect the sale
of 3,000,000 shares of common stock offered by the Company hereby and the
application of approximately $24.5 million in estimated net proceeds therefrom.
This table should be read in conjunction with the financial statements of the
Company and the notes thereto and other financial information included elsewhere
in this prospectus.

<TABLE>
<CAPTION>
APRIL 30, 1999
------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(in thousands, except
share data)
<S> <C> <C>
Short-term debt............................................. $ 3,455 $ 1,000
------- -------
------- -------

Due to Osicom(2)............................................ $ 5,889 $ --
Stockholders' equity (deficit):
Common Stock, par value $0.01 per share; 35,000,000 shares
authorized and 10,000,000 shares issued and outstanding
actual; 13,000,000 issued and outstanding as
adjusted(3)............................................ 100 130
Preferred Stock, par value $0.01 per share; 5,000,000
shares authorized and no shares issued actual and as
adjusted............................................... -- --
Additional paid-in capital................................ 2,463 26,943
Accumulated deficit....................................... (4,384) (4,384)
------- -------
Total stockholders' equity (deficit)................... (1,821) 22,689
------- -------
Total capitalization.............................. $ 4,068 $22,689
------- -------
------- -------
</TABLE>

- ---------------------------

(1) Adjusted to give effect to the sale by the Company of 3,000,000 shares of
common stock and the application of approximately $24.5 million in net
proceeds from this offering, after deducting the underwriting discount with
respect to such shares and estimated offering expenses.

(2) Reflects advances from Osicom to the Company as of April 30, 1999. The
Company anticipates repayment of all outstanding amounts due to Osicom from
the proceeds of this offering, offset by a $2.8 million receivable due from
Osicom. See note F to the notes to the financial statements.

(3) Of the 13,000,000 issued and outstanding shares of common stock as adjusted,
5,000,000 shares are voting common stock and 8,000,000 shares are non-voting
common stock.

<PAGE>

DILUTION

The net tangible book value of the Company as of April 30, 1999, was a deficit
of $3.1 million, or $0.31 per share of common stock. Net tangible book value per
share of common stock represents the amount of the Company's tangible assets
less its total liabilities, divided by the total number of shares of common
stock outstanding. Assuming the sale by the Company of 3,000,000 shares of
common stock offered hereby and application of the estimated net proceeds
therefrom, the pro forma adjusted net tangible book value of the Company as of
April 30, 1999 would have been approximately $22.0 million, or $1.69 per share.
This represents an immediate increase in such net tangible book value of $2.00
per share to existing stockholders and an immediate dilution of $7.31 per share
to new investors. The following table illustrates this per share dilution in net
tangible book value:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.00
Net tangible book value per share as of April 30, 1999.... $(.31)
Increase per share attributable to new investors(1)....... 2.00
-----
Pro forma net tangible book value per share as of April 30,
1999............................................................... 1.69
-----
Dilution per share to new investors................................ $7.31
-----
-----
</TABLE>

- ---------------------------

(1) Reflects the sale by the Company of 3,000,000 shares of common stock and the
receipt of approximately $24.5 million in net proceeds from this offering,
after deducting the underwriting discount and estimated offering expenses.

------------------------

The following table summarizes, on an adjusted basis as of April 30, 1999, the
difference between the total number of shares of common stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by existing stockholders and by new investors (at an assumed initial
public offering price of $9.00 per share and without giving effect to the
underwriting discount and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Osicom............................ 10,000,000(1) 66.7% $ 5,000,000(2) 10.0% $0.50
New investors..................... 5,000,000 33.3 45,000,000 90.0 9.00
---------- ----- ----------- -----
---------- ----- ----------- -----
Total....................... 15,000,000 100.0% $50,000,000 100.0%
---------- ----- ----------- -----
---------- ----- ----------- -----
</TABLE>

- ---------------------------

(1) Sales by Osicom in this offering will reduce the number of shares it holds
to 8,000,000 shares or 61.5% (7,500,000 shares or approximately 56.6% if the
underwriters' over-allotment option is exercised in full) of the total
shares of common stock outstanding after this offering and will increase
the number of shares held by new investors to 5,000,000 shares or 38.5%
(5,750,000 shares or approximately 43.4% if the underwriters' over-allotment
option is exercised in full) of the total shares of common stock outstanding
after this offering. See 'Principal and Selling Stockholders.'

(2) Represents gross consideration paid by Osicom to the former stockholders of
the Company in connection with the acquisition of the Company in September
1996.

<PAGE>

SELECTED FINANCIAL DATA
(in thousands, except per share data)

The selected financial data set forth below should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the financial statements of the Company and the notes thereto
included elsewhere in this prospectus. The statement of operations data for the
fiscal years ended January 31, 1997, 1998 and 1999 and balance sheet data as of
January 31, 1998 and 1999 have been derived from the financial statements of the
Company which have been audited by BDO Seidman, LLP, independent accountants.
The statement of operations for the fiscal year ended January 31, 1996 and the
balance sheet data as of January 31, 1996 and 1997 have been derived from the
audited financial statements of the Company not included herein. The statement
of operations data for the fiscal year ended January 31, 1995 and the balance
sheet data as of January 31, 1995 have been derived from the Company's unaudited
financial statements not included herein. The statement of operations data for
the three months ended April 30, 1998 and 1999 and the balance sheet data as of
April 30, 1999 have been derived from the Company's unaudited financial
statements included herein. The Company believes that the unaudited historical
financial statements contain all adjustments needed to present fairly the
information included. Those statements and the adjustments made include only
normal and recurring adjustments.

<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED APRIL 30,
--------------------------------------------------- ---------------
1995 1996 1997 1998 1999 1998 1999
----------- ------- ------- ------- ------- ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $5,363 $ 4,598 $ 7,445 $ 7,920 $13,373 $2,185 $5,814
Cost of sales............... 3,029 2,662 4,294 4,060 7,271 1,037 3,120
------ ------- ------- ------- ------- ------ ------
Gross profit................ 2,334 1,936 3,151 3,860 6,102 1,148 2,694
------ ------- ------- ------- ------- ------ ------
Operating expenses:
Selling and marketing..... 1,498 914 1,563 1,810 3,336 628 1,326
Engineering, research and
development............. 635 1,698 1,028 1,483 2,153 448 502
General and
administrative.......... 409 2,294 1,502 1,795 2,194 352 613
------ ------- ------- ------- ------- ------ ------
Total operating expenses.... 2,542 4,906 4,093 5,088 7,683 1,428 2,441
------ ------- ------- ------- ------- ------ ------
Operating income (loss) from
continuing operations..... (208) (2,970) (942) (1,228) (1,581) (280) 253
Interest expense............ (66) (99) (136) (118) (551) (60) (238)
------ ------- ------- ------- ------- ------ ------
Income (loss) from
continuing operations
before income taxes....... (274) (3,069) (1,078) (1,346) (2,132) (340) 15
Provision for income tax
benefit................... 446 643 969 493 -- -- --
------ ------- ------- ------- ------- ------ ------
Income (loss) from
continuing operations..... $ 172 $(2,426) $ (109) $ (853) $(2,132) $ (340) $ 15
------ ------- ------- ------- ------- ------ ------
------ ------- ------- ------- ------- ------ ------
Income (loss) from
continuing operations per
share:
Basic and diluted....... $ 0.02 $ (0.34) $ (0.01) $ (0.09) $ (0.21) $(0.04) $ 0.00
Supplemental net income
(loss) per share(1)....... $ (0.20) $(0.03) $ 0.00
Weighted average number of
shares outstanding:
Basic and diluted....... 7,161 7,176 8,285 10,000 10,000 10,000 10,000
</TABLE>

<TABLE>
<CAPTION>
JANUARY 31,
--------------------------------------------------- APRIL 30,
1995 1996 1997 1998 1999 1999
----------- ------- ------- ------- ------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... $ -- $ 19 $ 394 $ 185 $ 583 $ 30
Working capital (deficit)... (98) (1,261) (241) (787) (3,471) (3,782)
Total assets................ 7,301 7,033 7,615 7,933 11,648 13,726
Due to Osicom(2)............ -- -- 948 1,812 5,885 5,889
Total debt (including
short-term debt).......... 1,944 2,863 3,338 3,005 3,191 3,455
Stockholders' equity
(deficit)................. 1,076 (458) 763 586 (1,836) (1,821)
</TABLE>

- ---------------------------
(1) Supplemental net income (loss) per share is based upon the weighted number
of shares of common stock used in the calculation of net income (loss) per
share increased by the sale of 668,000 shares, the proceeds of which would
be necessary to reduce borrowings by $5.6 million.

(2) Reflects advances from Osicom to the Company as of April 30, 1999. The
Company anticipates repayment of all outstanding amounts due to Osicom from
the proceeds of the offering, offset by a $2.8 million receivable due from
Osicom. See note F to the notes to the financial statements.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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

OVERVIEW

The Company's products are currently contained in a broad array of imaging
products, including printers, scanners, fax machines, copiers and multi-function
peripherals manufactured by 22 OEMs such as Minolta Corporation, NEC
Corporation, Ricoh Company, Ltd., Sharp Corporation and Xerox Corporation. The
Company's products are also in various stages of being incorporated into the
design of products in additional embedded systems markets, such as industrial
automation equipment, communication devices, data acquisition and test
equipment, Internet devices and utility monitoring equipment.

From its inception in 1984, the Company has developed and marketed products to
enable the connection of electronic devices incorporating embedded systems to
networks. In 1994, the Company introduced the DPO Interface Specification and
Network Interface Card, two network connectivity products used by printer
controller designers and OEMs of imaging devices.

In 1996, the Company began developing its NET+Works family of semiconductor
devices designed to network-enable a broad array of embedded systems in a
variety of markets. In September 1996, Osicom acquired all of the Company's
outstanding capital stock from its stockholders for $5.0 million of Osicom
common stock. The Company has been a wholly-owned subsidiary of Osicom since the
acquisition. Supported by Osicom's funding of working capital, the Company
completed the development of its NET+Works family of products and began shipping
that family of products in March 1998.

As of May 1, 1998, the Company transferred its Stand-Alone Print Server Line to
Osicom. Therefore, the Company treats the Stand-Alone Print Server Line as a
discontinued operation, and Osicom now manufactures, sells and supports the
stand-alone print server and other products. However, the Company continues to
provide significant manufacturing and engineering services to Osicom for the
Stand-Alone Print Server Line for which Osicom pays the Company on a cost basis.
On May 1, 1999, Osicom assumed responsibility for all manufacturing of the
Stand-Alone Print Server Line products which it sells. On July 1, 1999 Osicom
assumed responsibility for providing engineering support for the Stand-Alone
Print Server Line. As of July 1, 1999, the Company does not provide contracted
services to Osicom with respect to the Stand-Alone Print Server Line. See
'Certain Relationships and Related Party Transactions.' The financial data
discussed below do not include the operations of the Stand-Alone Print Server
Line.

The Company generates revenues from the sales of network semiconductor devices,
NICs and software solutions, development tools and application engineering
services to the OEMs in the embedded system markets. The Company's networking
products are sold to OEMs which incorporate them into electronic devices
incorporating embedded systems that are sold to end users. The Company generally
recognizes product and software license revenue upon shipment to its OEM
customers. Revenue recognition is not dependent upon the customers of those OEMs

<PAGE>

accepting the OEM's products into which the Company's products are incorporated.
Revenue from service obligations is deferred and recognized over the lives of
the contracts. The Company's standard warranty period is 27 months from date of
shipment and the Company's standard product return policy does not allow the
customer to return product other than for warranty. The Company accrues warranty
costs and other allowances at the time of shipment. In general, the timing and
magnitude of the Company's revenues are dependent upon its achievement of design
wins, the timing and success of its OEMs' development cycles and its OEMs'
product sales. In addition to revenues from actual sales of the hardware
products, NETsilicon also receives immaterial amounts of revenue that are earned
from the sales of support services provided to OEMs during their design stage,
and also from post-sale support contracts (generally for the 12 month period
following date of actual shipment of product to the OEM). The sale of the
Company's products typically involves a significant technical evaluation and
commitment of capital and other resources by customers, as well as delays
frequently associated with customers' internal procedures to deploy new
technologies within their products and to accept and test new technologies. For
these and other reasons, the sales cycles associated with the Company's products
is typically lengthy, lasting nine months or longer.

RESULTS OF OPERATIONS

The following table sets forth, for the fiscal years ended January 31, 1997,
1998 and 1999, and for the three months ended April 30, 1998 and 1999,
information derived from the Company's Statement of Operations expressed as a
percentage of net sales.

<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
JANUARY 31, APRIL 30,
--------------------------- ----------------
1997 1998 1999 1998 1999
----- ----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 57.7 51.3 54.4 47.5 53.7
----- ----- ----- ----- -----
Gross profit...................................... 42.3 48.7 45.6 52.5 46.3
----- ----- ----- ----- -----
Operating expenses:
Selling and marketing........................... 21.0 22.9 24.9 28.7 22.8
Engineering, research and development........... 13.8 18.7 16.1 20.5 8.6
General and administrative...................... 20.2 22.6 16.4 16.1 10.5
----- ----- ----- ----- -----
Total operating expenses.......................... 55.0 64.2 57.4 65.3 41.9
----- ----- ----- ----- -----
Operating income (loss) from continuing
operations...................................... (12.7) (15.5) (11.8) (12.8) 4.4
Interest expense.................................. (1.8) (1.5) (4.1) (2.8) (4.1)
----- ----- ----- ----- -----
Income (loss) from continuing operations before
income taxes.................................... (14.5) (17.0) (15.9) (15.6) 0.3
Provision for income taxes........................ 13.0 6.2 -- -- --
----- ----- ----- ----- -----
Income (loss) from continuing operations.......... (1.5)% (10.8)% (15.9)% (15.6)% 0.3%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

<PAGE>

THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THREE MONTHS ENDED APRIL 30, 1998

Net sales. Net sales increased to $5.8 million for the three months ended April
30, 1999 from $2.2 million in the three months ended April 30, 1998,
representing an increase of 166.1%. The increase in net sales was due primarily
to an increase in OEM customers to which the Company shipped product from 11 in
the three months ended April 30, 1998 to 27 in the three months ended April 30,
1999. Net sales included maintenance and service revenue of $72,000, or 1.2% of
net sales in the three months ended April 30, 1999 compared to $79,000 or 3.6%
of net sales in the three months ended April 30, 1998. Backlog for the Company's
products and services was approximately $8.4 million and $4.8 million at
April 30, 1999 and 1998, respectively, all of which was scheduled to be shipped
within 12 months.

Cost of sales; gross profit. Cost of sales consists principally of the cost of
raw material components and subcontract labor assembly from outside
manufacturers and suppliers. Gross profit increased to $2.7 million, or 46.3% of
net sales, for the three months ended April 30, 1999 from $1.1 million, or 52.5%
of net sales, in the three months ended April 30, 1998, representing an increase
of 134.7%. The gross margin percentage decrease in the three months ended
April 30, 1999 was due primarily to a decline in average sales prices.

Selling and marketing expenses. Selling and marketing expenses consist mainly of
employee-related expenses, commissions to sales representatives, trade shows and
travel expenses. Selling and marketing expenses increased to $1.3 million, or
22.8% of net sales, for the three months ended April 30, 1999 from $628,000, or
28.7% of net sales, in the three months ended April 30, 1998, representing an
increase of 111.1%. This increase was the result of expenses incurred due to
increased sales volume such as a $200,000 increase in commissions. The Company
also incurred expenses of $106,000 attributable to the opening of a European
sales office.

Engineering, research and development expenses. Engineering, research and
development expenses consist primarily of salaries and the related costs of
employees engaged in research, design and development activities, net of
capitalized software costs. Engineering, research and development expenses
increased to $502,000, or 8.6% of net sales, for the three months ended
April 30, 1999 from $448,000, or 20.5% of net sales, in the three months ended
April 30, 1998, representing an increase of 12.1%. This increase was due to the
increased expenditures associated with the development of the Company's
NET+Works family of products. Software development costs of $316,000 and
$163,000 in the three months ended April 30, 1999 and 1998, respectively, were
capitalized and are being amortized over the products' useful lives estimated at
three years. Amortization expenses related to capitalized software development
costs for the three months ended April 30, 1998 and 1999 were $67,000 and
$79,000, respectively.

General and administrative expenses. General and administrative expenses consist
mainly of salaries, employee-related expenses, legal expenses, audit fees and
reserves for accounts receivable allowances. General and administrative expenses
increased to $613,000, or 10.5% of net sales, for the three months ended
April 30, 1999 from $352,000, or 16.1% of net sales, in the three months ended
April 30, 1998, representing an increase of 74.1%. The increase in these
expenses resulted from $73,000 of expenses attributable to a newly formed MIS
group as well as other expenses resulting from increased sales.

Interest expense. Interest expense is the result of the Company's borrowings
against its line of credit with its lender, Coast Business Credit and the
interest charged by its parent, Osicom, for borrowings made by the Company from
Osicom. Interest expense increased to $238,000, or 4.1% of net sales, in the
three months ended April 30, 1999, from $60,000, or 2.8% of net sales, in the
three months ended April 30, 1998, representing an increase of 296.7%. During
the three months ended April 30, 1999, approximately $136,000 was attributable
to interest charges on advances to the Company from Osicom, compared to $20,000
in the three months ended April 30, 1998. The interest rate on the Company's
debt with Osicom is the prime rate plus three percent per year.

<PAGE>

Provision for income taxes. There was no net provision for income taxes for the
three months ended April 30, 1998 because the tax benefits attributable to
continuing operations were offset by the tax provision attributable to
discontinued operations. The 1999 provision was offset by a net operating loss
carryforward. At April 30, 1999, the Company had federal net operating losses of
approximately $3.8 million, and research and development credits of $210,000
which expire at various dates through 2014 and which may be available to reduce
future taxable income. The extent to which net operating loss carryforwards may
be utilized in a single taxable year may be reduced in the event there has been
any 'ownership change' of a taxpayer. The acquisition of the Company by Osicom
in September 1996 resulted in such an ownership change. Further ownership
changes in the future may reduce the extent to which any net operating losses
and credits may be utilized.

FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1998

Net sales. Net sales increased to $13.4 million in the fiscal year ended
January 31, 1999 from $7.9 million in the fiscal year ended January 31, 1998,
representing an increase of 68.9%. The increase in net sales was due primarily
to an increase in OEM customers to which the Company shipped product from seven
in fiscal year 1998 to 20 in fiscal year 1999. Net sales included maintenance
and service revenue of $474,000, or 3.5% of net sales in the fiscal year ended
January 31, 1999 compared to $456,000 or 5.8% of net sales in the fiscal year
ended January 31, 1998. Backlog for the Company's products and services was
approximately $7.8 million and $1.9 million at January 31, 1999 and 1998,
respectively, all of which was scheduled to be shipped within 12 months.

Cost of sales; gross profit. Gross profit increased to $6.1 million, or 45.6% of
net sales, in the fiscal year ended January 31, 1999 from $3.9 million, or 48.7%
of net sales, in the fiscal year ended January 31, 1998, representing an
increase of 58.1%. The gross margin percentage decrease in the fiscal year ended
January 31, 1999, was due primarily to costs of $224,000 resulting from the late
delivery of the NET+ARM chip from Atmel, as well as slower than anticipated
general raw material cost reductions of $73,000 due to cash constraints. In
addition, the total impact from the decline in average sales prices resulted in
a decrease in gross profit of $153,000 for the fiscal year ended January 31,
1999 from the fiscal year ended January 31, 1998.

Selling and marketing expenses. Selling and marketing expenses increased to $3.3
million, or 24.9% of net sales, in the fiscal year ended January 31, 1999 from
$1.8 million, or 22.9% of net sales, in the fiscal year ended January 31, 1998,
representing an increase of 84.3%. This increase was the result of
(i) additional sales commissions of $681,000 due to the increased net sales
volume, (ii) increased marketing costs of $687,000 were primarily associated
with the introduction and brand identification efforts related to the NET+Works
family of products subsequent to its introduction in January 1998 as well as the
addition of two senior marketing employees, and (iii) marketing costs of $68,000
associated with targeting additional OEMs in the imaging market.

Engineering, research and development expenses. Engineering, research and
development expenses increased to $2.2 million, or 16.1% of net sales, in the
fiscal year ended January 31, 1999 from $1.5 million, or 18.7% of net sales, in
the fiscal year ended January 31, 1998, representing an increase of 45.2%. This
increase was due primarily to the increased expenditures associated with the
development of the Company's NET+Works family of products. Software development
costs of $724,000 and $556,000 in the fiscal years ended January 31, 1999 and
1998, respectively, were capitalized and are being amortized over the products'
useful lives estimated at three years. Amortization expenses related to
capitalized software development costs were $227,300 and $277,300 in the fiscal
years ended January 31, 1999 and 1998, respectively.

General and administrative expenses. General and administrative expenses
increased to $2.2 million, or 16.4% of net sales, in the fiscal year ended
January 31, 1999 from $1.8 million, or 22.6% of net sales, in the fiscal year
ended January 31, 1998, representing an increase of 22.2%. The increase in these
expenses resulted primarily from an increase of approximately $300,000 in the
accounts

<PAGE>

receivable valuation reserve to reflect the higher level of gross receivables in
the fiscal year ended January 31, 1999, as well as from the addition of a chief
financial officer at a cost of approximately $100,000.

Interest expense. Interest expense is the result of the Company's borrowings
against its line of credit with its lender, Coast Business Credit and the
interest charged by its parent, Osicom, for borrowings made by the Company from
Osicom. Interest expense increased to $551,000, or 4.1% of net sales, in the
fiscal year ended January 31, 1999, from $118,000, or 1.5% of net sales, in the
fiscal year ended January 31, 1998, representing an increase of 366.9%. During
the fiscal year ended January 31, 1999, approximately $353,000 was attributable
to interest charges on advances to the Company from Osicom. During the fiscal
year ended January 31, 1998, Osicom did not charge any interest on advances to
the Company. The interest rate on the Company's debt with Osicom is the prime
rate plus three percent per year.

Provision for income taxes. There was no net provision for income taxes for the
fiscal years ended January 31, 1999 and 1998 because the tax benefits
attributable to continuing operations were offset by the tax provision
attributable to discontinued operations. At January 31, 1999, the Company had
federal net operating losses of approximately $3.8 million, and research and
development credits of $210,200 which expire at various dates through 2014 and
which may be available to reduce future taxable income. The extent to which net
operating loss carryforwards may be utilized in a single taxable year may be
reduced in the event there has been any 'ownership change' of a taxpayer. The
acquisition of the Company by Osicom in September 1996 resulted in such an
ownership change. Further ownership changes in the future may reduce the extent
to which any net operating losses and credits may be utilized.

FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1997

Net sales. Net sales increased to $7.9 million in the fiscal year ended
January 31, 1998 from $7.4 million in the fiscal year ended January 31, 1997,
representing an increase of 6.4%. An increase in sales resulted from an increase
in the number of OEM customers from five to seven and moderately increased
volume in units sold, representing $736,000 of sales. These factors were offset
in part by declining sales prices. The decline in average sales prices resulted
in a decrease in gross profit of $260,000 for the fiscal year ended January 31,
1998 from the fiscal year ended January 31, 1997. Backlog for the Company's
products and services was approximately $1.9 million and $1.8 million at the
fiscal years ended January 31, 1998 and 1997, respectively, all of which was
scheduled to be shipped within 12 months.

Cost of sales; gross profit. Gross profit increased to $3.9 million, or 48.7% of
net sales, in the fiscal year ended January 31, 1998, from $3.2 million, or
42.3% of net sales, in the fiscal year ended January 31, 1997, representing an
increase of 22.5%. The gross margin increase reflected primarily reductions in
the costs of raw materials.

Selling and marketing expenses. Selling and marketing expenses increased to $1.8
million, or 22.9% of net sales, in the fiscal year ended January 31, 1998, from
$1.6 million, or 21.0% of net sales, for the fiscal year ended January 31, 1997,
representing an increase of 15.8%. This increase resulted from expanded
marketing efforts to increase the Company's OEM customer base.

Engineering, research and development expenses. Engineering, research and
development expenses increased to $1.5 million, or 18.7% of net sales, in the
fiscal year ended January 31, 1998 from $1.0 million, or 13.8% of net sales, for
the fiscal year ended January 31, 1997, representing an increase of 44.3%. The
increase in these expenses resulted from the increased expenditures associated
with the development of the Company's NET+Works family of products in the fiscal
year ended January 31, 1998. In the fiscal year ended January 31, 1997 the
Company's investment in engineering, research and development were limited due
to cash constraints. Software development costs of $556,000 and $369,500 in the
fiscal years ended January 31, 1998 and 1997, respectively were capitalized and
are being amortized over the products' useful lives. Amortization

<PAGE>

expenses related to capitalized software development costs for the fiscal years
ended January 31, 1998 and 1997 were $277,300 and $321,900, respectively.

General and administrative expenses. General and administrative expenses
increased to $1.8 million, or 22.6% of net sales, in the fiscal year ended
January 31, 1998 from $1.5 million, or 20.2% of net sales, in the fiscal year
ended January 31, 1997, representing an increase of 19.5%. The increase in these
expenses resulted primarily from an expansion of the Company's infrastructure to
facilitate growth.

Interest expense. Interest expense decreased to $118,000, or 1.5% of net sales,
in the fiscal year ended January 31, 1998 from $136,000, or 1.8% of net sales,
in the fiscal year ended January 31, 1997, representing a decrease of 13.2%.
This decrease was the result of the reduced interest rate on the Company's new
line of credit obtained in October 1996 (2.5% over the bank's prime rate as
compared with 4% over the prior lender's prime rate) partially offset by
increased borrowings.

Provision for income taxes. There was no net provision for income taxes for the
fiscal years ended January 31, 1998 and 1997 because the tax benefit
attributable to continuing operations was offset by the tax provision
attributable to discontinued operations. At January 31, 1998 the Company had
federal net operating losses of approximately $1.5 million and research and
development credits of approximately $210,000 which expire at various dates
through 2013 and which may be available to reduce future taxable income. The
extent to which net operating loss carryforwards may be utilized in a single
taxable year may be reduced in the event there has been an 'ownership change' of
a taxpayer. The acquisition of the Company by Osicom in September 1996 resulted
in such an ownership change. Further ownership changes in the future may reduce
the extent to which any net operating losses and credits may be utilized.

<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain unaudited statement of operations data in
dollar amounts and as a percentage of net sales for the three month period
indicated. This information has been presented on the same basis as the audited
financial statements appearing elsewhere in this prospectus and, in the opinion
of management, includes all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary to present fairly the
unaudited quarterly results. This information should be read in conjunction with
the Company's audited financial statements and the notes thereto appearing
elsewhere in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(Unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $2,703 $ 890 $1,856 $2,185 $3,199 $ 3,030 $4,959 $5,814
Cost of sales....................... 1,376 441 875 1,037 1,497 2,117 2,619 3,120
------ ------ ------ ------ ------ ------- ------ ------
Gross profit........................ 1,327 449 981 1,148 1,702 913 2,340 2,694
------ ------ ------ ------ ------ ------- ------ ------
Operating expenses:
Selling and marketing............. 478 401 505 628 627 1,008 1,074 1,326
Engineering, research &
development..................... 402 424 259 448 502 669 533 502
General and administrative........ 454 442 448 352 405 756 681 613
------ ------ ------ ------ ------ ------- ------ ------
Total operating expenses............ 1,334 1,267 1,212 1,428 1,534 2,433 2,288 2,441
------ ------ ------ ------ ------ ------- ------ ------
Operating income (loss) from
continuing operations............. (7) (818) (231) (280) 168 (1,520) 52 253
Interest expense.................... (34) (46) (18) (60) (77) (198) (217) (238)
------ ------ ------ ------ ------ ------- ------ ------
Income (loss) from continuing
operations before income taxes.... (41) (864) (249) (340) 91 (1,718) (165) 15
Provision for income tax benefit.... 109 31 241 -- -- -- -- --
------ ------ ------ ------ ------ ------- ------ ------
Net income (loss) from continuing
operations........................ $ 68 $ (833) $ (8) $ (340) $ 91 $(1,718) $ (165) $ 15
------ ------ ------ ------ ------ ------- ------ ------
------ ------ ------ ------ ------ ------- ------ ------
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................... 50.9 49.6 47.1 47.5 46.8 69.9 52.8 53.7
----- ----- ----- ----- ----- ----- ----- -----
Gross profit........................ 49.1 50.4 52.9 52.5 53.2 30.1 47.2 46.3
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Selling and marketing............. 17.7 45.1 27.2 28.7 19.6 33.3 21.7 22.8
Engineering, research &
development..................... 14.9 47.6 14.0 20.5 15.7 22.1 10.7 8.6
General and administrative........ 16.8 49.6 24.1 16.1 12.6 24.9 13.8 10.5
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses............ 49.4 142.3 65.3 65.3 47.9 80.3 46.2 41.9
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss) from
continuing operations............. (0.3) (91.9) (12.4) (12.8) 5.3 (50.2) 1.0 4.4
Interest expense.................... (1.2) (5.2) (1.0) (2.8) (2.5) (6.5) (4.3) (4.1)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations before income taxes.... (1.5) (97.1) (13.4) (15.6) 2.8 (56.7) (3.3) 0.3
Provision for income tax benefit.... 4.0 3.5 13.0 -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) from continuing
operations...................... 2.5% (93.6)% (0.4)% (15.6)% 2.8% (56.7)% (3.3)% 0.3%
----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- -----
</TABLE>

<PAGE>

acceptance of and demand for the Company's products and those of the Company's
customers; unanticipated delays or problems in the introduction of the Company's
products; the Company's ability to introduce new products in accordance with OEM
design requirements and design cycles; new product announcements or product
introductions by the Company and the Company's competitors; availability and
cost of manufacturing sources for the Company's products; changes in the mix of
sales to OEMs and sales representatives; incorrect forecasting of future
revenues; the volume of orders that are received and can be filled in a quarter;
the rescheduling or cancellation of orders by customers; costs associated with
protecting the Company's intellectual property; changes in product mix; changes
in product costs and pricing by the Company or its competitors; and changes in
currency exchange rates. The Company believes that period-to-period comparisons
of its operating results should not be relied upon as an indication of future
performance. It is likely that in some future period the Company's operating
results or business outlook will be below the expectations of securities
analysts or investors, which would likely result in a significant reduction in
the market price of the shares of common stock. See 'Selected Financial Data,'
the financial statements of the Company and the notes thereto and 'Risk
Factors -- Potential Fluctuations in Operating Results' appearing elsewhere in
this prospectus.

The Company's quarterly revenues for the three months ended October 31, 1998 and
January 31, 1999 were significantly impacted by delays in the delivery of its
products from Atmel Corporation. Such delays affected the Company's ability to
fill its orders to customers in the three months ended October 31, 1998,
reducing its quarterly revenues to below its expectations. Many such orders were
filled during the three months ended January 31, 1999, generating unusually high
revenues for this period.

During the three months ended October 31, 1998, management completed an
evaluation of its reserves, royalties, purchased software and other assets.
Following such review, the Company recorded non-recurring charges of
approximately $253,000 to cost of sales and $355,000 to operating expenses to
reflect adjustments to such accounts. In addition, during the three months ended
January 31, 1999, the Company made an adjustment to the valuation of its
inventory, which was reflected as a write-down of assets of $272,000 to cost of
sales. The Company believes these accounts are properly reflected as of its
January 31, 1999 financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Prior to this offering, the Company financed its operations through advances
from Osicom and borrowings under its short-term bank line of credit. As of
April 30, 1999, the Company had a working capital deficit of $3.8 million and
$30,000 in cash and cash equivalents.

The Company's operating activities provided cash of $546,000 during the three
months ended April 30, 1999, primarily as a result of growth in accounts payable
and other current liabilities, partially offset by growth in accounts receivable
and inventories. The Company's operating activities used cash in the amount of
$1.9 million during the fiscal year ended January 31, 1999 and generated cash of
$45,000 in the fiscal year ended January 31, 1998. Cash used in the fiscal year
ended January 31, 1999 was primarily attributable to a net loss, growth in
accounts receivable and inventory caused by growth in demand for the Company's
OEM products, offset in part by a growth in accounts payable and other current
liabilities and the non-cash impact of depreciation and amortization. Cash
provided by operating activities in the fiscal year ended January 31, 1998 was
primarily attributable to a decrease in inventories and the non-cash impact of
depreciation and amortization and the valuation allowance associated with
intangible assets, offset in part by a net loss, growth in accounts receivable
and a decrease in accounts payable and other current liabilities.

In order to support the Company's anticipated growth, the Company expects that
its sales and marketing expenses, engineering and research and development
expenses and general and administrative expenses each will increase in the
fiscal year ending January 31, 2000 and thereafter compared to the amounts of
such expenses in the fiscal year ending January 31, 1999. There can

<PAGE>

be no assurance that the Company's available cash and cash flow from operations
will be sufficient to fund such additional expenses.

The Company's standard payment terms are net 30 days. While the Company actively
pursues collection within that time, receivables have frequently taken longer to
collect because it sells products to large companies in Asia. In addition, the
Company has experienced a significant amount of its revenue shipments in the
last month of the quarter and the last month of the fiscal year.

The Company's investing activities used cash in the amount of $496,000 in the
three months ended April 30, 1999 for the purchase of $132,000 of property and
equipment to support the Company's expanded operations and $316,000 for
capitalized software development costs. During the fiscal year ended
January 31, 1999 the Company's investing activities used cash of $328,000 for
the purchase of property and equipment and $724,000 for capitalized software
development costs. During the fiscal year ended January 31, 1998, the Company's
investing activities used cash of $605,000 for the purchase of property and
equipment and $556,000 for capitalized software development costs.

Cash used by financing activities was $603,000 for the three months ended
April 30, 1999, from net loan payments to Osicom of $866,000 less proceeds from
short-term debt of $263,000. Cash provided by financing activities was $3.2
million during the fiscal year ended January 31, 1999, from net loans by Osicom
of $3.0 million and net proceeds from short-term debt of $204,000, reduced by
long-term debt repayments of $18,000. Cash provided by financing activities was
$891,000 during the fiscal year ended January 31, 1998, from loans by Osicom of
$855,000 and net proceeds from short-term debt of $291,000, reduced by long-term
debt repayments of $255,000.

As of April 30, 1999, the balance due to Osicom from loans was approximately
$5.9 million, offset by a receivable due to NETsilicon from Osicom of $2.8
million. This loan is subordinate to bank debt. As of January 31, 1998, Osicom
began accruing interest on the outstanding balance on the loan at the prime rate
plus three percent per year. The Company intends to repay the loan to Osicom in
full from the proceeds of this offering and has no plans to borrow additional
funds from Osicom subsequent to this offering. The Company's short-term debt is
in the form of a credit facility provided by Coast Business Credit. Coast
Business Credit is a division of Southern Pacific Bank and provides asset based
lending services. The Company's credit facility is for $5.0 million, of which
$1.6 million was unused at April 30, 1999 and is collateralized by accounts
receivable, inventory and equipment and a guarantee by Osicom. The loan bears
interest at 2.5% over the bank's prime rate, but not less than 8.0%, and expires
February 1, 2001.

<PAGE>

private financings or borrowings. No assurance can be given that additional
financing will be available or that, if available, such financing can be
obtained on terms favorable to the Company and its shareholders. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of then current stockholders of the Company will be reduced and such
equity securities may have rights, preferences or privileges senior to those of
holders of the Company's common stock. If adequate funds are not available to
satisfy short- or long-term capital requirements, the Company may be required to
limit its operations significantly.

YEAR 2000 COMPLIANCE

The Year 2000 issue refers generally to the problems that some software may have
in determining the correct century for the year. For example, software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether '00' means 1900 or 2000, which may result in failures or the
creation of erroneous results.

The Company is taking steps to address potential Year 2000 problems, including
(i) identifying the computer systems and products affected; (ii) contacting
vendors and suppliers; (iii) determining the Year 2000 compliance status of each
of its systems and products; and (iv) implementing any necessary changes.
Although the Company does not currently expect that the impact of the Year 2000
issue will be material to its systems or products, it could discover (or fail to
discover) Year 2000 issues in the course of its evaluation process that would
have a materially adverse effect on the Company's business, results of
operations or financial condition if not properly addressed.

The Company's products are not date-dependent and the Company believes that they
are Year 2000 compliant. The Company has tested software obtained from third
parties that is incorporated into its products, and is seeking assurances from
its vendors that their licensed software is Year 2000 compliant. Furthermore,
the Company intends to send inquiries to certain of its suppliers requesting
information concerning exposure to Year 2000 problems. The Company expects to
complete this process by September 1999. The Company has received
representations from certain of its suppliers, including some of its sole source
suppliers, as to the Year 2000 compliance of their systems and products. Despite
testing by the Company and by its current and potential customers, and
assurances from the vendors of the software and hardware incorporated into its
products, the Company's products may contain undetected errors or defects
associated with Year 2000 date functions. Known or unknown errors or defects in
such products could severely disrupt the Company's operations and have a
material adverse effect on its business, financial condition, cash flows and
results of operations.

The Company's internal systems include both information technology ('IT') and
non-IT systems. The Company has completed an assessment of its material internal
IT and non-IT systems, including software and hardware technology. To the extent
the Company cannot test the technology, it is seeking assurances from such
vendors that their systems are Year 2000 compliant. The Company is not aware of
any material operational issues or costs associated with preparing its internal
IT and non-IT systems for the Year 2000; however, it may experience material
unanticipated problems and costs caused by undetected errors or defects in the
technology used in its internal IT and non-IT systems. The Company intends to
complete the remediation of any non-Year 2000 compliant technology by
September 1999.

The Company does not have any information concerning the Year 2000 compliance of
its customers. The Company's current and potential customers may incur
significant expense to achieve Year 2000 compliance. If such customers are not
Year 2000 compliant, they may incur material costs to remedy problems or face
litigation costs. As a result, such customers and potential customers could
reduce or eliminate plans that they have to purchase the Company's products or
services. Such events could have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.

<PAGE>

The Company has funded its efforts to address the Year 2000 issue from available
cash and has not separately accounted for these costs in its financial
statements. These costs have not been material. The Company expects to incur
additional costs associated with Year 2000 compliance. Subject to the foregoing
uncertainties, the Company does not expect those costs to be in excess of
$100,000.

Because the Company does not believe the risks of Year 2000 compliance are
material, the Company does not plan to develop a contingency plan to address
situations that may result if it is unable to achieve Year 2000 compliance for
its critical operations. However, the Company is subject to external forces that
may affect industry and commerce generally, such as utility or transportation
company Year 2000 compliance failures and related service interruptions.

EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES

The Company believes that the relatively moderate rate of inflation in the
United States over the past few years has not had a significant impact on the
Company's sales or operating results or on the prices of raw materials. There
can be no assurance, however, that inflation will not have a material adverse
effect on the Company's operating results in the future.

Substantially all of the Company's sales are currently denominated in U.S.
dollars and to date its business has not been significantly affected by currency
fluctuations. However, the Company conducts business in several different
countries and thus fluctuations in currency exchange rates could cause the
Company's products to become relatively more expensive in particular countries,
leading to a reduction in sales in that country. In addition, inflation in such
countries could increase the Company's expenses. In the future, the Company may
engage in foreign currency denominated sales or pay material amounts of expenses
in foreign currencies and, in such event, may experience gains and losses due to
currency fluctuations. The Company's operating results could be adversely
affected by such fluctuations.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board ('FASB') has issued several
pronouncements effective for fiscal years beginning after December 15, 1997,
including Statement of Financial Accounting Standards ('SFAS') No. 129
'Disclosure of Information about Capital Structure', SFAS No. 130 'Reporting
Comprehensive Income', SFAS No. 131 'Disclosure about Segments of an Enterprise
and Related Information', and SFAS No. 132 'Employers' Disclosures about
Pensions and other Postretirement Benefits.' In addition, the Accounting
Standards Executive Committee issued Statement of Position No. 97-2 'Software
Revenue Recognition' that supercedes Statement of Position No. 91-1 'Software
Revenue Recognition' effective for transactions entered into fiscal years
beginning after December 15, 1997. The adoption of these standards has had no
material effects, if any, on Company's financial position or results of
operations.

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

<PAGE>

BUSINESS

OVERVIEW

The Company develops and markets semiconductor devices and software solutions
designed to meet the networking requirements of embedded systems. The Company's
products are incorporated into the design of embedded systems to provide them
with the ability to communicate over standards-based LANs and the Internet,
enabling the development of new embedded systems applications. The Company
believes that it offers the first comprehensive solution that, in conjunction
with the physical interface and memory, encompasses all of the hardware and
software necessary to network-enable electronic devices incorporating embedded
systems. The Company's products are contained in a broad array of imaging
products, including printers, scanners, fax machines, copiers and multi-function
peripherals manufactured by 22 OEMs, including Minolta Corporation, NEC
Corporation, Ricoh Company, Ltd., Sharp Corporation and Xerox Corporation. The
Company's products are also in various stages of being incorporated into the
design of products in additional embedded systems markets, such as industrial
automation equipment, communication devices, data acquisition and test
equipment, Internet devices and utility monitoring equipment.

INDUSTRY BACKGROUND

An embedded system is a computer that is incorporated into a larger electronic
system and responds to external events by performing specific tasks quickly,
predictably, and reliably. Some examples of embedded computers are in office
products such as fax machines, laser printers, and photocopiers; industrial
automation equipment such as robots and process control equipment; building
control equipment such as elevator and environmental control systems; consumer
products such as camcorders and video games; medical instrumentation and imaging
systems; vending machines and automated teller machines; and vehicle anti-lock
brakes and navigation systems.

Many electronic systems incorporating embedded systems run automatically, do not
require a person's constant presence and can be candidates for network
connectivity. Connection to a network affords the operators of these devices the
convenience of controlling or monitoring them remotely rather than from where
the devices are located. Examples of device networking can be as simple as a
home security company receiving a message that a door in a subscriber's house is
open, or as complex as the control of a multi-step chemical process through a
refinery. Despite the many benefits of networking, and the vast number of
devices that are potential candidates to be networked, few embedded systems are
currently connected to a network due to the high historic cost of developing
network solutions for these systems.

The connection of PCs in business environments across LANs, WANs, and, more
recently, in home and mobile environments across the Internet, marked the first
extensive networking of devices. As network connectivity for PCs became more
prevalent, so too did the networking of the imaging devices that printed out,
scanned in, faxed and copied the documents created by those PCs. The primary
motivating factor in the demand for networking of imaging devices was cost. A
single networked printer could serve an entire office whereas, in the absence of
networking, the same office would have required a printer for every work
station. Network connectivity for imaging devices was facilitated by the
emergence of networking standards such as Ethernet and TCP/IP, or the
Transmission Control Protocol/Internet Protocol. Imaging device networking
solutions, like those manufactured and sold by the Company, incorporated those
common transmission protocols.

In markets other than imaging, network connectivity has generally been based
upon the unique or 'proprietary' communication protocols used by the
manufacturers of the embedded systems to be networked. Creating and upgrading
networks based on proprietary protocols generally has been costly and time
consuming for these OEMs. In addition, these networks generally have been
restrictive for end users. End users have been unable to gain the benefits of
new, add-on products

<PAGE>

and software developed by third-party vendors incorporating networking industry
standards, resulting in out-dated and sub-optimal systems requiring costly
upgrades.

With the recent convergence on common networking protocols, such as TCP/IP and
Ethernet, OEMs have increasingly attempted to incorporate standards-based
networking solutions into their products. These solutions have integrated
multiple hardware and software sub-systems commercially available from
third-party vendors, each of which provide a part of the total solution. A
multi-source solution requires the engineering and integration of components
including a microprocessor, an Ethernet chip, a direct memory access ('DMA')
controller, a memory controller, a Web server, a Hypertext Transfer Protocol
('HTTP') server, a real-time operating system ('RTOS') and software drivers, all
of which must be compatible in order for the entire networking solution to
function optimally. Thus, while multi-sourced networking solutions are in some
ways superior to proprietary solutions, OEMs of multi-sourced solutions must
hire dedicated network engineering teams, endure lengthy development and
integration cycles and incur substantial technology enhancement and maintenance
costs. As an alternative to a multi-sourced solution, OEMs have designed
standards-based solutions in which the embedded system or systems to be
networked are connected to an off-the-shelf, microprocessor-based board. Such
solutions are very expensive, physically large and impractical for a wide
variety of users.

The Company believes that historically there have not been cost-effective and
practical alternatives for networking embedded systems. As a result, most
non-imaging devices have not been connected to networks. In situations where
OEMs have achieved network connectivity in their devices, they have sacrificed
time, effort and expense to create proprietary solutions assembled from numerous
and distinct vendors or board-based solutions. As a result, end users have
purchased systems which were either not cost effective or contained generally
rudimentary levels of network connectivity that could not be easily upgraded.

THE NETSILICON SOLUTION

The Company develops and markets semiconductor devices and software solutions
designed to meet the networking requirements of embedded systems. The Company
delivers a standards-based networking solution for embedded systems comprised of
its proprietary NET+Works semiconductors and software. The Company also provides
OEMs with software development licenses and application engineering services to
enable them to design products incorporating NET+Works technology. The Company's
solutions are designed to enable its customers to reduce the cost and improve
the time to market for their products that incorporate networking functionality.
The Company has 15 years of experience providing networking connectivity for a
wide array of electronic devices.

The Company believes that its products offer OEMs a compelling solution because
the products are:

Standards-Based. The Company's products incorporate existing LAN, WAN and
Internet networking standards. This makes it possible for electronic devices
incorporating embedded systems to communicate with other standards-based
equipment, enabling the free exchange of information, distributed processing
and remote maintenance.

Comprehensive. The Company offers a comprehensive solution that, in
conjunction with the physical interface and memory, consolidates the hardware
and software necessary to network enable electronic devices in a single
semiconductor device. In addition, the Company offers OEMs a package of
development tools and application engineering services to further facilitate
a shorter time-to-market for their network-ready products. OEMs that
incorporate the Company's products do not need to develop in-house networking
expertise in order to offer advanced connectivity in their products. This
allows them to focus their engineering resources on developing other aspects
of their products. Furthermore, OEMs incorporating the Company's solutions
into their products do not need to acquire networking hardware or software
from multiple third-party vendors and perform the associated highly complex
and

<PAGE>

lengthy integration and maintenance. The Company believes its NET+Works
product, in conjunction with a physical interface and memory components,
delivers a complete networking solution to OEMs.

Scalable and Extensible. The NET+Works technology is based on a design
platform that allows networking extensibility across a wide range of hardware
platforms and performance levels. Scalability is achieved through a design
which allows the Company to offer pin-compatible semiconductor devices from
5 MIPS (million instructions per second) to 40 MIPS performance levels. As a
result, OEMs can incorporate varying performance levels into their products
without redesigning the hardware or reprogramming the software.

Proven. Since its inception, the Company has focused its efforts on enabling
the connection of electronic devices to networks. The Company's technology
embodies refinements and enhancements developed by the Company during its
years of service to OEMs. The Company's semiconductor devices are
incorporated into a broad array of imaging products, including printers,
scanners, fax machines, copiers and multi-function peripherals manufactured
by 22 OEMs, including Minolta Corporation, NEC Corporation, Ricoh Company,
Ltd., Sharp Corporation and Xerox Corporation.

BUSINESS STRATEGY

The Company's objective is to continue to expand its market position as a
developer and supplier of networking solutions for embedded systems. Key
elements of the Company's strategy include the following:

Expand Existing Customer Relationships in the Imaging Industry. Twenty-two
OEMs in the imaging industry have incorporated the Company's networking
solutions. Its products have been designed into a broad array of imaging
products, including printers, scanners, fax machines, copiers and
multi-function peripherals. OEMs are currently commercially shipping 45
imaging products incorporating the Company's semiconductor devices. In
addition, many of these OEMs are in various stages of designing other
products which will incorporate the Company's NET+Works solution. The Company
seeks to leverage its existing relationships with OEMs by working closely
with them to understand the OEMs' evolving requirements and to meet them. In
addition, the Company is focusing its efforts on obtaining design wins with
those companies in the imaging industry that do not currently incorporate the
Company's semiconductor devices.

Identify and Penetrate Additional Embedded Systems Markets. The overall
addressable market for embedded networking systems is comprised of electronic
devices in a variety of markets, each of which has its own combination of
OEMs and end users. The Company targets those embedded systems markets where,
in its estimation, the demand for embedded networking has developed or will
develop rapidly. See ' -- Sales and Marketing.' For example, the Company has
identified the industrial automation market as one in which OEMs have
demonstrated early demand for the Company's networking solution. The
Company's ability to target multiple other markets results from the basic
design of the Company's semiconductor devices, specifically their suitability
for incorporation into a very wide variety of embedded systems with minimal
additional research or product development expenses required by the Company.
The Company evaluates each new market opportunity based upon four criteria
(i) significant potential sales of the Company's products within three to
five years; (ii) absence of a widely accepted network connectivity
architecture; (iii) compatibility with the Company's sales and marketing
channels; and (iv) ease of adaptability to the Company's existing technology.

Develop Market-Specific Products and Features. The Company intends to bolster
its competitive position within the markets it addresses by developing
value-added versions and features for its products, specifically tailored to
each market's unique requirements. The Company believes that this approach to
product development increases the attractiveness of the NET+Works solution
over more generic, less function-rich alternatives.

<PAGE>

Influence Industry Standards. The Company believes that each embedded system
market it targets is likely to have one or more OEMs that will be early
adopters of networking technology. Because the Company anticipates that these
OEMs will have significant influence in determining the network connectivity
standards within that market, the Company seeks to establish relationships
with these OEMs. The Company plans to develop its products in conjunction
with these early adopters, and to position its products as the networking
solution of choice for each embedded system market it chooses to address. For
example, in June 1998 the Company joined with key industrial automation OEMs
Automation Research Corp., Jetter GmbH, Object Automation, Inc.,
Parker-Hannifin Corporation, Performance Software, Inc. and Richard
Hirschmann GmbH & Co. to create the Industrial Automation Open Networking
Alliance ('Alliance'). The Alliance is designed to promote a standards-based
approach to networking for industrial automation and focus on overcoming
obstacles to its rapid adoption. The Alliance now has 23 members and the
Company believes that, by taking a leading role in the growth of the
Alliance, it will establish its products in the industrial automation market.

PRODUCTS AND SERVICES

The Company's technology solution is comprised of products and application
engineering services. The Company's NET+Works products are semiconductor devices
containing core microprocessors integrated with value-added software. The
Company's solution is sold as a complete system and includes both the hardware
and a license to use the full array of software developed by the Company. The
Company believes its NET+Works solution, in conjunction with a physical
interface and memory, provides all of the functionality needed to implement LAN
and Internet connectivity.

Hardware Products

The Company offers its NET+Works solution integrated onto semiconductor devices
known as NET+ARM containing core microprocessors from ARM. The Company also
offers its NET+Works solution with a Motorola microprocessor. The Company's
semiconductor devices are then incorporated directly onto the embedded
controller board or integrated into a network interface card ('NIC'). Other
required components of the solution include the physical interfaces and memory,
which are either shared with the controller or located on the NIC. Though the
majority of the Company's sales today are in the form of network interface
cards, OEMs are increasingly integrating the Company's stand-alone semiconductor
devices into their controllers and such sales will represent an increasing
percentage of future sales.

The Company's NET+ARM semiconductor devices operate at a speed of 12 MIPS.
Because of the extensibility of the NET+Works solution, the Company has
announced an expanded product offering that will operate at 5, 15 and 40 MIPS.
The Company believes that the price at which its NET+ARM semiconductor devices
are available to OEM customers represents a significant cost savings relative to
the cost of currently available components necessary to achieve comparable
functionality. Though the Company plans to offer semiconductor devices
containing embedded processors other than ARM, it currently has no such
commitments.

The product's processing speed is enhanced by NET+DMA, an interface between the
Ethernet MAC (media access controller) and the main memory bank. A patent
application has been filed and is currently pending for NET+DMA. The Company
plans to file additional patent applications for certain aspects of its
networking technology.

Software

The Company's NET+Works solution integrates a suite of software integrated with
the NET+ARM semiconductor device. In conjunction with the physical interface and
memory, the integrated NET+ARM semiconductor device and value added software
delivers a complete solution to the Company's customers. The software includes:

NET+Drivers and RTOS. NET+Drivers and RTOS components are the basic pieces
that operate the hardware and software. The RTOS is based on one of two
popular third-party

<PAGE>

commercial offerings: pSOS+ from Integrated Systems, Inc. ('ISI') and VxWorks
from Wind River. NETsilicon's drivers are fully integrated and supported by
the RTOS and tools.

NET+Protocols. NET+Protocols contain the open standard communications
protocols such as TCP and UDP.

NET+Services. NET+Services add the necessary networking service modules of an
HTTP Web Server (NET+Web), Email (NET+Mail), Data Transfer through FTP
(NET+Data), Installation with DHCP and Bootp (NET+Install), and Management
with SNMP (NET+Management) and are all based on industry standards.

NET+APIs. NET+APIs provide the needed access to the RTOS and NET+Services for
OEM applications software engineers without having to attain networking
engineering knowledge.

The Company also offers software to enable connection and communication with
embedded controllers over a variety of interface specifications, including DPO,
PSIO, and PCI. The DPO Interface Specification is an open-architecture
specification designed by the Company and licensed to controller designers and
imaging device OEMs. The DPO interface can function with networks comprised of
multiple protocols and operating systems, including Novell NetWare, AppleTalk,
UNIX, TCP/IP and Windows NT. In addition, the DPO interface meets the networking
functionality standard established by Hewlett-Packard Company, enabling OEM
products to be competitive with those of Hewlett-Packard Company. PSIO is an
interface specification that the Company licenses from Peerless Systems Corp. so
that the Company's products can interface with controllers provided by Peerless.
See ' -- Intellectual Property, Trademarks and Proprietary Rights.' The Company
also offers a PCI interface specification to simplify and reduce the cost of PCI
applications.

A key component of the Company's strategy is to leverage its NET+ARM
semiconductor devices by adding application-specific software that is focused on
the unique needs of vertical industry markets. The Company's first customized
vertical-market application is an embedded networking solution designed for use
by manufacturers of imaging devices, such as printers, copiers, faxes, scanners
and multifunction peripherals. This product utilizes the same core technology
found in the Company's NET+ARM semiconductor devices and adds NET+Applications
software developed by the Company specifically for use in imaging devices. The
NET+Works solution for the imaging market offers full networking operating
system support, full print server applications and management capabilities,
enabling devices to report status messages, such as 'toner low' or 'paper jam'
to network administrators via email across a LAN, WAN or the Internet. It is
available for installation directly on the controller board, thereby eliminating
the need for a separate NIC. The Company developed NET+Works solutions for the
imaging market in coordination with imaging technology leaders including Adobe
Systems, Inc., Peerless Systems Corp. and Imaging Technologies Corp. The Company
is currently developing NET+Applications for the industrial automation market.

These components allow customers to develop prototypes on a network, transfer
data and configure their devices in significantly less time than the six months
generally required with alternative approaches, without any sacrifice in system
performance or increase in memory requirements.

Software Development Tools

NET+ARM semiconductor devices are sold to OEMs with a set of integrated
NET+Utilities and tools for hardware and software development, many of which,
the Company believes, are unique to the Company. These include the Company's
NET+Web, a Hypertext Markup Language ('HTML')-to-C compiler which OEM customers
can use to automate the generation of HTML Web pages.

The Company also provides customers with target development boards, including
schematics and computer-aided design ('CAD') electronic format files, which
assist OEM hardware and software

<PAGE>

application developers in the debugging process of their product-specific
applications being ported to and developed on NET+ARM semiconductor devices.
Developers also receive an embedded In-Circuit Emulator ('ICE') debugging tool
to enable testing and evaluation of hardware and their software after it has
been ported to NET+ARM semiconductor devices. Cross-compilers, linkers and
symbolic debuggers, if desired, must be obtained by the OEM directly from the
RTOS vendor. Full documentation provided to OEMs includes a guide to beginning
the design cycle, hardware and software reference manuals, development board
jumpers and a components guide.

The development tools also include additional cost options such as ARM's
development tools and ISI's pRISM+ or Wind River's Tornado open, graphical
development environments. ISI's pRISM+ and Wind River's Tornado support embedded
developers with tools that span the complete development process, from
conception to development and through life cycle support. See ' -- Intellectual
Property, Trademarks and Proprietary Rights.'

Before the Company's semiconductor devices are incorporated into the design of
an OEM's product, the OEM may purchase some sample semiconductor devices and the
software to create custom application programming interfaces and other software
components of the ultimate network solution for the OEMs embedded systems.

Application Engineering Services

The Company believes its OEM customers place significant emphasis on full
product support. Therefore, design support is provided for the first six months
of the OEM's design cycle. Additionally, full technical support for all
hardware, software and embedded products is provided for the first 12 months
after product shipment. Support and training services provided by the Company to
imaging OEM customers include:

Project Management. The Company provides its OEM customers with assistance in
(i) interface specifications analysis; (ii) lead time planning;
(iii) delivery scheduling; and (iv) product cycle planning.

Consulting. The Company's field application engineering staff provide
development process consulting services that range from answering questions
to assisting in problem solving and performing design reviews of customer
products.

Product Integration Support. The Company provides its OEM customers with
product testing and support during the OEM's process of integrating the
Company's technology into its products.

On-going Technical Support. Post-integration support typically includes beta
test period support and assistance to the OEM's support specialists.

Training. The Company provides 'hands-on' training sessions during which OEMs
are taught to install the Company's products (both hardware and software),
set up and configure all network operating systems and protocols, and
understand Ethernet and Token Ring topology. OEM staff are also trained to
provide 'help desk' support, configure the product and diagnose end-user
problems over the phone. OEM managers are trained for 'second level' support,
in which a senior staff member is trained to solve more complex problems and
back up help desk staff. OEM field engineers are trained to solve problems by
taking traces and studying network environments, protocols and stacks.

Joint Marketing Assistance. The Company makes joint sales calls with its
customers, provides collateral, participates in the organization of press
releases and tours, and creates Web links to customer product pages.

Product Updates. Updates on all releases of the NET+Works solution are
available to OEMs initially under warranty and thereafter on an optional
service and maintenance contract basis.

<PAGE>

The Company receives revenue from the foregoing application engineering
services, for which an OEM customer may contract separately. The Company
believes that such revenues are immaterial to its overall financial results of
operations.

PRODUCT DEVELOPMENT

The Company's success depends upon its ability to enhance its solution and
develop and introduce new products to meet changing customer needs on a timely
basis. The Company focuses its hardware development efforts on improving the
performance of its products, simplifying the integration process for its
products and introducing new products with a variety of speeds, capabilities and
price points. The Company focuses its software development efforts on addressing
industry needs, developing industry-specific applications and integrating
additional operating systems and protocols into its solution.

The Company has made and expects to continue to make substantial investments in
product development. For the fiscal years ended January 31, 1997, 1998 and 1999,
the Company's engineering, research and development expenses were approximately
$1.0 million, $1.5 million, and $2.2 million, respectively or 13.8%, 18.7% and
16.1% of net sales, respectively. For the three months ended April 30, 1999, the
Company's engineering, research and development expenses were approximately
$502,000, or 8.6% of net sales. As of April 30, 1999, the Company had 30
full-time employees who have substantial networking and software driver
development experience engaged in research and development activities.

SALES AND MARKETING

The Company markets and sells its products to OEMs through a combination of
(i) its direct sales and marketing staff; (ii) strategic partner relationships
and alliances; (iii) manufacturers representatives; and (iv) authorized
developers.

Direct Sales and Marketing

As of April 30, 1999, the Company employed a total of 27 employees in its direct
sales and marketing efforts. The Company manages most of its sales efforts from
its headquarters in Waltham, Massachusetts and a sales office in Germany. The
Company's direct sales staff solicits prospective customers in North America,
provides technical advice and support with respect to the Company's products,
and works closely with the Company's partners, representatives and developers
worldwide to secure new customer design wins and provide support during their
development of new products. The direct sales and marketing staff participates
in select industry trade shows and conferences to promote the Company's products
and to generate new business leads.

The Company designs its marketing programs to build NETsilicon and NET+Works
awareness and generate new sales leads. The Company's primary marketing
activities include: advertising; direct mail; customer communications; trade
show participation; and press, media and industry analyst relations.

Partnership Relationships and Alliances

The Company augments its direct sales efforts through various strategic
marketing alliances. These include, in the imaging market, alliances with the
makers of printer controllers, and in other markets, alliances with vendors and
suppliers to the Company, such as ARM, Atmel Corporation, Integrated Systems,
Inc. and Wind River Systems, Inc. The Company's strategy for making sales to
imaging OEMs is to have its interface specification incorporated into the
controllers which those OEMs purchase from controller designers, because every
imaging device which utilizes a controller incorporating the Company's DPO
interface specification will use the Company's networking connectivity solution.
The printer controller designers which have incorporated the Company's DPO
interface specification include Adobe Systems, Inc., Advanced HiTech Corp.,
Destiny Technology Corp., Imaging Technologies Corp. and Xionics Document
Technologies, Inc. The

<PAGE>

Company may also license the interface specification of other vendors in order
to target imaging OEMs who do not utilize the controllers of the firms with
which the Company has allied itself. For instance, the Company has licensed the
PSIO interface specification of Peerless Systems Corp. in order to make sales to
OEMs who deploy Peerless' controller.

In June 1998, the Company co-founded the Industrial Automation Open Networking
Alliance with key industrial automation OEMs, including Automation Research
Corp., Jetter GmbH, Object Automation, Inc., Parker-Hannifin Corporation,
Performance Software, Inc. and Richard Hirschmann GmbH & Co. to create the
Industrial Automation Open Networking Alliance. This Alliance is designed to
promote a standards-based approach to networking for industrial automation that
is embodied in the Company's technology. The Alliance has grown to 23 members,
including GE Fanuc, Sun Microsystems, Inc., and Siemens AG.

The Company and its printer controller partners engage in joint marketing
efforts, presenting their individual products as a fully compatible,
comprehensive imaging and networking solution to imaging OEMs.

Manufacturers Representatives

Manufacturers representatives act as local sales agents for the Company and work
on a commission basis. There are nine manufacturers representatives in North
America, three in Europe and Israel, and one in Japan. The Company's direct
sales staff supports and works closely with these representatives, who have
extensive relationships with the current and potential customers in their
territories.

Authorized Developers

The Company also markets and sells its products in coordination with independent
product development consulting firms. These firms have hardware and software
engineering staffs ranging from five to 100 engineers. They consult with large
OEMs, recommending new products for development and offering their expertise to
OEMs during the design cycle of those products. Where network connectivity is
contemplated for such products, the Company provides incentives to these
developers to recommend the Company's solution by paying the developers a
commission on the Company's sales to OEMs which result from these
recommendations. As of April 30, 1999, the Company had approved 17 consulting
firms as 'authorized developers' of its products.

OEM PRODUCT CYCLE

The Company's products are sold to OEMs, which incorporate them into devices
that are sold to end users. The timing and magnitude of the Company's revenues
are highly dependent upon its achievement of design wins, the timing and success
of its OEMs' development cycles, and its OEMs' product sales.

The Company initially targets OEMs that are developing embedded systems products
and are seeking to incorporate networking capability into their products. OEMs
typically select core components, such as the Company's semiconductor devices,
early in the device design process. Prior to the selection of core components,
OEMs typically purchase development tools and receive application engineering
services from the Company to facilitate the integration of NET+Works products
into their design. When the Company has received notification from an OEM that
its solution has been selected for incorporation into an OEM's final product,
the Company achieves what is known as a design win. The revenue the Company
receives from these qualification stage purchases is an immaterial portion of
the Company's total revenue. Once an OEM selects the components it will use for
its product, it generally does not substitute an alternative component as the
change typically requires significant cost or development time. Therefore, the
Company is generally the sole supplier of networking technology throughout the
life cycle of an embedded system once its products have been selected for
inclusion in the product design. Even if the Company is successful in its
efforts to market its products to OEMs and achieves a design win

<PAGE>

from an OEM, there can be no assurance that the Company will ever achieve
revenue from the sale of products as a result of such design win. Furthermore,
even if the Company does achieve revenues from such sales there can be no
assurance that such revenues will be sustainable.

The length of the product development process can vary greatly among the
Company's OEMs, ranging from six to more than 24 months, with no certainty that
any given design will result in a commercial product. When the OEM's product
development cycle nears successful completion, OEMs typically begin purchasing
the Company's products to supply their initial manufacturing efforts. Only upon
the commencement of product shipment does the Company achieve significant
revenues. OEMs then typically purchase quantities of the Company's products
periodically to match their ongoing manufacturing needs, based on their demand
requirements. Sales of the Company's products are therefore dependent upon the
sales of the OEMs' products into which they are designed.

The following is a summary of the Company's shipping customer activity over the
prior eight quarters:

- ---------------------------

(1) Represents the number of customers to which product was shipped during the
period indicated.

IMAGING CUSTOMERS

The Company sells its products for incorporation into OEM devices.
Representative customers from the Company's 22 imaging OEMs who incorporated the
Company's solution into their products include:

<TABLE>
<S> <C>
Fuji Xerox Co. Ltd. New Generation Computing, Inc.
Kyocera Communications Ricoh Electronics
Konica Business Systems Sharp Electronics Corporation
Minolta Corporation Xerox Corporation
NEC Corporation
</TABLE>

The Company's 22 imaging OEM customers have designed its solution into 45
imaging products currently available for sale. All of the Company's net sales
for the fiscal year ended January 31, 1998 and 95% of net sales for the fiscal
year ended January 31, 1999 were derived from the imaging device market. Konica
Business Systems, Kyocera Communications and Minolta Corporation, each
represented greater than 10% of the Company's net sales for the fiscal year
ended January 31, 1999. For the three months ended April 30, 1999, 97% of the
net sales were derived from the imaging device market. Dimatech Corporation,
Minolta Corporation, Ricoh Electronics and Sharp Electronics Corporation each
represented greater than 10% of the Company's net sales for the three months
ended April 30, 1999.

MANUFACTURING

The Company does not maintain its own manufacturing capabilities for its
semiconductor devices, but relies on third parties to provide foundry
capabilities. The Company engages Atmel Corporation to manufacture the NET+ARM
semiconductor device. Shipments of the semiconductor device are first delivered
to the Company, where its staff performs quality assurance testing. The

<PAGE>

Company purchases tested, packaged chips from Atmel. The Company does not have a
written agreement with Atmel regarding production, relying instead upon standard
purchase orders. The Company is in the process of qualifying a second source for
the NET+ARM semiconductor devices. Additionally, the Company obtains price
quotes from possible second sources for semiconductor devices in order to ensure
that the Company is receiving competitive price terms from its current
manufacturer.

The Company contracts with domestic qualified assemblers and with Uni-Precision
Industrial, Ltd. ('Uni-Precision'), a Hong Kong-based subsidiary of Osicom, to
assemble printed circuit boards for the Company's NICs. The Company performs
some final assembly of printed circuit boards and, for quality assurance
purposes, randomly tests boards assembled by third parties. The Company believes
that the terms of its arrangement with Uni-Precision are comparable with those
it could receive from an unrelated third party providing the same services and
are more favorable than it receives from its domestic assemblers. The Company
has no obligation to utilize the services of Uni-Precision, and plans to
continue doing so provided that the Company receives price-competitive terms
from that vendor. The Company has qualified an additional supplier of printed
circuit boards to ensure the availability of its NICs. See 'Certain
Relationships and Related Party Transactions.'

The Company has 28 full-time employees in Waltham, Massachusetts performing
manufacturing-related activities, including purchasing, final assembly, testing,
quality assurance, packaging and shipping.

PRODUCT BACKLOG

The Company's business is characterized by short-term shipment schedules. The
Company's backlog at the beginning of each quarter typically is not sufficient
to achieve expected sales for the quarter. To achieve its sales objectives, the
Company is dependent upon obtaining orders during each quarter for shipment that
quarter. Furthermore, the Company's agreements with its customers typically
provide that they may change delivery schedules and non-imaging customers can
cancel orders within specified time frames, typically 30 days or more prior to
the scheduled shipment date pursuant to the Company's policies, without
significant penalty. The Company's customers have in the past built, and may in
the future build, significant inventory in order to facilitate more rapid
deployment of anticipated major products or for other reasons. Decisions by such
customers to reduce their inventory levels have led, and could in the future
lead, to reductions in purchases from the Company. These reductions, in turn,
have caused and could cause fluctuations in the Company's operating results,
which could have a material adverse effect on the Company's business, results of
operations and financial condition in periods in which the inventory is reduced.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business -- Backlog.'

As of June 30, 1999, the Company's backlog was approximately $9.0 million, as
compared to $5.2 million as of June 30, 1998. The Company includes all firm
purchase orders scheduled for delivery within the subsequent 12 months in its
backlog. The Company anticipates that all of its backlog will be shipped to
customers within the next 12 months.

COMPETITION

The Company believes it is the only supplier of networking products for embedded
systems to offer a single-vendor, standards-based solution which, in conjunction
with the physical interface and memory, consolidates all necessary networking
hardware and software subsystems onto a single semiconductor device. However,
the markets in which the Company operates are intensely competitive, and
characterized by rapidly changing technology, evolving industry standards,
declining average selling prices and frequent new product introductions. A
number of companies offer products that compete with one or more elements of the
Company's solution. The Company believes that the competitive factors affecting
the market for the Company's products include product performance, price and
quality; product functionality and features; the availability of

<PAGE>

products for existing and future platforms; the ease of integration with other
hardware and software components of the customer's products; and the quality of
support services, product documentation and training. The relative importance of
each of these factors depends upon the specific customer involved. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors, or that competitive factors faced by the Company
will not have a material adverse effect on the Company's business, results of
operations and financial condition.

The Company primarily competes with the internal development departments of
large OEM companies that have internally developed their own networking
solutions as well as established developers of embedded systems software and
chips such as Axis Communications, Inc., Echelon Corporation, Emulex
Corporation, H. Bollmann Manufacturers Limited (HBM), Hitachi, Ltd., Integrated
Systems, Inc., Intel Corporation, Milan Technology, a division of Digi
International Inc., Motorola, Inc., Samsung Electronics Co., Ltd. and Wind River
Systems, Inc. In addition, the Company is aware of certain companies which have
recently introduced products that address the markets targeted by the Company.
The Company has experienced and expects to continue to experience increased
competition from current and potential competitors, many of whom have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and larger customer bases than
the Company. In particular, established companies in the networking or
semiconductor industries may seek to expand their product offerings by designing
and selling products using competitive technology that could render the
Company's products obsolete or have a material adverse effect on the Company's
sales. The markets in which the Company competes currently are subject to
intense competition and the Company expects additional price and product
competition as other established and emerging companies enter these markets and
new products and technologies are introduced. Increased competition may result
in further price reductions, reduced gross margins and loss of market share, any
of which could have a material adverse effect on the Company's business, results
of operations and financial condition.

INTELLECTUAL PROPERTY, TRADEMARKS AND PROPRIETARY RIGHTS

The Company's ability to compete is dependent in part on its proprietary rights
and technology. The Company has no patents and relies primarily on a combination
of copyright, trademark laws, trade secrets, confidentiality procedures and
contract provisions to protect its proprietary rights. The Company generally
enters into confidentiality agreements with its employees, and sometimes with
its customers and potential customers and limits access to the distribution of
its software, hardware designs, documentation and other proprietary information.
In addition, pursuant to the Intercompany Agreement with Osicom, the Company
granted Osicom co-ownership rights to certain of its existing intellectual
property in connection with the Company's transfer of its Stand-Alone Print
Server Line to Osicom. Osicom's rights to such intellectual property are limited
to use in products manufactured by Osicom related to the Stand-Alone Print
Server Line. There can be no assurance that the steps taken by the Company in
this regard will be adequate to prevent the misappropriation of its technology.
While the Company has filed one patent application and plans to file various
additional applications, such applications may be denied. Any patents, once
issued, may be circumvented by the Company's competitors. Furthermore, there can
be no assurance that others will not develop technologies that are superior to
the Company's. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights as fully as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights in the United
States or abroad will be adequate or that competing companies will not
independently develop similar technology. Failure of the Company to adequately
protect its proprietary rights could have a material adverse effect on the
Company's business, results of operations and financial condition.

<PAGE>

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

FACILITIES

The Company leases approximately 36,000 square feet of office space in Waltham,
Massachusetts, for its corporate headquarters. Activities at its Waltham
headquarters include administration, sales, product development, assembly, test
and support. The Company's lease provides for base rent of $34,175 per month and
the lease expires on September 30, 2001. The Company subleases 6,000 square feet
of this office space to Osicom through August 1999. The Company believes that
its current facilities are adequate to meet its needs for the foreseeable
future. See 'Certain Relationships and Related Party Transactions.'

EMPLOYEES

As of April 30, 1999, the Company had 97 full-time employees, which includes 58
engaged in product development and manufacturing-related duties and 27 in sales
and marketing. The Company believes its future success will depend, in part, on
its continued ability to attract and

<PAGE>

retain highly qualified personnel in a competitive market for experienced and
talented software engineers, chip designers and sales and marketing personnel.
None of the Company's employees are represented by a labor union or subject to a
collective bargaining agreement. The Company believes that its relations with
employees are good.

LEGAL PROCEEDINGS

There are currently no claims or actions pending against the Company.

<PAGE>

MANAGEMENT

The following table sets forth information with respect to each person who
serves as an executive officer or director or who has been nominated to serve as
a director of the Company and their ages as of January 31, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Cornelius 'Pete' Peterson VIII....... 62 Chairman of the Board of Directors, Chief
Executive Officer, President(1)
John K. Brennan...................... 45 Vice President, Manufacturing
Michael Evensen...................... 34 Vice President, Industrial Automation, Embedded
Markets Europe
William E. Peisel.................... 55 Vice President, Engineering, Chief Technical
Officer
Cornelius 'Neil' Peterson IX......... 38 Vice President, Imaging and Embedded Markets,
Asia
Daniel J. Sullivan................... 42 Vice President, Finance, Chief Financial
Officer
David Yager.......................... 43 Vice President, Embedded Markets, North America
Francis E. Girard.................... 60 Director(1)
William Johnson...................... 57 Director(2)
Edward B. Roberts, Ph.D. ............ 63 Director(3)
F. Grant Saviers..................... 54 Director(1)(3)
Michael Keith Ballard................ 44 Director Nominee(1)(2)(4)
</TABLE>

- ---------------------------

(1) Member of the Executive Committee

(2) Member of the Audit Committee

(3) Member of the Compensation Committee

(4) Will become a director upon completion of the offering.

EXECUTIVE OFFICERS AND DIRECTORS

Cornelius 'Pete' Peterson VIII has served as President and Director of the
Company since founding the Company in 1984, and as Chairman of the Board of
Directors since July 1999. Prior to founding NETsilicon, Mr. Peterson founded
Distribution Management Systems, Inc., a supplier of distribution systems for
Fortune 100 companies, which was sold in 1981 to Cullinet Corporation.
Mr. Peterson was also a founder of Softech, a leading supplier of computer
language and software development and services. Mr. Peterson holds a B.S. and an
M.S. from the Massachusetts Institute of Technology. Mr. Peterson is the father
of Neil Peterson, Vice President, Sales and Marketing of the Company.

John K. Brennan joined the Company in 1996 as Vice President, Manufacturing.
From January 1996 to July 1996, Mr. Brennan served as a Vice President of
Manufacturing for Leaf Systems, Inc., a manufacturer of high-end digital
cameras. From 1995 to 1996, Mr. Brennan served as Director of Materials for
MA-Com, Inc., a division of Amp, Inc. From 1993 to 1995, Mr. Brennan served as
Director of Materials of Leaf Systems, Inc. From 1986 to 1993, Mr. Brennan
served as Manufacturing Operations Manager for Whistler Corporation, a consumer
electronics manufacturer in the automotive industry. He holds a B.S. from
Merrimack College and an M.B.A. from Boston University.

Michael Evensen has been Vice President, Industrial Automation, Embedded Markets
Europe of the Company since October 1998. From September 1997 to September 1998,
Mr. Evensen was Director of Business Development at Richard Hirschmann
Electronics UK Ltd., where he was responsible for Hirschmann's entry into the
industrial automation market. From July 1995 to

<PAGE>

September 1998, Mr. Evensen served as Director of Anite Systems Ltd. From March
1991 to July 1995, Mr. Evensen served as OEM Business Manager for Cray
Communications, Ltd. in Europe, the United States and Asia. Prior to Cray
Communications, Mr. Evensen was a Sales Engineer for Dataco De Rex, Inc., where
he was responsible for European sales. Mr. Evensen holds a B.S. from Copenhagen
University.

William E. Peisel joined the Company in 1987, becoming Vice President,
Engineering in 1989 and Chief Technical Officer in 1995. From 1985 to 1987,
Mr. Peisel served as Vice President, Engineering for EnMass Computer
Corporation, a manufacturer of fault tolerant transaction processing computers.
From 1983 to 1985, Mr. Peisel served as Director of Engineering for Computer
Design and Application, and from 1981 to 1983, Director of Engineering for
Honeywell Information Systems. He holds a B.S.E.E. from Pratt Institute and an
M.S.E.E. from Northeastern University.

Cornelius 'Neil' Peterson IX joined the Company in 1986 and has served as Vice
President, Imaging and Embedded Markets, Asia since 1993. From 1986 to 1993, Mr.
Peterson served as Regional Manager and Vice President of Commercial Sales.
Mr. Peterson has over 14 years of sales and management experience handling major
accounts in the OEM, systems integrator, reseller, distributor, and direct sales
channels. From 1984 to 1986, Mr. Peterson served in the Major Account Sales
Division for Unisys Corporation (formerly Burroughs). He holds a B.S. from Roger
Williams University. Mr. Peterson is the son of Pete Peterson, Chairman, Chief
Executive Officer and President of the Company.

Daniel J. Sullivan has been Vice President, Finance, and Chief Financial Officer
since August 1998. Mr. Sullivan was Vice President, Finance and Operations at
ITK International (formerly Telebit) from 1996 to August 1998. From 1995 to
1996, Mr. Sullivan served as Corporate Controller and from 1989 to 1995 as
Operations Controller, of ITK. From 1985 to 1989, Mr. Sullivan served as
Corporate Manufacturing Financial Planning Manager at Apollo Computers. He holds
a B.S. from Merrimack College and an M.B.A. from New Hampshire College.

David Yager joined the Company in June 1999 as Vice President of Sales. Mr.
Yager was Director of Sales & Business Development at Echelon Corporation since
1991. He was responsible for building the direct sales force in North America as
well as Echelon's entry into the Industrial Automation, Transportation and
Utility markets. Mr. Yager served as Director of Sales, Strategic Accounts at
Advanced Micro Devices from 1985 to 1990 and Regional Sales Manager from 1980 to
1985. Mr. Yager has over 20 years of sales and management experience in major
accounts, new account development, systems integrator, indirect and direct sales
channels. Mr. Yager holds a B.S.E.E. from Northeastern University.

Francis E. Girard has been a Director of the Company since July 1999. He has
been Chief Executive Officer of Comverse Network Systems, Inc. since
January 1998 and a member of the Board of Directors of Comverse Technology,
Inc., the parent corporation of Comverse Network Systems, Inc., since
January 1998. From May 1996 through January 1998, he was President, Chief
Executive Officer and a Director of Boston Technology, Inc., which merged into
Comverse Network Systems, Inc. in January 1998. From 1989 through May 1996, he
served in various senior executive positions with Boston Technology, Inc., most
recently as Executive Vice President of World Sales. Mr. Girard is a Director of
Artisoft, Inc. and the Massachusetts Telecommunications Council and a member of
the International Engineering Consortium. He holds a B.A. from Merrimack
College.

William Johnson has been a Director of the Company since July 1999. Mr. Johnson
has been Vice President and General Manager, Networks & Access Communications
Division of Compaq Computer Corp. since July 1998, and served in other
capacities with Compaq since July 1997. From December 1996 through May 1997, he
was a principal in J & J Consulting, and he served as President and Chief
Executive Officer of Crosscomm Corp. from March through October 1996. He was
General Manager, Networking Hardware Division for International Business
Machines

<PAGE>

Corporation from 1993 through 1996. Mr. Johnson holds an M.S.E.E. and an M.B.A.
from Northeastern University.

Edward B. Roberts, Ph.D. has been a Director of the Company since July 1999.
Dr. Roberts is the David Sarnoff Professor of Management of Technology at the
Massachusetts Institute of Technology, where he serves as Chairman of the Sloan
School's Management of Technological Innovation & Entrepreneurship Research and
Education Programs. In 1991, he founded, and now currently chairs the MIT
Entrepreneurship Center. He also co-founded the MIT Enterprise Forum in 1979 and
also currently chairs this Forum. Dr. Roberts is a Director of Advanced
Magnetics, Inc., Pegasystems, Inc. and Selfcare, Inc., as well as several
privately held companies. In 1969, he founded and is now currently a member of
the Board of Directors of Medical Information Technology, Inc. and a General
Partner of the Zero Stage Capital Group of Venture Capital Funds. Dr. Roberts
holds four degrees from Massachusetts Institute of Technology, including a Ph.D.
in Economics.

F. Grant Saviers has been a Director of the Company since July 1999.
Mr. Saviers was the Chairman of the Board, Chief Executive Officer, and
previously President and Chief Operating Officer of Adaptec Inc. from 1992
through 1998. Prior to that, he was employed in various capacities by Digital
Equipment Corporation for 24 years, most recently as Vice President for
PC Systems and Peripherals. Mr. Saviers is a Director of Analog Devices, Inc.
and Chaparral Network Storage, Inc. He is a Director of The Computer Museum
History Center and a member of the Advisory Boards of the College of Engineering
at the University of California, Berkeley and Leavey School of Business, Santa
Clara University.

Michael Keith Ballard will become a Director of the Company upon completion of
the offering. Mr. Ballard is a partner in Aragon Ventures, LLC, a private
investment fund. Mr. Ballard has also been the President and Chief Executive
Officer of Savannah-Chanel Vineyards since 1997. He was the Director of the
Dial-Up Technology Division of Cisco Systems, Inc. from 1996 to 1997 and was
Vice President of Business Development for Telebit Corporation from 1994 through
1996. He was the Chief Operating Officer of UUNET Technologies, Inc. from 1993
to 1994. Mr. Ballard held various positions with Telebit Corporation prior to
1993. Mr. Ballard holds a B.F.A. from the University of Utah.

The Company is authorized to have six directors and currently has five
directors. The Company expects to appoint a sixth director following the
completion of this offering. The terms of the Board of Directors are divided
into three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 2000; Class II, whose term will expire at the annual
meeting of stockholders to be held in 2001; and Class III, whose term will
expire at the annual meeting of stockholders to be held in 2002. The Class I
director is Mr. Johnson and Mr. Ballard will be a Class I director upon becoming
a member of the Board; the Class II directors are Mr. Saviers and Mr. Girard and
the Class III directors are Mr. Peterson and Dr. Roberts. At each annual meeting
of stockholders, the successors to directors whose terms then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election. This classification of the Board of Directors
may have the effect of delaying or preventing changes in control or management
of the Company. Officers of the Company are elected by the Company's Board and
serve at the Board's discretion.

COMMITTEES OF THE BOARD OF DIRECTORS

Executive Committee

The Board of Directors of the Company has appointed an Executive Committee,
which currently consists of Mr. Peterson, Mr. Saviers and Mr. Girard. Mr.
Ballard will be appointed to the Executive Committee upon his election to the
Board. The Executive Committee's duties include reviewing all financial budgets,
performance targets and business plans and objectives.

<PAGE>

Audit Committee

The Board of Directors of the Company has appointed an Audit Committee, which
currently consists of Mr. Johnson. Mr. Ballard will be appointed to the Audit
Committee upon his election to the Board. The Audit Committee's duties include
engaging and discharging the Company's independent accountants; reviewing and
approving the engagement of the independent accountants for audit and non-audit
services requested; reviewing with the independent accountants the scope and
timing of the audit and non-audit services; reviewing the completed audit with
the independent accountants regarding their report, the conduct of the audit,
accounting adjustments, recommendations for improving internal accounting and
auditing procedures with the Company's financial staff; and initiating and
supervising any special investigations it deems necessary.

Compensation Committee

The Board of Directors of the Company has also appointed a Compensation
Committee which currently consists of Mr. Saviers and Dr. Roberts. The
Compensation Committee's duties include reviewing and making recommendations to
the Board of Directors regarding compensation and benefit plan matters,
including executive officer compensation, director compensation, employee stock
option grants, 401(k) plan matters, employee stock purchase plan matters and
other defined benefit plan matters.

Compensation of Directors

The Company compensates each director who is not an employee of the Company
$1,000 for each meeting of the Board or a committee attended in person or by
telephone. The Chairman of each committee is compensated $1,500 for each
committee meeting attended in person. The Company reimburses the out-of-pocket
expenses incurred by directors for attendance at Board or committee meetings.

Pursuant to the Company's Director Stock Option Plan, the Company will grant
options to purchase 25,000 shares of Common Stock per year to each independent
director, initially upon completion of the offering and thereafter annually
immediately following the annual meeting of the Company's stockholders. The
initial grant will have an exercise price equal to the offer price set forth on
the cover page of this prospectus, and future grants will be at an exercise
price equal to the market price per share on the date of such grant.

EXECUTIVE COMPENSATION

The following table summarizes all compensation awarded to, earned by, or paid
to (i) all individuals who served or functioned as the Company's Chief Executive
Officer during the fiscal years 1999 and 1998; and (ii) the Company's four most
highly compensated executive officers who were serving at the end of fiscal
years 1999 and 1998 whose annual salaries and bonuses exceeded $100,000 (all of
the foregoing individuals are hereinafter referred to collectively as the 'Named
Executive Officers'), for services rendered in all capacities to the Company and
its subsidiaries for the Company's fiscal years 1999 and 1998.

<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------
FISCAL SALARY BONUS(1)
NAME AND PRINCIPAL POSITION YEAR ($) ($)
- --------------------------- ------ -------- --------
<S> <C> <C> <C>
Cornelius 'Pete' Peterson, ................................. 1999 $150,000 --
Chief Executive Officer, President 1998 149,221 --
William E. Peisel, ......................................... 1999 150,600 $12,425
Executive Vice President, Chief Technical Officer 1998 135,835 --
John K. Brennan, ........................................... 1999 113,523 --
Vice President, Manufacturing 1998 101,139 10,000
Cornelius 'Neil' Peterson, ................................. 1999 136,295 88,023
Vice President, Sales & Marketing 1998 80,002 69,995
</TABLE>

- ---------------------------

(1) Bonus represents commissions paid on the basis of sales achieved during the
fiscal year.

STOCK OPTION PLAN

The Company has established an incentive and non-qualified stock option plan
(the 'Stock Option Plan') to become effective upon the closing of the offering.
The Stock Option Plan is to be administered by the Compensation Committee (the
'Committee') of the Board of Directors. References herein to the 'Board' mean
the Board of Directors or the Committee, as the case may be. A total of
6,000,000 shares of common stock is reserved for issuance under the Stock Option
Plan. It is anticipated that the Company will grant options to purchase
approximately 2,990,000 shares under the Stock Option Plan after the
consummation of this offering.

The purpose of the Stock Option Plan is to advance the Company's interests by
enhancing its ability to attract and retain key employees and consultants. All
grants will be made at the discretion of the Board to such individuals and in
such amounts as the Board deems advantageous for compensation and incentive
purposes. The Company's employees are all eligible for the grant of options.

The Stock Option Plan will provide for the grant of both incentive stock options
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
'Code') and non-qualified options subject to the rules contained in Section 83
of the Code. No options may be granted under the Stock Option Plan more than ten
years after the closing date of the offering. All options under the Stock Option
Plan will be non-transferable except upon death. The exercise price of a stock
option granted under the Stock Option Plan may not be less than 100% (110% in
the case of incentive stock options granted to owners of more than 10% of the
total combined voting power of all classes of stock of the Company and its
subsidiaries) of the fair market value of the underlying stock at the time of
grant.

The term of each option will be set by the Board but cannot exceed ten years
from grant (five years from grant, in the case of an incentive stock option
granted to someone owning more than 10% of the total combined voting power of
all classes of stock of the Company and its subsidiaries). Each option will
become exercisable in four installments: on each of the first, second, third and
fourth anniversaries of the date of grant as to 25% of the shares covered by the
option. The Board has the authority to grant options with shorter or longer
vesting schedules, including options that vest immediately as well as placing
other restrictions on vesting. The exercise price of an option may be paid
either in cash, certified check, bank draft or money order or, if the Board so
permits, by delivery of previously owned common stock or a promissory note or a
combination of the foregoing.

If a participant's employment with the Company terminates by reason of death,
each option held by the participant immediately prior to death will be
exercisable, to the extent it was then exercisable, for 12 months after death or
until the end of the option period if earlier. The options

<PAGE>

which were not exercisable at the time of death will immediately terminate upon
death. If a participant's employment terminates for any other reason all of the
participant's options that are not then exercisable will immediately terminate.
The participant's options that were then exercisable will continue to be
exercisable for three months, unless the participant is discharged for cause, as
determined in the Board's sole discretion. In such a case, all previously vested
options shall be forfeited immediately.

Options granted under the Stock Option Plan may also terminate in the event of
certain mergers, consolidations or sales of assets of the Company. However, in
such instances, the Stock Option Plan also provides that at least 30 days in
advance of such an event all outstanding vested and non-vested options shall
become exercisable for a period of 30 days. Options not exercised during that
time period shall be forfeited.

The Board retains the right to amend the Stock Option Plan as to non-qualified
stock options and to amend any outstanding non-qualified option. However, any
amendment relating to incentive stock options will require stockholder approval.
An amendment adversely affecting the rights of an employee under a previously
granted option requires the employee's consent, and certain Stock Option Plan
amendments, including any increase in the number of shares available under the
Stock Option Plan, a change in the group of eligible employees, a reduction in
the minimum option price for incentive stock options, an extension of the term
of the Stock Option Plan, or amendments affecting the status of already granted
incentive stock options, require stockholder approval.

The number of shares reserved for issuance under the Stock Option Plan, as well
as the number of shares subject to outstanding options, option price, and other
option provisions, including where relevant the kind of shares subject to
options, is subject to adjustment in the event of a stock dividend, stock split
or similar capital change or to take into consideration material changes in
accounting practice or principles or certain corporate transactions. The Board
may, at any time, discontinue granting options under the Stock Option Plan.

DIRECTOR STOCK OPTION PLAN

The Company has established a stock option plan for the independent members of
its Board of Directors (the 'Director Stock Option Plan') to become effective
upon the closing of the offering. The purpose of the Director Stock Option Plan
is to attract and retain the best available personnel for service as independent
directors of the Company. All grants under the Director Stock Option Plan are
automatic and nondiscretionary. A total of 800,000 shares of common stock is
reserved for issuance under the Director Stock Option Plan, none of which
options are outstanding as of the date of this prospectus. It is anticipated
that the Company will grant options to purchase 125,000 shares under the
Director Stock Option Plan after the consummation of this offering.

The Director Stock Option Plan will provide for the grant of non-qualified
options subject to the rules contained in Section 83 of the Code. No options may
be granted under the Director Stock Option Plan more than ten years after the
closing date of the offering. All options under the Director Stock Option Plan
will be non-transferable except upon death. The exercise price of a stock option
granted under the Director Stock Option Plan may not be less than 100% of the
fair market value of the underlying stock at the time of grant.

The term of each option will be ten years from grant. Each option will become
exercisable in two installments: six months following the date of grant as to
50%, and twelve months following the date of grant as to the remaining 50%. The
exercise price of an option may be paid either in cash, certified check, bank
draft or money order or, if the Board so permits, by delivery of previously
owned common stock or a promissory note or a combination of the foregoing.

<PAGE>

If a director's status as a member of the Board of Directors terminates by
reason of death, each option held by the director immediately prior to death
will be exercisable, to the extent it was then exercisable, for the remaining
term of the option. The options which were not exercisable at the time of death
will immediately terminate upon death. If a director's status as a member of the
Board of Directors terminates for any other reason, all of the director's
options that are not then exercisable will immediately terminate. The director's
options that were then exercisable will continue to be exercisable for the
remaining term of the option.

Options granted under the Director Stock Option Plan may also terminate in the
event of certain mergers, consolidations or sales of assets of the Company.
However, in such instances, the Director Stock Option Plan also provides that at
least 30 days in advance of such an event all outstanding vested and non-vested
options shall become exercisable for a period of 30 days. Options not exercised
during that time period shall be forfeited.

The Board retains the right to amend the Director Stock Option Plan or any
outstanding option. An amendment adversely affecting the rights of a director
under a previously granted option requires the director's consent, and certain
Director Stock Option Plan amendments, including any increase in the number of
shares available under the Director Stock Option Plan, and an extension of the
term of the Director Stock Option Plan, require stockholder approval.

The number of shares reserved for issuance under the Director Stock Option Plan,
as well as the number of shares subject to outstanding options, option price,
and other option provisions, including where relevant the kind of shares subject
to options, is subject to adjustment in the event of a stock dividend, stock
split or similar capital change or to take into consideration material changes
in accounting practice or principles or certain corporate transactions. The
Board may, at any time, discontinue granting options under the Director Stock
Option Plan.

OSICOM STOCK OPTIONS

Osicom has historically granted options under stock option plans to executive
officers and employees of the Company. No further options will be granted to
executive officers or employees under the Osicom stock option plans.

EMPLOYMENT AGREEMENTS

The Company entered into an employment agreement with Michael Evensen on
October 1, 1998. The agreement provides for a base salary subject to annual
review by the Compensation Committee. Currently, the base salary of Mr. Evensen
is $125,000 per annum. In addition to the base salary, Mr. Evensen is entitled
to receive up to $125,000 per annum in additional compensation as commissions
upon the attainment of business and performance goals and targets which are
mutually agreed upon each year by the Company and Mr. Evensen.

Mr. Evensen receives additional employment benefits in the form of reimbursed
business expenses, travel expenses, health, medical, dental, life and disability
benefits, and other benefits provided by the Company to all employees.
Mr. Evensen is also entitled to three weeks paid vacation for each year of full
employment, exclusive of legal holidays.

The employment agreement provides that upon the completion of this offering,
Mr. Evensen will receive options to purchase 142,487 shares of common stock of
the Company, of which 12.5% will vest immediately, 12.5% will vest one year
after completion of this offering, and 25% will vest on each of the second,
third and fourth anniversaries of the offering. Mr. Evensen's stock options
shall be exercisable at the initial public offering price. Mr. Evensen is
eligible to participate in any additional option programs instituted for senior
employees of the Company.

Mr. Evensen may be terminated by the Company at any time without cause, upon six
months notice. If the Company were to terminate Mr. Evensen's employment for
cause, the Company would have no further obligation to Mr. Evensen except to pay
all accrued and unpaid base salary

<PAGE>

and vacation pay to the date of termination. Mr. Evensen may voluntarily
terminate his employment at any time upon three months notice to the Company.

Mr. Evensen has agreed not to compete with the Company's present or contemplated
business, to solicit or encourage any other person to terminate a relationship
with the Company, or enter into any agreement which conflicts with his duties to
the Company. Mr. Evensen is also subject to a Company Confidential Information
and Invention Assignment Agreement, which survives the termination of the
employment agreement for any reason. The agreement is governed by the laws of
Germany.

The Company has agreed with Pete Peterson, its Chairman, Chief Executive Officer
and President, that in the event that the Company is sold to, or merges with, a
company unaffiliated with the Company or Osicom, all of his stock options being
granted at the closing of this offering will vest immediately, regardless of
whether any performance or time criteria otherwise applicable to vesting have
been satisfied. The Company also agreed that if Mr. Peterson's employment is
terminated or not renewed without cause, or if he is disabled or dies, his
options will remain in full force and effect and any performance-based criteria
will be deemed satisfied notwithstanding the Company's actual financial results.

The Company has agreed with Daniel Sullivan, its Vice President, Finance and
Chief Financial Officer, that if his employment is terminated without cause, the
Company will pay him one year's base salary and all of his unvested Osicom and
NETsilicon stock options will immediately vest.

The Company has no other employment agreements with any of its employees.

LONG-TERM INCENTIVE PLANS

The Company has no long-term incentive plans other than the Stock Option Plan
and the Director Stock Option Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee are Mr. Saviers and Dr. Roberts. There
are currently no compensation committee interlocks with other entities or
insider participation on the Compensation Committee.

<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the common stock as of the date of this prospectus and as adjusted
to reflect the sale of the shares offered thereby by (i) each person known to
own beneficially 5.0% or more of the outstanding shares of common stock;
(ii) each director of the Company; (iii) each executive officer; and (iv) all
executive officers and directors as a group. None of the executive officers or
directors own or have the right to acquire within 60 days of the date of this
prospectus any shares of common stock of the Company. Except the stockholders
have sole voting and investment power as to shares shown. Of the shares owned by
Osicom prior to the offering, 9,000,000 shares are shares of non-voting common
stock. Following the offering, Osicom will own 8,000,000 shares of non-voting
common stock and no shares of voting common stock. Each stockholder listed below
other than Osicom has an address c/o NETsilicon, Inc., 411 Waverley Oaks Road,
Suite 227, Waltham, Massachusetts 02454. The shares listed for each shareholder
other than Osicom represent shares which such individual will have the right to
acquire within 60 days of the date of this prospectus pursuant to stock options
to be granted after the completion of this offering.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING NUMBER AFTER THE OFFERING
--------------------------- OF SHARES -----------------------
NUMBER BEING NUMBER
NAME OF BENEFICIAL HOLDER OF SHARES PERCENTAGE OFFERED OF SHARES PERCENTAGE
- ------------------------- ---------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Osicom Technologies, Inc........ 10,000,000 100.0% 2,000,000 8,000,000 61.5%
2800 28th Street
Suite 100
Santa Monica, CA 90405
Cornelius 'Pete' Peterson
VIII............................ -- -- -- 113,342 *
John K. Brennan................. -- -- -- 17,810 *
Michael Evensen................. -- -- -- 17,810 *
William E. Peisel............... -- -- -- 40,479 *
Cornelius 'Neil' Peterson IX.... -- -- -- 32,383 *
Daniel J. Sullivan.............. -- -- -- 32,383 *
David Yager..................... -- -- -- 14,375 *
Francis E. Girard............... -- -- -- -- *
William Johnson................. -- -- -- -- *
Edward B. Roberts, Ph.D......... -- -- -- -- *
F. Grant Saviers................ -- -- -- -- *
All officers and directors as a
group (11 persons)........... -- -- -- 268,582 2.1
</TABLE>

- ---------------------------
* less than 1%.

<PAGE>

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The Company entered into three agreements with Osicom, which govern the business
relationship between the Company and Osicom.

The Company and Osicom entered into the Intercompany Agreement on May 1, 1998,
which provides for the terms and conditions of the transfer by the Company to
Osicom of the right to manufacture and sell certain products relating to the
Stand-Alone Print Server Line. The Intercompany Agreement provides that Osicom
shall have the right to manufacture and sell the Company's stand-alone print
servers to distributors who will then market such products directly to the
consumer. The Intercompany Agreement provides that the Company assign certain
accounts receivables accruing after July 31, 1998, computer software and
furniture, fixtures, equipment and trademarks to Osicom. The Company also sold
at cost its remaining inventory of stand-alone print servers to Osicom. The
Intercompany Agreement also requires the Company to provide certain
manufacturing and engineering support to Osicom, for which Osicom shall pay a
charge equal to the direct cost of such support plus 10% overhead of such
support to the Company. The Intercompany Agreement provides that certain
software licenses are to be transferred by the Company to Osicom and that Osicom
shall assume license payments under such licenses. It also requires Osicom to
assign all its rights in the trademark NET+ARM to the Company. The Intercompany
Agreement further requires Osicom to use its best efforts to obtain a consent in
writing from ARM Limited to the assignment of the rights to NET+ARM. Pursuant to
the Intercompany Agreement, the Company granted Osicom co-ownership rights to
certain of its existing intellectual property in connection with the Company's
transfer of the Stand-Alone Print Server Line to Osicom. Osicom's rights in such
intellectual property are limited to use in certain products manufactured by
Osicom related to the Stand-Alone Print Server Line, and cannot be transferred,
resold, licensed or assigned by Osicom. Pursuant to the Intercompany Agreement,
Osicom assumed responsibility for manufacturing the Stand-Alone Print Server
Line on May 1, 1999. Osicom assumed responsibility for providing engineering
support to the Stand-Alone Print Server Line on July 1, 1999. As of July 1,
1999, the Company does not provide contracted services to Osicom with respect to
the Stand-Alone Print Server Line.

The Company entered into a supply agreement, effective May 1, 1998 (the 'Supply
Agreement') with Osicom pursuant to which the Company sells to Osicom several
products, including the NET+ARM semiconductor device at fixed gross margins for
use in the Stand-Alone Print Server Line. The Supply Agreement also provides
that Osicom through its subsidiary, Uni-Precision Industrial, Ltd., manufactures
products for the Company at Osicom's best price, as determined by agreement
between Osicom and the Company from time to time. The Supply Agreement has a
term of five years and does not obligate Osicom to purchase any products from
the Company or the Company to utilize Osicom for manufacturing. In addition, in
the ordinary course of business, Uni-Precision manufactures and assembles
products for the Company on a competitive bid basis.

The Company and Osicom entered into a sublease agreement dated as of August 1,
1998, for the sublease by the Company to Osicom of approximately 6,000 square
feet of space at the Company's offices in Waltham, Massachusetts (the
'Sublease'). The Sublease provides for the payment by Osicom to the Company of
rent in the amount of $88,000 per year, payable each October 1, January 1,
April 1 and July 1. The Sublease will expire in August 1999.

From time to time the Company has received non-interest bearing advances from
Osicom. As of January 31, 1998, Osicom began accruing interest on the
outstanding balance at the prime rate plus three percent per annum. As of
May 31, 1999, the balance of such advances was $5.9 million, which is the
highest amount borrowed by the Company from Osicom.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 35,000,000 shares of
common stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share. As of the date of this prospectus, there were
10,000,000 shares of common stock and no shares of preferred stock issued and
outstanding.

COMMON STOCK

The holders of common stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available for
the payment thereof, subject to any preferential dividend rights of outstanding
preferred stock. Upon the liquidation, dissolution or winding up of the Company,
holders of common stock are entitled to receive ratably the net assets of the
Company available for distribution after preferred distributions, if any, to the
holders of preferred stock. The shares of common stock that will be outstanding
upon the consummation of the offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future. See 'Risk Factors -- Anti-Takeover
Provisions' and ' -- Preferred Stock.'

Holders of common stock do not have any preemptive or subscription rights, nor
any redemption or conversion rights.

Voting Common Stock

Holders of voting common stock are entitled to one vote for each share held of
record on all matters to be voted on by the stockholders and do not have
cumulative voting rights. The election of directors is determined by a plurality
of the votes cast. Except as otherwise required by law and as may be required by
the terms of the preferred stock, all other matters are determined by a majority
of the votes cast.

Non-Voting Common Stock

Holders of non-voting common stock are not entitled to vote on the election of
directors or any other matter submitted to the shareholders for approval except
for any proposal that would change the terms of the non-voting common stock. As
of the date of this prospectus, Osicom owns all of the outstanding 9,000,000
shares of non-voting common stock. Upon the sale or transfer of any shares of
non-voting common stock to a non-affiliate of Osicom, such shares automatically
convert to shares of voting common stock. Osicom and its affiliates have agreed
not to accept a proxy to vote any of the Company's voting common stock. An
affiliate of Osicom is any person or entity controlling, controlled by or under
common control with Osicom.

PREFERRED STOCK

The Company has authorized 5,000,000 shares of preferred stock which the
Company's Board has discretion to issue in such series and with such preferences
and rights as it may designate without the approval of the holders of common
stock. Such preferences and rights may be superior to those of the holders of
common stock. For example, the holders of preferred stock may be given a
preference in payment upon liquidation of the Company or for the payment or
accumulation of dividends before any distributions are made to the holders of
common stock. As of the date of this prospectus, no preferred stock has been
designated or issued by the Company, and the Company has no plans, agreements or
understandings for the issuance of preferred stock. For a description of the
possible anti-takeover effects of the preferred stock, see 'Risk Factors --
Anti-Takeover Provisions' and ' -- Certain Anti-Takeover Provisions.'

<PAGE>

LIMITATION ON LIABILITY

The Articles of Organization of the Company limit or eliminate the liability of
the Company's directors or officers to the Company or its stockholders for
monetary damages to the fullest extent permitted by the Massachusetts General
Corporation Law, as amended (the 'MGCL'). The MGCL provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for a breach of fiduciary duty as a director, except for
liability (i) for any breach of such person's duty of loyalty; (ii) for acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law; (iii) for the payment of unlawful dividends and certain other
actions prohibited by Massachusetts corporate law; and (iv) for any transaction
resulting in receipt by such person of an improper personal benefit.

The Company has directors' and officers' liability insurance to provide its
directors and officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful acts. See
'Business -- Legal Proceedings' for a discussion of pending litigation.

CERTAIN ANTI-TAKEOVER PROVISIONS

The ability of the Company's Board to establish the rights of, and to issue,
substantial amounts of preferred stock without the need for stockholder
approval, upon such terms and conditions, and having such rights, privileges and
preferences as the Company's Board may determine in the exercise of its business
judgment, may, among other things, be used to create voting impediments with
respect to changes in control of the Company or to dilute the stock ownership of
holders of common stock seeking to obtain control of the Company. The rights of
the holders of common stock will be subject to, and may be adversely affected
by, any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions, financings and other corporate transactions, may have the
effect of discouraging, delaying or preventing a change in control of the
Company. The Company has no present plans to issue any shares of preferred
stock. In addition, the classification of the Company's Board of Directors may
deter a stockholder from voting to remove incumbent directors and gaining
control of the Board of Directors. See 'Risk Factors -- Anti-Takeover
Provisions,' 'Management,' ' -- Common Stock' and ' -- Preferred Stock.'

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is American Stock Transfer
and Trust Company, 40 Wall Street, New York, New York 10005.

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the offering, there has been no public market for the securities of the
Company. Upon completion of the offering, the Company will have outstanding
13,000,000 shares of common stock (assuming no exercise of the underwriters'
over-allotment option or options outstanding under the Company's stock option
plans). Of these shares, the 5,000,000 shares sold in the offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, as amended, unless they are purchased by 'affiliates' of the
Company as that term is defined in Rule 144 under the Securities Act (which
sales would be subject to certain limitations and restrictions described below).
The remaining 8,000,000 shares, which are held by Osicom, are 'restricted
shares' under Rule 144 (the 'Restricted Shares'). Restricted Shares may be sold
in the public market only if registered under the Securities Act or if they
qualify for an exemption from registration under Rule 144, Rule 144(k) or
Rule 701 promulgated under the Securities Act. Osicom has agreed for a period of
365 days after the date of this prospectus and each director, executive officer
and employee of the Company has agreed for a period of 180 days after the date
of this prospectus without the prior written consent of CIBC World Market Corp.
not to offer, pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly any shares of common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock. As a result of the
contractual restrictions described herein and the provisions of Rule 144,
Rule 144(k) and Rule 701, the Restricted Shares will be available for sale in
the public market as follows: (i) no shares will be available for immediate sale
on the date of this prospectus, (ii) 432,500 shares of common stock subject to
options will be subject to lock-up agreements prohibiting the sale or other
disposition of such shares until 180 days after the date of this prospectus
without the prior written consent of CIBC World Markets Corp. and
(iii) 8,000,000 shares of common stock beneficially owned by Osicom which will
be subject to lock-up agreements prohibiting the sale or other disposition of
such shares until 365 days after the date of this prospectus without the prior
written consent of CIBC World Markets Corp. CIBC World Market Corp. in its sole
discretion and without notice may earlier release for sale in the public market
all or any portion of the shares subject to the lock-up agreement. As a result,
no shares other than those offered by this prospectus are available for
immediate sale on the date of this prospectus, 432,500 shares of common stock
subject to options and 8,000,000 shares of common stock beneficially owned by
Osicom will become eligible for sale 180 days and 365 days after the date of
this prospectus, respectively.

In general, under Rule 144 as currently in effect, beginning 90 days after the
date of this prospectus, a person (or persons whose shares are aggregated) who
has beneficially owned shares for at least one year (including the holding
period of any prior owner except an affiliate) is entitled to sell in 'brokers'
transactions' or to market makers, within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of common stock then outstanding (130,000 shares immediately after the
offering) or (ii) the average weekly trading volume in the common stock during
the four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are subject to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, is entitled to sell such shares without having to comply
with the manner of sale, public information, volume limitation or notice filing
provisions of Rule 144. Unless otherwise restricted, '144(k) shares' may
therefore be sold immediately upon the completion of the offering. Under
Rule 701 under the Securities Act, persons who purchase shares upon exercise of
options granted prior to the offering are entitled to sell such shares 90 days
after the offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the volume limitation or notice filing provisions
of Rule 144.

<PAGE>

After the completion of this offering, but not prior to 180 days after the
completion of this offering, the Company intends to file a Registration
Statement on Form S-8 under the Securities Act to register the 6,000,000 shares
of common stock reserved for issuance under the Stock Option Plan and the
800,000 shares of common stock under the Director Stock Option Plan. After the
date of such filing, if not otherwise subject to a lock-up agreement, shares
purchased pursuant to such plans and options generally would be available for
resale in the public market.

LOCK-UP AGREEMENTS

Osicom and the Company have each agreed with the underwriters that it will not
sell or otherwise dispose of any shares of common stock until 365 days from the
date of the prospectus without the prior written consent of CIBC World Markets
Corp. Furthermore, the Company has agreed not to file a registration statement
on Form S-8 covering any shares of common stock prior to 180 days after the
completion of this offering. Therefore, no employee of the Company will be able
to sell or otherwise dispose of any shares of common stock issued pursuant to
the Stock Option Plan prior to 180 days from the date of this prospectus.
Currently, no employee beneficially owns any shares of the Company's common
stock other than through options granted under the Stock Option Plan. Each
officer, director and employee of the Company has agreed that he will not sell
or otherwise dispose of any shares of common stock prior to 180 days of the date
of the prospectus without the prior written consent of CIBC World Markets Corp.
In addition, Osicom has agreed not to (and to not permit any subsidiary other
than the Company to) purchase any shares of common stock until 365 days from the
date of the prospectus.

<PAGE>

UNDERWRITING

NETsilicon and Osicom have entered into an underwriting agreement with the
underwriters named below. CIBC World Markets Corp. and U.S. Bancorp Piper
Jaffray are acting as representatives of the underwriters.

The underwriting agreement provides for the purchase of a specific number of
shares of voting common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
CIBC World Markets Corp. ...............................
U.S. Bancorp Piper Jaffray..............................

---------

Total.............................................
---------
---------
</TABLE>

This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.

The shares should be ready for delivery on or about , 1999 against
payment in immediately available funds. The representatives have advised
NETsilicon and Osicom that the underwriters propose to offer the shares directly
to the public at the public offering price that appears on the cover page of
this prospectus. In addition, the representatives may offer some of the shares
to other securities dealers at such price less a concession of $ per share.
The underwriters may also allow, and such dealers may reallow, a concession not
in excess of $ per share to other dealers. After the shares are released for
sale to the public, the representatives may change the offering price and other
selling terms at various times.

NETsilicon and Osicom have granted the underwriters an over-allotment option.
This option, which is exercisable for up to 30 days after the date of this
prospectus, permits the underwriters to purchase a maximum of 750,000 additional
shares (250,000 from NETsilicon and 500,000 from Osicom) to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the initial public offering price
that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$ , the total proceeds to NETsilicon will be $ and the
total proceeds to Osicom will be $ . The underwriters have severally
agreed that, to the extent the over-allotment option is exercised, they will
each purchase a number of additional shares proportionate to the underwriter's
initial amount reflected in the foregoing table.

<PAGE>

The following table provides information regarding the amount of the discount to
be paid to the underwriters by NETsilicon and Osicom:

<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
EXERCISE OF FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- --------------------- ---------------------
<S> <C> <C> <C>
NETsilicon.............................. $ $ $
Osicom..................................
----------- -----------
Total........................................ $ $
</TABLE>

NETsilicon and Osicom estimate that their portions of the total expenses of the
offering, excluding the underwriting discount, will be approximately $600,000
and $400,000, respectively. Upon the completion of the offering, Osicom will pay
to Tucker Anthony Cleary Gull, a fee in the amount of $250,000 and expenses of
approximately $90,000 in connection with financial advisory services provided to
Osicom related to NETsilicon.

NETsilicon and Osicom have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

NETsilicon and Osicom have each agreed to a 365-day 'lock up' with respect to
shares of NETsilicon common stock that they beneficially own, including
securities that are convertible into shares of common stock and securities that
are exchangeable or exercisable for shares of common stock. This means that, for
a period of 365 days following the date of this prospectus, neither NETsilicon
nor Osicom may offer, sell, pledge or otherwise dispose of these NETsilicon
securities without the prior written consent of CIBC World Markets Corp.
NETsilicon's executive officers, directors and employees have agreed to a
180-day 'lock up' with respect to securities that are exercisable for an
aggregate of 370,000 shares of NETsilicon common stock that they beneficially
own, including securities that are convertible into shares of common stock and
securities that are exchangeable or exercisable for shares of common stock. This
means that for a period of 180 days following the date of this prospectus,
NETsilicon's executive officers and directors and certain other stockholders,
may not offer, sell, pledge or otherwise dispose of these NETsilicon securities
without the prior written consent of CIBC World Markets Corp.

The representatives have informed NETsilicon that they do not expect
discretionary sales by the underwriters to exceed five percent of the shares
offered by this prospectus.

There is no established trading market for the shares. The offering price for
the shares has been determined by NETsilicon, Osicom and the representatives,
based on the following factors: prevailing market and economic conditions,
revenues and earnings of NETsilicon, the state of NETsilicon's business
operations, an assessment of NETsilicon's management and consideration of the
above factors relative to market valuation of companies in related businesses.

Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:

Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.

Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.

<PAGE>

Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.

Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.

Neither NETsilicon nor the underwriters makes any representation or prediction
as to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon
for the Company by Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP,
Woodbridge, New Jersey. Certain legal matters in connection with this offering
are being passed upon for the underwriters by Morgan, Lewis & Bockius LLP,
Philadelphia, Pennsylvania.

EXPERTS

The financial statements of the Company as of January 31, 1999 and 1998 and for
each of the three years in the period ended January 31, 1999 included in this
prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, and have been so included in reliance on its reports, given upon
its authority as an expert in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

This prospectus, which constitutes a part of a registration statement on
Form S-1 (including all amendments thereto, the 'Registration Statement') filed
by the Company with the SEC under the Act, omits certain of the information set
forth in the Registration Statement. Reference is hereby made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the securities offered hereby. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the SEC and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the SEC described
below.

Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified by
reference to the copy of the applicable document filed with the SEC.

The Company is subject to certain of the informational reporting requirements of
the Securities Exchange Act of 1934, as amended and, in accordance therewith,
files reports and other information with the SEC. Such reports and other
information can be inspected and copied at the public reference facility
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549-1004 and at the regional offices of the SEC located at Seven World Trade
Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may also be obtained in person
from the Public Reference Section of the SEC at its principal office located at
450 Fifth Street, N.W., Washington, D.C. 20549-1004 at prescribed rates.
Additionally, such material may be obtained at the web site the SEC maintains at
http://www.sec.gov which contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.

<PAGE>

NETSILICON, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Balance Sheets as of January 31, 1998 and 1999 and April 30,
1999 (unaudited).......................................... F-3
Statements of Operations for the Years Ended January 31,
1997, 1998 and 1999 and the Three Months Ended April 30,
1998 and 1999 (unaudited)................................. F-4
Statements of Stockholder's Equity (Deficit) for the Years
Ended January 31, 1997, 1998 and 1999 and April 30, 1999
(unaudited)............................................... F-5
Statements of Cash Flows for the Years Ended January 31,
1997, 1998 and 1999 and the Three Months Ended April 30,
1998 and 1999 (unaudited)................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors of
NETsilicon, Inc.

We have audited the accompanying balance sheets of NETsilicon, Inc. (the
'Company') as of January 31, 1998 and 1999 and the related statements of
operations, stockholder's equity (deficit) and cash flows for each of the three
years in the period ended January 31, 1999. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of NETsilicon, Inc. as of
January 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended January 31, 1999 in conformity
with generally accepted accounting principles.

/s/ BDO SEIDMAN, LLP
.....................................
BDO SEIDMAN, LLP

Boston, Massachusetts
February 26, 1999, except for notes
I (ii) and (iii) which are
as of June 30, 1999

F-2

<PAGE>

NETSILICON, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31,
------------------------ APRIL 30,
1998 1999 1999
---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $ 185,100 $ 582,600 $ 29,500
Accounts receivable, net (Notes D and S)........... 3,595,300 4,204,500 4,722,200
Due from affiliate (Note F)........................ -- 1,218,300 2,753,800
Inventory, net (Notes B, D and S).................. 2,607,400 3,769,300 4,129,100
Prepaid expenses and other current assets.......... 172,600 238,600 130,200
---------- ----------- -----------
TOTAL CURRENT ASSETS.......................... 6,560,400 10,013,300 11,764,800
---------- ----------- -----------
PROPERTY AND EQUIPMENT, NET (Notes C, D and E).......... 773,900 685,200 725,500
---------- ----------- -----------
OTHER ASSETS:
Capitalized software, net (Note B)................. 221,400 470,400 707,300
Capitalized software of discontinued operations,
net (Note A)..................................... 330,100 -- --
Other assets....................................... 47,600 479,500 528,600
---------- ----------- -----------
TOTAL OTHER ASSETS............................ 599,100 949,900 1,235,900
---------- ----------- -----------
TOTAL ASSETS............................................ $7,933,400 $11,648,400 $13,726,200
---------- ----------- -----------
---------- ----------- -----------

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term debt (Note D)........................... $2,987,100 $ 3,191,500 $ 3,454,600
Current maturities of long-term debt (Note E)...... 17,900 -- --
Accounts payable................................... 1,777,300 2,789,800 3,582,900
Due to affiliates (Note F)......................... 2,171,000 6,423,100 7,092,400
Other current liabilities.......................... 394,000 1,080,100 1,416,900
---------- ----------- -----------
TOTAL CURRENT LIABILITIES..................... 7,347,300 13,484,500 15,546,800
---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note G)
STOCKHOLDER'S EQUITY (DEFICIT) (Notes I, J and K):
Preferred stock, $0.01 par value; 5,000,000
authorized; none issued.......................... -- -- --
Common stock, $0.01 par value; 35,000,000
authorized; Issued and outstanding:
Voting, 1,000,000 shares...................... 10,000 10,000 10,000
Nonvoting, 9,000,000 shares................... 90,000 90,000 90,000
Additional paid-in capital......................... 2,463,000 2,463,000 2,463,000
Accumulated deficit................................ (1,976,900) (4,399,100) (4,383,600)
---------- ----------- -----------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT).......... 586,100 (1,836,100) (1,820,600)
---------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT).... $7,933,400 $11,648,400 $13,726,200
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

See accompanying notes to financial statements.

F-3

<PAGE>

NETSILICON, INC.
STATEMENTS OF OPERATIONS

COST OF SALES (Note F)......................... 4,293,600 4,060,200 7,270,400 1,037,000 3,120,100
----------- ----------- ----------- ---------- ----------

GROSS PROFIT.............................. 3,150,900 3,860,100 6,102,600 1,148,000 2,694,400
----------- ----------- ----------- ---------- ----------

OPERATING EXPENSES:
Selling and marketing..................... 1,562,700 1,809,600 3,336,400 628,000 1,325,600
Engineering, research and development..... 1,027,700 1,482,600 2,152,500 448,100 502,100
General and administrative................ 1,502,300 1,795,400 2,194,400 351,900 612,800
----------- ----------- ----------- ---------- ----------
TOTAL OPERATING EXPENSES............. 4,092,700 5,087,600 7,683,300 1,428,000 2,440,500
----------- ----------- ----------- ---------- ----------

OPERATING INCOME (LOSS) FROM CONTINUING
OPERATIONS................................... (941,800) (1,227,500) (1,580,700) (280,000) 253,900

Interest expense.......................... (136,200) (118,500) (551,700) (60,000) (238,400)
----------- ----------- ----------- ---------- ----------

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAX BENEFIT........................... (1,078,000) (1,346,000) (2,132,400) (340,000) 15,500

Income tax benefit (Note L)............... 968,600 493,000 -- -- --
----------- ----------- ----------- ---------- ----------

INCOME (LOSS) FROM CONTINUING OPERATIONS....... (109,400) (853,000) (2,132,400) (340,000) 15,500

INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET
OF INCOME TAX OF $968,600, $493,000 and $0 in
1997, 1998 and 1999, respectively and $0 and
$0 in the three months ended April 30, 1998
and 1999, respectively (Notes A and L)....... 1,329,500 676,600 (289,800) (310,700) --
----------- ----------- ----------- ---------- ----------

NET INCOME (LOSS).............................. $ 1,220,100 $ (176,400) $(2,422,200) $ (650,700) $ 15,500
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------

NET INCOME (LOSS) PER SHARE (Notes K and M)

BASIC AND DILUTED:

NET INCOME (LOSS) PER COMMON SHARE:
From continuing operations...... $ (0.01) $ (0.09) $ (0.21) $ (0.04) $ 0.00
From discontinued operations.... 0.16 0.07 (0.03) (0.03) 0.00
----------- ----------- ----------- ---------- ----------
Net income (loss) per common
share......................... $ 0.15 $ (0.02) $ (0.24) $ (0.07) $ 0.00
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 8,285,000 10,000,000 10,000,000 10,000,000 10,000,000
</TABLE>

See accompanying notes to financial statements.

F-4

<PAGE>

NETSILICON, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL STOCKHOLDER'S
--------------------- ------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
---------- -------- -------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1996... 7,197,300 $ 72,000 141,700 $ 14,200 $2,476,800 $(3,020,600) $ (457,600)

Stock option exercises........ 32,800 300 -- -- (300) -- --

Cashless exercise of options
and warrants (Note J)....... 900,300 9,000 -- -- (9,000) -- --

Preferred stock conversion.... 1,869,600 18,700 (141,700) (14,200) (4,500) -- --

Net income.................... -- -- -- -- -- 1,220,100 1,220,100
---------- -------- -------- -------- ---------- ----------- -----------

Balance at January 31, 1997... 10,000,000 100,000 -- -- 2,463,000 (1,800,500) 762,500

Net loss...................... -- -- -- -- -- (176,400) (176,400)
---------- -------- -------- -------- ---------- ----------- -----------

Balance at January 31, 1998... 10,000,000 100,000 -- -- 2,463,000 (1,976,900) 586,100

Net loss...................... -- -- -- -- -- (2,422,200) (2,422,200)
---------- -------- -------- -------- ---------- ----------- -----------

Balance at January 31, 1999... 10,000,000 100,000 -- -- 2,463,000 (4,399,100) (1,836,100)

Net income.................... -- -- -- -- -- 15,500 15,500
---------- -------- -------- -------- ---------- ----------- -----------

Balance at April 30, 1999
(unaudited)................. 10,000,000 $100,000 -- $ -- $2,463,000 $(4,383,600) $(1,820,600)
---------- -------- -------- -------- ---------- ----------- -----------
---------- -------- -------- -------- ---------- ----------- -----------
</TABLE>

See accompanying notes to financial statements.

F-5

<PAGE>

NETSILICON, INC.
STATEMENTS OF CASH FLOWS
(NOTE O)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
--------------------------------------- -----------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 1,220,100 $ (176,400) $(2,422,200) $ (650,700) $ 15,500
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization........ 674,200 580,500 644,100 127,800 170,000
Intangible assets valuation
allowance.......................... -- 237,900 -- -- --
Changes in current assets and liabilities:
(Increase) decrease in accounts
receivable......................... (1,037,100) (169,300) (609,200) 516,500 (517,700)
(Increase) decrease in inventories... 560,300 55,400 (1,161,900) (1,140,200) (359,800)
(Increase) decrease in other current
assets............................. 105,600 (87,000) (66,000) (61,100) 108,400
Increase (decrease) in accounts
payable............................ (1,562,600) (168,000) 1,012,500 957,300 793,100
Increase (decrease) in other current
liabilities........................ (497,900) (227,800) 686,100 100,100 336,800
----------- ----------- ----------- ----------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES.......... (537,400) 45,300 (1,916,600) (150,300) 546,300
----------- ----------- ----------- ----------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment....... (138,600) (604,800) (328,100) (83,800) (131,700)
Software development costs (Note B)....... (369,500) (556,000) (723,600) (162,500) (315,500)
Capitalized software transferred to Osicom
(Note A)................................ -- -- 577,400 -- --
Other assets.............................. (2,700) 16,100 (431,900) 43,200 (49,100)
----------- ----------- ----------- ----------- ---------
NET CASH USED IN INVESTING
ACTIVITIES.................... (510,800) (1,144,700) (906,200) (203,100) (496,300)
----------- ----------- ----------- ----------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds (repayments) of affiliates
advances................................ 947,500 854,400 3,033,800 709,900 (866,200)
Proceeds from issuance of short-term debt,
net (Note D)............................ 917,000 291,000 204,400 (372,800) 263,100
Repayments of long-term debt (Note E)..... (441,900) (254,700) (17,900) -- --
----------- ----------- ----------- ----------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES.......... 1,422,600 890,700 3,220,300 337,100 (603,100)
----------- ----------- ----------- ----------- ---------
INCREASE (DECREASE) IN CASH.................... 374,400 (208,700) 397,500 (16,300) (553,100)

CASH -- BEGINNING OF PERIOD.................... 19,400 393,800 185,100 185,100 582,600
----------- ----------- ----------- ----------- ---------

CASH -- END OF PERIOD.......................... $ 393,800 $ 185,100 $ 582,600 $ 168,800 $ 29,500
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>

See accompanying notes to financial statements.

F-6

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS
(Information for April 30, 1998 and 1999 is unaudited)

NETsilicon, Inc. (the 'Company') develops and markets semiconductor devices
and software solutions designed to meet the networking requirements of embedded
systems. The Company's products are incorporated into the design of embedded
systems to provide them with the ability to communicate over standards-based
local-area networks ('LANs'), wide-area networks ('WANs') and the Internet,
enabling the development of new embedded systems applications. The Company
believes that it offers the first comprehensive solution that, in conjunction
with the physical interface and memory, encompasses all of the hardware and
software necessary to network enable embedded systems. The Company's technology
is designed to have broad applicability and therefore may add network
functionality to many embedded systems. The Company's products are currently
contained in a broad array of imaging products, including printers, scanners,
fax machines, copiers and multi-function peripherals manufactured by 22 original
equipment manufacturers ('OEMs'). The Company's products are also in various
stages of being incorporated into the design of products in additional markets,
such as industrial automation equipment, communication devices, data acquisition
and test equipment, Internet devices and utility monitoring equipment.

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

The accompanying financial statements are the responsibility of the
management of the Company.

A. THE COMPANY AND BASIS OF PRESENTATION

The Company, incorporated in Massachusetts on April 17, 1984 under the name
of Digital Products, Inc. is a wholly-owned subsidiary of Osicom Technologies,
Inc. ('Osicom') and operates as a product line unit. In September 1996, Osicom
acquired the Company through a merger with a newly-formed corporation for Osicom
common stock in a transaction accounted for as a pooling of interests. The
accompanying financial statements represent only the assets, liabilities,
operations and financial position of the Company.

The Company was comprised of two product lines: OEM and Stand-Alone Print
Server. The Company developed both board and system-level products to satisfy
the specific design needs of OEMs and stand-alone solutions for end-user
customers. The end-user customers were addressed through value-added resellers
and distributors; this sales activity is referred to as 'Stand-Alone Print
Server Line sales.' The Company has decided to focus its resources on the future
development of its NET+Works family of products within the OEM line.

As a result, in May 1998, the Company sold its Stand-Alone Print Server
Line to Osicom, which consisted principally of specific sales employees and
capitalized software related to Stand-Alone Print Server products. Based on this
transaction, the Company has accounted for the Stand-Alone Print Server Line as
a discontinued operation. Capitalized software related to the Stand-Alone Print
Server Line of business has been separately stated on the balance sheets
presented. The Company did not experience a gain or loss on disposal as Osicom
purchased the capitalized software and other miscellaneous assets at their book
value as of the date of purchase. Due to the similar nature of the raw materials
utilized in the manufacturing of products within each business line, Osicom also
has been granted the option to purchase existing Company inventory at cost for a
period of nine months. Sales, cost of sales, selling, marketing, engineering,
general and administrative, research and development expenses included in
discontinued operations within the Company's historical Statements of Operations
represent only those transactions specific to the Stand-Alone Print Server Line.
See Note Q.

F-7

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

General and administrative expenses include an amount that management
considers to be a reasonable allocation of general corporate expenses.
Management and administrative salaries are allocated based upon estimated time
devoted to Company's operations; all other allocations of general corporate
expenses, including public company costs, were based upon specific
identification of the relationship of Company's operations to the total
operations of Osicom. Management believes that such allocated general expenses
are representative of the expenses the Company will incur as a separate public
company. Included in selling and marketing and general and administrative
expenses are $80,000, $202,900, and $50,000 of allocated corporate overhead
expenses for the years, ended January 31, 1999, 1998 and 1997, respectively.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Accounts and Notes Receivable -- In the normal course of business, the
Company extends unsecured credit to its customers related to the sales of
various products. Typically credit terms require payment within thirty days from
the date of shipment. The Company evaluates and monitors the creditworthiness of
each customer on a case-by-case basis.

Allowance for Doubtful Accounts -- The Company provides an allowance for
doubtful accounts based on its continuing evaluation of its customers' credit
risk. The Company generally does not require collateral from its customers.

Inventory -- Inventory, comprised of raw materials, work in process,
finished goods and spare parts, is stated at the lower of cost (first-in,
first-out method) or market. Inventories consisted of:

<TABLE>
<CAPTION>
JANUARY 31,
----------------------- APRIL 30,
1998 1999 1999
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Raw material............................. $1,350,400 $1,603,400 $1,119,600
Work in process.......................... 1,273,400 2,150,100 2,364,900
Finished goods........................... 175,600 140,400 754,400
---------- ---------- ----------
2,799,400 3,893,900 4,238,900
Less: Valuation reserve.................. 192,000 124,600 109,800
---------- ---------- ----------
$2,607,400 $3,769,300 $4,129,100
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Fair Value of Financial Instruments -- The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques as appropriate. Except for financial instruments issued in
conjunction with related party transactions management believes that there are
no material differences between the recorded book values of its financial
instruments and their estimated fair value. It is not practicable to estimate
the fair value of related party notes payable or notes receivable of the Company
due to their related party nature.

Property and Equipment -- Property and equipment are recorded at historical
cost. Depreciation and amortization are provided over the estimated useful lives
of the individual assets or the terms of the leases if shorter using accelerated
and straight-line methods. Useful lives for property and

F-8

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

equipment range from three to seven years. Depreciation of leasehold
improvements is computed using the straight-line method over five years.

Capitalized leases are initially recorded at the present value of the
minimum payments at the inception of the contracts, with an equivalent liability
categorized as appropriate under current or non-current liabilities. Such assets
are depreciated on the same basis as described above. Interest expense, which
represents the difference between the minimum payments and the present value of
the minimum payments at the inception of the lease, is allocated to accounting
periods using a constant rate of interest over the lease.

Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are not
sufficient to recover its carrying amount. The Company measures impairment loss
by comparing the fair market value, calculated as the present value of expected
future cash flows, to its net book value. Impairment losses, if any, are
recorded currently.

Software Development -- Software development costs where technological
feasibility has not been established are expensed in the period in which they
occurred, otherwise, development costs that will become an integral part of the
Company's products are deferred in accordance with Statement of Financial
Accounting Standards Nos. 2 and 86. The deferred costs are amortized using the
straight-line method over the remaining estimated 3 year economic life of the
product or the ratio that current revenues for the product bear to the total of
current and anticipated future revenues for that product. Amortization expense
for the fiscal years ended January 31, 1997, 1998 and 1999 and the three months
ended April 30, 1998 and 1999, was $321,900, $277,300, $227,300, $66,700 and
$78,600, respectively. Accumulated amortization was $132,200, $206,200 and
$284,800 as of January 31, 1998, 1999 and April 30, 1999, respectively.

The recoverability of capitalized software costs are reviewed on an ongoing
basis primarily based upon projections of discounted future operating cash flows
from each software product line. The excess amount, if any, of the remaining net
book value over the calculated amount is fully reserved. During the quarter
ended July 31, 1997, the Company recorded a reduction to the net book value of
its capitalized software development costs of $237,900 to reflect the decline in
the net realizable value of these assets as the result of changing market
conditions.

Revenue Recognition -- The Company generally recognizes product revenue
upon shipment to its OEM customers. Revenue from service obligations is deferred
and recognized over the lives of the contracts. The Company accrues for warranty
costs, sales returns and other allowances at the time of shipment.

Income Taxes -- Income taxes are accounted for in accordance with Statement
of Financial Accounting Standards No. 109 'Accounting for Income Taxes.' The
statement employs an asset and liability approach for financial accounting and
reporting of deferred income taxes generally allowing for recognition of
deferred tax assets in the current period for future benefit of net operating
loss and research credit carryforwards as well as items for which expenses have
been recognized for financial statement purposes but will be deductible in
future periods. A valuation allowance is recognized, if on the weight of
available evidence it is more likely than not that some portion or all of the
deferred tax assets will not be realized.

Advertising -- The Company expenses advertising expenditures as incurred.
Advertising expenses of the Company consist of allowances given to customers as
well as direct expenditures by the Company.

F-9

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

Income and Loss Per Common Share -- In 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ('SFAS')
No. 128, 'Earnings Per Share' effective for financial statements issued for
period ending after December 15, 1997, including interim periods. SFAS 128
requires dual presentation of basic and diluted earnings per share ('EPS') on
the face of the income statement. It also requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. (See Note M). This statement also
requires restatement of all prior-period EPS data presented. The adoption had no
effect on the calculation of EPS. Basic income and loss per common share is
computed by dividing net income or loss available to common shareholders by the
weighted average number of common shares outstanding during each period
presented. Diluted EPS is based on the weighted average number of common shares
outstanding as well as dilutive potential common shares, which in the Company's
case consist of convertible securities outstanding, warrants to acquire common
stock and shares issuable under stock benefit plans. Potential common shares are
not included in the diluted loss per share computation for all periods presented
as they would be anti-dilutive.

Stock-Based Compensation -- The Company has adopted SFAS No. 123,
'Stock-Based Compensation' as of February 1, 1996. SFAS No. 123 also encourages,
but does not require companies to record compensation cost for stock-based
employee compensation. The Company has chosen to continue to account for
stock-based compensation utilizing the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees.' Accordingly, compensation cost for stock options issued to employees
is measured as the excess, if any, of the fair market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. (See Note K.)

Unaudited Information -- The financial statements include the unaudited
balance sheet as of April 30, 1999 and the related statements of operations,
changes in shareholders' equity (deficit) and cash flows for the three months
ended April 30, 1998 and 1999. This unaudited information has been prepared by
the Company on the same basis as the audited financial statements and, in
management's opinion, reflects all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information, in accordance with generally accepted accounting principles, for
the periods presented. Results for interim periods are not necessarily
indicative of the results to be expected for the entire year.

Capital Structure -- SFAS No. 129, 'Disclosure of Information about Capital
Structure' is effective for financial statement issued for periods ending after
December 15, 1997. The new standard reinstates various securities disclosure
requirements previously in effect under Accounting Principles Board Opinion
No. 15, which has been superseded by SFAS No. 128. The adoption of SFAS No. 129
had no effect on the Company's financial position or results of operations.

Comprehensive Income -- SFAS No. 130, 'Reporting Comprehensive Income' is
effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. The adoption of SFAS
No. 130 had no material effect on the Company's financial position or results of
operations.

Segment Reporting -- SFAS No. 131, 'Disclosure about Segments of an
Enterprise and Related Information' is effective for financial statements with
fiscal years beginning after December 15, 1997. The new standard requires that
public business enterprises report certain information about operating segments
in complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. It also requires
that public business

F-10

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

enterprises report certain information about their products and services, the
geographic areas in which they operate and their major customers. The adoption
of SFAS No. 131 did not have a material effect on its results of operations.

Pensions and Postretirement Benefits -- SFAS No. 132, 'Employers'
Disclosures about Pensions and Other Postretirement Benefits' is effective for
financial statements with fiscal years beginning after December 15, 1997;
earlier application is permitted. The new standard revises employers'
disclosures about pension and other postretirement benefit plans but does not
change the measurement or recognition of those plans. SFAS No. 132 standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures previously required when
no longer useful. The adoption of SFAS No. 132 did not have an effect on its
financial position or results of operations.

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

Software Revenue Recognition -- The Accounting Standards Executive
Committee issued Statement of Position ('SOP') No. 97-2 'Software Revenue
Recognition' which superceded Statement of Position No. 91-1 'Software Revenue
Recognition' effective for transactions entered into in fiscal years beginning
after December 15, 1997. During 1998, SOP No. 98-9 was issued. The provisions of
SOP No. 98-9 amend certain provisions of SOP No. 98-4 and SOP 97-2. The adoption
of these standards had no material effect on the Company's financial position or
results of operations.

C. PROPERTY AND EQUIPMENT

Property and equipment of the Company consisted of the following
components:

<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
------------------------ -----------
1998 1999 1999
----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Manufacturing, engineering and plant
equipment and software................ $ 2,931,800 $3,240,700 $ 3,359,000
Office furniture and fixtures........... 313,800 313,800 322,500
Leasehold and building improvements..... 138,900 158,100 162,800
----------- ---------- -----------
Total property and equipment....... 3,384,500 3,712,600 3,844,300
Less: Accumulated depreciation.......... (2,610,600) (3,027,400) (3,118,800)
----------- ---------- -----------
Net book value..................... $ 773,900 $ 685,200 $ 725,500
----------- ---------- -----------
----------- ---------- -----------
</TABLE>

Depreciation expense was $352,300, $303,200, $416,800, $61,100 and $91,400
for the fiscal years ended January 31, 1997, 1998, 1999, and the three month
periods ended April 30, 1998 and 1999, respectively.

F-11

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

D. SHORT-TERM DEBT

Short-term debt consisted of the following:

<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
----------------------- -----------
1998 1999 1999
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Floating interest rate loan (2.5% over
lender's prime rate) secured by all the
tangible assets of the Company;
weighted average interest rate for the
years ended January 31, 1998, 1999 and
the three months ended April 30, 1999
was 11.8%, 10.5% and 10.3%,
respectively........................... $2,987,100 $3,191,500 $3,454,600
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

On October 11, 1996, the Company obtained a $3,000,000 line of credit from
Coast Business Credit which was increased to $5,000,000 subsequent to
January 31, 1998. The line of credit is collateralized by substantially all the
assets of the Company and a guarantee by Osicom. Advances are limited to 80% of
eligible receivables and 30% of eligible inventory. The loan bears interest at
2.5% over the bank's prime rate but not less than 8% (10.3% at April 30, 1999).
The proceeds of this loan were used to repay the line of credit outstanding at
the acquisition of the Company by Osicom under which the interest rate was 4%
over the lender's prime rate. The highest amount and average amounts of debt
outstanding were $2,987,100 and $2,298,000 during the year ended January 31,
1998, $3,478,000 and $2,614,900 during the year ended January 31, 1999, and
$4,021,000 and $3,501,000 for the three months ended April 30, 1999.

E. LONG-TERM DEBT

The Company had various notes payable to certain of its former shareholders
which were due December 1997 with interest only payable monthly. The holder of
the note payable due to a former shareholder and present officer of the Company
received 46,023 shares of Osicom's common stock in satisfaction of principal and
accrued interest of $369,100 during October 1997 and January 1998.

The Company was obligated under capital leases that expired on October 1,
1998. At January 31, 1998, the net book value of equipment under capital leases
was $18,900. Remaining principal due was $17,900.

F-12

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

F. DUE FROM OR TO AFFILIATES

Due from affiliates at January 31, and April 30, 1999 represents a
receivable from an Osicom subsidiary. Charges to this subsidiary for
manufactured goods and other expenses, including charges related to the sale of
the Company's Stand-Alone Print Server Line, for the year ended January 31, 1999
and the three months ended April 30, 1999 were approximately $1,410,500 and
$1,454,500, respectively.

Due to affiliates consist of:

<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
----------------------- -----------
1998 1999 1999
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Due to Osicom............................ $1,812,200 $5,884,800 $5,888,700
Due to Uni-Precision..................... 358,800 538,300 1,203,700
---------- ---------- ----------
$2,171,000 $6,423,100 $7,092,400
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

From time to time the Company has received non-interest bearing advances,
including payments of expenses on behalf of the Company, from Osicom which are
subordinate to bank debt. As of January 31, 1998, Osicom began accruing interest
on the outstanding balance at prime plus 3% per year (10.8% at April 30, 1999).

In the ordinary course of business a wholly-owned subsidiary of Osicom,
Uni-Precision Industrial, Ltd. ('Uni-Precision'), manufactured and assembled
products for the Company on a competitive bid basis. During the years ended
January 31, 1998 and 1999 and the three months ended April 30, 1998 and 1999
purchases from Uni-Precision were $775,600, $1,557,200, $295,757 and $1,328,900
of which $358,800, $538,300 and $1,203,700 were unpaid at January 31, 1998, 1999
and April 30, 1999.

G. LEASES AND OTHER COMMITMENTS

(i) Leases

Rental expense under operating leases was $291,600, $330,800 and $460,500
for the years ended January 31, 1997, 1998 and 1999, respectively. Rent expense
for the quarters ended April 30, 1998 and 1999 was $106,500 and $114,000,
respectively. The table below sets forth minimum payments under operating leases
with remaining terms in excess of one year, at January 31, 1999:

<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
2000.................................................... $ 410,100
2001.................................................... 410,100
2002.................................................... 273,400
----------
$1,093,600
----------
----------
</TABLE>

(ii) Employment Contract

The company has an employment contract with its Vice President, Industrial
Automation, Embedded Markets Europe with an indefinite term. Either party can
terminate the agreement with six month notice. The contract provides for base
compensation of $125,000 per year plus commissions up to $125,000 per year.

F-13

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

H. LITIGATION

The Company is not aware of any claims or actions pending against it.

I. STOCKHOLDERS' EQUITY

(i) The Company amended its Certificate of Incorporation in August 1998 to
authorize the issuance of the following shares:

35,000,000 shares of Common Stock ($0.01 par value)
5,000,000 shares of Preferred Stock ($0.01 par value)

The Company's Board of Directors has discretion to issue preferred stock in
such series and with such preferences as it may designate without the approval
of the holders of common shares. As of January 31, 1999 no such designations
have been made.

(ii) On June 30, 1999, the Company effected a 100,000-for-one stock split
resulting in 10,000,000 shares being issued and outstanding post-split. In
connection with the split, Osicom exchanged its 10,000,000 shares of common
stock for 9,000,000 shares of non voting and 1,000,000 shares of voting common
stock.

All shareholder's equity accounts have been retroactively restated to
reflect these changes.

(iii) Upon consummation of the offering, the Company will grant options to
officers, employees and directors for the purchase of approximately 3,110,000
shares. The exercise price will be the same as the offering price to the public.

J. OTHER CAPITAL STOCK TRANSACTIONS AND BUSINESS ACQUISITIONS

Options and Warrants -- During September 1996, options and warrants to
acquire 505,700 Class A common shares at prices ranging from $0.10 to $0.75 were
exercised in 'cashless' transactions. In satisfaction of the $346,700 liability
representing the difference between the agreed upon value of the Company's
common stock in connection with the acquisition by Osicom of $1.27 and the
exercise price due upon exercise, the Company issued 299,200 shares of Class A
common stock to the holders.

K. STOCK OPTION PLANS AND STOCK AWARD PLAN

The Company adopted two stock option plans in August 1998: The 1998
Incentive and Non-Qualified Stock Option Plan and the 1998 Director Option Plan.
The purpose of these plans is to attract, retain, motivate and reward officers,
directors, employees and consultants of the Company to maximize their
contribution towards the Company's success. All options will be granted at
prices not less than fair value at the date of grant and will have terms varying
up to 10 years.

Additionally, the employees of the Company hold options granted under
Osicom's stock option plans. All stock options are granted at not less than the
fair market value on the date of grant. Under the plans, options generally vest
over a two-year period from the date of grant.

F-14

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

The following table summarizes the activity in the Osicom stock option
plans as it relates to the employees of the Company:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
<S> <C> <C>
Shares under option at January 31, 1996..... -- --
Granted................................... 98,054 $30.48
Exercised................................. -- --
Canceled.................................. -- --
-------
Shares under option at January 31, 1997..... 98,054 30.48
Granted................................... 41,407 28.76
Exercised................................. 5,812 31.88
Canceled.................................. 4,191 24.72
-------
Shares under option at January 31, 1998..... 129,458 30.06
Granted................................... 187,737 11.63
Exercised................................. 5,091 31.88
Canceled.................................. 39,272 33.96
-------
Shares under option at January 31, 1999..... 272,832 16.78
Granted................................... 79,925 15.56
Exercised................................. -- --
Canceled.................................. 15,419 14.38
-------
Shares under option at April 30, 1999
(unaudited)............................... 337,338 16.60
-------
-------
</TABLE>

Additional information about outstanding options to purchase Osicom common
stock held by employees of the Company at April 30, 1999 is as follows:

<TABLE>
<CAPTION>
OUTSTANDING
--------------------------------------- EXERCISABLE
WEIGHTED AVERAGE --------------------------
EXERCISE PRICE ----------------------------- WEIGHTED AVERAGE
PER SHARE SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
--------- ------- ------------ -------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$4.78 to $9.39............ 118,045 9.5 $ 6.82 -- --
$10.88 to $19.31.......... 128,880 8.4 15.69 20,395 $15.94
$20.81 to $32.25.......... 85,413 3.2 29.83 80,413 29.81
$45.00.................... 5,000 9.3 45.00 -- --
------- -------
$4.78 to $45.00........... 337,338 7.5 16.60 100,808 27.01
------- -------
------- -------
</TABLE>

All stock options issued to employees have an exercise price not less than
the fair market value of the Osicom's Common Stock on the date of grant, and in
accordance with the accounting for such options utilizing the intrinsic value
method there is no related compensation expense recorded in the Company's
financial statements. Had compensation cost for stock-based compensation been
determined based on the fair value at the grant dates in accordance with the
method delineated in SFAS No. 123, the Company's income (loss) and per share
amounts for the years ended January 31, 1997, 1998, 1999 and the three months
ended April 30, 1998 and 1999, would have been revised to the pro forma amounts
presented below:

F-15

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
------------------------------------ --------------------
1997 1998 1999 1998 1999
---------- --------- ----------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss):
As reported........ $1,220,100 $(176,400) $(2,422,200) $(650,700) $ 15,500
Pro forma.......... $ 627,900 $(528,300) $(2,702,200) $(607,700) $(56,500)
Basic income (loss)
per share:
As reported........ $ 0.15 $ (0.02) $ (0.24) $ (0.07) $ (0.00)
Pro forma.......... $ 0.08 $ (0.05) $ (0.27) $ (0.06) $ (0.01)
</TABLE>

The fair value of option grants is estimated on the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants during the year ended January 31, 1997: expected life of
option 3 years, expected volatility of 45%, risk-free interest rate of 6.25% and
a 0% dividend yield. The fair value, at date of grant, using these assumptions
was $7.67 to $11.74 per option and the weighted average was $11.23. The
assumptions for the year ended January 31, 1998 were: expected life of option
3 years, expected volatility of 45%, risk-free interest rate of 5.35% and a 0%
dividend yield. The fair value, at date of grant, using these assumptions was
$2.04 to $11.44 and the weighted average was $5.27. The assumptions for the year
ended January 31, 1999 and the three months ended April 30, 1998 and 1999 were:
expected life of option of 3 years, expected volatility of 45%, risk-free
interest rate of 5.28% and a 0% dividend yield. The fair value, at date of
grant, using these assumptions was $1.23 to $9.52 per option and the weighted
average was $3.11, $4.88, and $5.57 for the year ended January 31, 1999, and the
three months ended April 30, 1998 and 1999, respectively.

L. INCOME TAXES

The Company's provision for taxes on income consists of for the fiscal
years ended January 31:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ----
<S> <C> <C> <C>
Income taxes:
Current........................................ $ -- $ -- $ --
Deferred....................................... -- -- --
-------- -------- ----
Total..................................... -- -- --
Allocation of tax expense to discontinued
operations.................................. 968,600 493,000 --
-------- -------- ----
Income tax benefit............................. $968,600 $493,000 $ --
-------- -------- ----
-------- -------- ----
</TABLE>

The Company's operations generate permanent and temporary differences for
depreciation, amortization and valuation allowances. The Company has recorded a
100% valuation allowance against its deferred tax assets, including net
operating loss and research credit carryforwards, in accordance with the
provisions of Statement of Financial Accounting Standards No. 109. Such
allowance is recognized if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized.

Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred tax assets and
liabilities are comprised of the following at January 31:

F-16

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Valuation allowances....................... $ 88,200 $ 178,900
Research and development credits........... 210,000 210,200
Tax loss carryforward...................... 656,900 1,582,200
Other...................................... 34,400 39,800
--------- -----------
Gross deferred tax assets............... 989,500 2,011,100
Less: valuation allowance.................. (757,300) (1,812,800)
--------- -----------
Deferred tax asset...................... 232,200 198,300
--------- -----------
Deferred tax liabilities:
Software development costs................. (232,200) (198,300)
--------- -----------
Deferred tax liabilities................ (232,200) (198,300)
--------- -----------
Net deferred tax asset (liability)...... $ -- $ --
--------- -----------
--------- -----------
</TABLE>

At January 31, 1999, the Company has federal net operating losses ('NOL')
of approximately $3,753,700 and research and development credits of $210,200
which may be available to reduce future taxable income; these carryforwards
expire at various dates through 2014. The Internal Revenue Code of 1986, as
amended ('Code'), reduces the extent to which NOLs and tax credit carryforwards
may be utilized in a single taxable year in the event there has been an
'ownership change' of a company as defined by applicable Code provisions. The
acquisition of the Company by Osicom in September 1996 resulted in such an
ownership change. $558,900 of the Company's NOLs expiring in years ending
January 31, 2008 through 2010 are subject to annual limitation of approximately
$290,000. Further ownership changes, as defined by the Code, may reduce the
extent to which any net operating losses and credits may be utilized. These
carryforwards expire as follows:

<TABLE>
<CAPTION>
NOL CREDITS
--- -------
<S> <C> <C>
2008.................................................. $ 170,100 $ 54,800
2009.................................................. 400 102,300
2010.................................................. 389,800 53,100
2013.................................................. 998,100 --
2014.................................................. 2,195,300 --
---------- --------
$3,753,700 $210,200
---------- --------
---------- --------
</TABLE>

The reconciliation between income tax expense and a theoretical United
States tax computed by applying a rate of 35% for the fiscal years ended
January 31, 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Loss before income taxes from
continuing operations................ $(1,078,000) $(1,346,000) $(2,132,400)
----------- ----------- -----------
----------- ----------- -----------
Theoretical tax expense (benefit) at
35%.................................. $ (377,300) $ (471,100) $ (746,300)
Impact of non-qualified stock
options.............................. -- (60,000) (24,300)
Impact of state taxes and other........ (164,300) (83,600) (284,900)
Change in valuation allowance.......... (427,000) 121,700 1,055,500
----------- ----------- -----------
Tax benefit............................ $ (968,600) $ (493,000) $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

F-17

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

M. EARNINGS PER SHARE CALCULATION

The following data show the amounts used in computing basic earnings per
share.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,
------------------------------------- -----------------------
1997 1998 1999 1998 1999
---------- ---------- ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss)................. $1,220,100 $ (176,400) $(2,422,200) $ (650,700) $ 15,500
Less: preferred dividends......... -- -- -- -- --
---------- ---------- ----------- ---------- ----------
Net income (loss) available to
common shareholders used in
basic EPS....................... $1,220,100 $ (176,400) $(2,422,200) $ (650,700) $ 15,500
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Average number of common shares
used in basic EPS............... 8,285,000 10,000,000 10,000,000 10,000,000 10,000,000
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>

The Company had a net loss for the fiscal years ending January 31, 1998 and
1999 and for the three month period ended April 30, 1998. Accordingly, the
effect of dilutive securities including warrants to acquire common stock and
stock options, vested and nonvested, are not included in the calculations of
EPS because their effect would be antidilutive. The following data shows the
effect on income and the weighted average number of shares of dilutive potential
common stock.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,
------------------------------------- -------------------------
1997 1998 1999 1998 1999
---------- ---------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) available to
common shareholders used in
basic EPS..................... $1,220,100 $ (176,400) $(2,422,200) $ (650,700) $ 15,500
Adjustments..................... -- -- -- -- --
---------- ---------- ----------- ----------- -----------
Net income (loss) available to
common shareholders after
assumed conversions of
dilutive securities........... $1,220,100 $ (176,400) $(2,422,200) $ (650,700) $ 15,500
---------- ---------- ----------- ----------- -----------
Average number of common shares
used in basic EPS............. 8,285,000 10,000,000 10,000,000 10,000,000 10,000,000
Effect of dilutive securities:
Convertible preferred
stock.................... 1,149,300 -- -- -- --
Warrants................... 517,600 -- -- -- --
Stock benefit plans........ 48,100 -- -- -- --
---------- ---------- ----------- ----------- -----------
Average number of common shares
and dilutive potential common
stock used in diluted EPS..... 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>

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

F-18

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

be antidilutive. The average market price for the periods presented has
been assumed to be equal to the offering price of the shares to be issued in
connection with the Company's planned initial public offering. All options
outstanding during the periods presented are exercisable at prices equal to or
greater than this price and are therefore excluded from diluted income per share
as they would be antidilutive.

N. OTHER RELATED PARTY TRANSACTIONS

Summarized below are all material related party transactions entered into
by the Company and its subsidiaries during the periods presented not otherwise
disclosed in these notes.

The Company had outstanding indebtedness to former shareholders and a
current officer of the Company as more fully described in Note E. During the
fiscal years ended January 31, 1997 and 1998 the interest expense incurred on
these notes was $22,300 and $27,100, respectively.

O. SUPPLEMENTAL CASH FLOW DISCLOSURES

The stock issued by Osicom in satisfaction of a note payable including
accrued interest to a current officer and former shareholder of the Company
neither provided nor used cash. Accordingly, the values assigned to such stock
have been excluded from the statements of cash flows.

Interest paid approximated the related expenses for the fiscal years ended
January 31, 1997, and 1998. Interest paid for the fiscal year ended January 31,
1999 was approximately $262,800. Interest paid was $74,400 and $102,300 for the
three month periods ended April 30, 1998 and 1999, respectively.

No income taxes were paid for the years ended January 31, 1997, 1998 and
1999 or the three month period ended April 30, 1999.

P. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade receivables. As regards the former, the Company places its temporary
cash investments with high credit financial institutions and limits, by policy,
the amount of credit exposure to any one institution. No accounts at a single
bank accounted for more than 10% of current assets.

Although the Company is directly affected by the economic well being of its
significant customers listed in the following tables, management does not
believe that significant credit risk exists at January 31, 1999. The Company
performs ongoing credit evaluations of its customers' financial condition and
does not require collateral.

F-19

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

The following data shows the customers accounting for more than 10% of net
receivables:

<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
------------- -----------
1998 1999 1999
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Customer A.................................................. 2.0% 18.5% 22.0%
Customer B.................................................. 2.6 5.9 15.0
Customer C.................................................. -- 13.7 12.0
Customer D.................................................. -- 19.7 7.0
Customer E.................................................. 18.6 4.0 2.0
Customer F.................................................. 26.6 -- --
Customer G.................................................. 17.0 -- --
</TABLE>

The following data shows that sales to major customers as a percentage of
net sales:

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED JANUARY 31, ENDED APRIL 30,
------------------------- ----------------
1997 1998 1999 1998 1999
----- ----- ----- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Customer H........................................ --% 7.1% 11.6% --% 13.3%
Customer E........................................ 6.7 8.7 11.6 22.6 2.2
Customer D........................................ -- 8.8 11.4 4.8 4.0
Customer A........................................ -- 2.9 9.6 4.9 18.3
Customer I........................................ 21.0 33.7 7.9 4.0 3.1
Customer J ....................................... -- -- 7.4 20.0 --
Customer K........................................ 3.2 13.8 7.2 15.9 3.8
Customer C........................................ -- -- 4.3 -- 27.3
Customer L........................................ 0.4 10.8 3.5 0.5 2.0
Customer B........................................ -- 1.5 2.6 4.3 10.5
Customer M........................................ 10.4 2.3 -- 1.1 0.7
Customer N........................................ 33.3 5.3 -- -- --
</TABLE>

Q. DISCONTINUED OPERATION

Effective May 1, 1998 the Company sold its Stand-Alone Print Server Line to
Osicom as described in Note A. The agreement provides for the terms and
conditions of the transfer by the Company to Osicom of the right to manufacture
and sell Stand-Alone Print Server products. The agreement provides that Osicom
shall have the right to manufacture and sell the Company's Stand-Alone Print
Servers to distributors who will then market such products directly to the
consumer. The Company has assigned accounts receivables accruing after July 31,
1998, computer software and furniture, fixtures, equipment, software licenses
and trademarks to Osicom. Any future licensing fees will be paid by Osicom.
Osicom has the option to acquire inventory of Stand-Alone Print Servers at the
Company's cost during the period of the agreement. The agreement requires the
Company to provide certain engineering support to Osicom, for which Osicom shall
pay 100% of the actual cost of such support to the Company. It also requires
Osicom to assign all its rights in the trademark NET+ARM to the Company and
requires Osicom to use its best efforts to obtain a consent in writing from ARM
Limited to the assignment of the rights to NET+ARM. The agreement is for one
year unless earlier terminated by mutual agreement. Lastly, Osicom has agreed to
cause certain intellectual property previously owned by Osicom to be co-owned by
the Company and Osicom.

F-20

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

The Company entered into a supply agreement with Osicom pursuant to which
the Company sells to Osicom several products, including the NET+ARM chips for
fixed prices. The prices are subject to change consistent with any changes in
the Company's costs for such products. The agreement also provides that Osicom
manufactures products for the Company at Osicom's best price, as determined by
mutual agreement. The agreement has a term of five years and does not obligate
Osicom to purchase any products from the Company or the Company to utilize
Osicom for manufacturing.

The Company and Osicom entered into a one year sublease agreement for
approximately 6,000 square feet of office space at the Company's facilities for
an annual rental of $88,000 per year payable quarterly. The sublease may be
extended for one year terms for the term of the Company's facility lease.

R. SEGMENT INFORMATION

Information in the table below is presented on the same basis utilized by
the Company to manage its business. Export sales and certain income and expense
items are reported in the geographic area where the final sale to customers is
made, rather than where the transaction originates.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED JANUARY 31, ENDED APRIL 30,
------------------------------------- -----------------------
1997 1998 1999 1998 1999
---------- ---------- ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales:
United States................... $6,934,200 $5,653,500 $ 6,604,600 $ 458,500 $3,452,700
Asia............................ -- 1,150,700 5,277,400 1,219,800 2,028,900
Europe.......................... 510,300 1,089,500 1,475,000 497,500 302,900
Other........................... -- 26,600 16,000 9,200 30,000
---------- ---------- ----------- ---------- ----------
Total net sales.............. $7,444,500 $7,920,300 $13,373,000 $2,185,000 $5,814,500
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>

Other net sales includes sales to Australia and Canada for each period
presented. There were no long-lived assets at any foreign locations during the
years presented.

F-21

<PAGE>

NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Information for April 30, 1998 and 1999 is unaudited)

S. VALUATION AND QUALIFYING ACCOUNTS

Changes in the inventory valuation reserve were as follows:

<TABLE>
<S> <C>
Balance at January 31, 1996................................. $ 297,000
Additions charged to costs and expenses................... 156,000
Amounts used during year.................................. (62,000)
---------
Balance at January 31, 1997................................. 391,000
Additions charged to costs and expenses................... 146,000
Amounts used during year.................................. (345,000)
---------
Balance at January 31, 1998................................. 192,000
Additions charged to costs and expenses................... 131,800
Amounts used during year.................................. (199,200)
---------
Balance at January 31, 1999................................. 124,600
Additions charged to costs and expenses................... 30,000
Amounts used during the quarter........................... (44,800)
---------
Balance at April 30, 1999................................... $ 109,800
---------
---------
</TABLE>

Changes in the accounts receivable valuation reserve were as follows:

<TABLE>
<S> <C>
Balance at January 31, 1996................................. $ 416,500
Additions charged to costs and expenses................... --
Amounts used during year.................................. (136,500)
---------
Balance at January 31, 1997................................. 280,000
Additions charged to costs and expenses................... 22,600
Amounts used during year.................................. (285,500)
---------
Balance at January 31, 1998................................. 17,100
Additions charged to costs and expenses................... 312,000
Amounts used during year.................................. (29,100)
---------
Balance at January 31, 1999................................. 300,000
Additions charged to costs and expenses................... 80,000
Amounts used during the quarter........................... --
---------
Balance at April 30, 1999................................... $ 380,000
---------
---------
</TABLE>

Note: See Management's Discussion and Analysis of Financial Condition and
Results of Operations.

F-22

<PAGE>

(This page has been intentionally left blank.)

<PAGE>

(This page has been intentionally left blank.)

<PAGE>

[GRAPHIC]

Graphic titled NET+Works Technology Architecture setting forth both the
hardware and software components of the NET+ solution. The upper half of the
graphic shows a building block starting at the base with RTOS (pSOS+ or VxWorks)
and NET+ Drivers. Building upward NET+ Protocols are added first, then NET+
Services, followed by NET+ Industry Applications. The final addition at the top
of the block is Customer Developed Applications Programs. The lower half of the
graphic shows the hardware connections of Ethernet LAN, PHY-Physical Interface
to the NET+ARM chip and the connection of the NET+ARM chip to PCI, RAM, ROM and
Custom Hardware. NETsilicon, Inc.'s logo is located in the lower right hand
corner of the graphic.

<PAGE>

- --------------------------------------------------------------------------------

[Logo]

NETSILICON, INC.
5,000,000 SHARES
COMMON STOCK

---------------------------
PROSPECTUS
---------------------------

, 1999

CIBC WORLD MARKETS

U.S. BANCORP PIPER JAFFRAY

- --------------------------------------------------------------------------------

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses (other than underwriting discounts and commissions)
payable in connection with this offering of the shares of Common Stock offered
hereby are as follows:

<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Securities and Exchange Commission registration fee......... $ 19,821.40
NASD filing fee............................................. 4,985.00
Nasdaq filing fee........................................... 48,000.00
Printing and engraving expenses............................. 300,000.00
Legal fees and expenses..................................... 200,000.00
Accounting fees and expenses................................ 100,000.00
Blue Sky fees and expenses (including legal fees)........... 15,000.00
Transfer agent and registrar fees and expenses.............. 25,000.00
Miscellaneous............................................... 287,193.60
-------------
Total.................................................. $1,000,000.00
-------------
-------------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Articles of Organization permit indemnification to the fullest
extent permitted by Massachusetts law. The Registrant's By-laws require the
Registrant to indemnify any person who was or is an authorized representative of
the Registrant, and who was or is a party or is threatened to be made a party to
any corporate proceeding, by reason of the fact that such person was or is an
authorized representative of the Registrant, against expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such third party proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in, or
not opposed to, the best interests of the Registrant and, with respect to any
criminal third party proceeding (including any action or investigation which
could or does lead to a criminal third party proceeding) had no reasonable cause
to believe such conduct was unlawful. The Registrant shall also indemnify any
person who was or is an authorized representative of the Registrant and who was
or is a party or is threatened to be made a party to any corporate proceeding by
reason of the fact that such person was or is an authorized representative of
the Registrant, against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such corporate action if such
person acted in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the Registrant, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Registrant unless and only to the
extent that the Massachusetts Court of Chancery or the court in which such
corporate proceeding was pending shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such authorized representative is fairly and reasonably entitled to indemnity
for such expenses which the Court of Chancery or such other court shall deem
proper. Such indemnification is mandatory under the Registrant's By-laws as to
expenses actually and reasonably incurred to the extent that an authorized
representative of the Registrant has been successful on the merits or otherwise
in defense of any third party or corporate proceeding or in defense of any
claim, issue or matter therein.

The determination of whether an individual is entitled to indemnification may be
made by a majority of disinterested directors, independent legal counsel in a
written legal opinion or the stockholders. Massachusetts law also permits
indemnification in connection with a proceeding brought by or in the right of
the Registrant to procure a judgment in its favor. Insofar as indemnification
for liabilities arising under the Act may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in that
Act and is

II-1

<PAGE>

therefore unenforceable. The Registrant expects to obtain a directors and
officers liability insurance policy prior to the effective date of this
Registration Statement.

The Underwriting Agreement provides that the underwriters are obligated, under
certain circumstances, to indemnify directors, officers and controlling persons
of the Registrant against certain liabilities, including liabilities under the
Act. Reference is made to Section 8 of the form of Underwriting Agreement which
will be filed by amendment as Exhibit 1.1 hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- ----
<S> <C> <C>
*1.1 -- Form of Underwriting Agreement.
*3.1 -- Restated Articles of Organization of the Company..........
*3.3 -- Amended and Restated By-laws of the Company...............
*4. -- Specimen of stock certificate for shares of common
stock.....................................................
*5.1 -- Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
LLP.......................................................
*10.1 -- NETsilicon, Inc. Amended and Restated 1998 Incentive and
Nonqualified Stock Option Plan............................
*10.2 -- NETsilicon, Inc. 1998 Amended and Restated Director Stock
Option Plan...............................................
*10.3 -- Supply Agreement between Osicom Technologies, Inc. and
the Company dated as of May 1, 1998.......................
*10.4 -- Intercompany Agreement between Osicom Technologies, Inc.
and the Company dated as of May 1, 1998...................
*10.5 -- Agreement of Sublease between Osicom Technologies, Inc.
and the Company dated as of August 1, 1998................
*10.6 -- Loan and Security Agreement between the Company and Coast
Business Credit dated October 11, 1996, as amended........
*10.7 -- Amendment No. 2 to the Loan and Security Agreement
between the Company and Coast Business Credit dated
October 28, 1998..........................................
*10.8 -- Employment Agreement between the Company and Michael
Evensen dated October 1, 1998.............................
*10.10 -- Trademark License Agreement between ARM Limited and
Osicom Technologies Inc. dated July 14, 1998..............
*10.11 -- Software License Agreement between Integrated Systems,
Inc. and Osicom Technologies Inc. dated November 14, 1997,
as amended................................................
*10.12 -- License Agreement between Peerless Systems Corporation
and Osicom Technologies Incorporated, DPI Print Server
Division for Peerless Standard Input/Output (PSIO) dated
August 10, 1998...........................................
*10.13 -- Novell Embedded Systems Technology Master Agreement
between Novell, Inc. and Digital Products, Inc., dated
December 1, 1995, as amended..............................
*10.14 -- Letter Agreement Amendment to Intercompany Agreement
between Osicom Technologies, Inc. and the Company.........
*10.15 -- Letter Agreement between the Company and Cornelius
Peterson VIII.............................................
23.1 -- Consent of BDO Seidman, LLP...............................
*23.3 -- Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
LLP (included in Exhibit 5.1).............................
*24.1 -- Power of Attorney (included on signature page)............
*27.1 -- Financial Data Schedule...................................
</TABLE>

- ------------

* Previously filed.

II-2

<PAGE>

(b) Financial statement schedules

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are either included in the
financial statements or are not required under the related instructions or are
inapplicable, and therefore have been omitted.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in 'Calculation of
Registration Fee' table in the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
and

(iv) To reflect the results of this offering.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes (1) to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser; (2) that for purposes of determining
any liability under the Act, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus

II-3

<PAGE>

filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of this registration statement as of the time it
was declared effective; and (3) that for the purpose of determining any
liability under the Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes to supplement the prospectus, after
the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
duly caused this Amendment No. 4 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Waltham,
Massachusetts on July 20, 1999.

NETSILICON, INC.

By: /s/ CORNELIUS PETERSON
...................................
CORNELIUS PETERSON VIII
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
---------- -------- ----
<C> <S> <C>
/s/ CORNELIUS PETERSON Chairman of the Board, President and July 20, 1999
......................................... Chief Executive Officer
CORNELIUS PETERSON VIII

/s/ DANIEL J. SULLIVAN Vice President -- Finance, Chief July 20, 1999
......................................... Financial Officer
DANIEL J. SULLIVAN

* Director July 20, 1999
.........................................
FRANCIS E. GIRARD

* Director July 20, 1999
.........................................
WILLIAM JOHNSON

* Director July 20, 1999
.........................................
EDWARD B. ROBERTS, PH.D.

* Director July 20, 1999
.........................................
F. GRANT SAVIERS

*By /s/ CORNELIUS PETERSON
.........................................
CORNELIUS PETERSON
ATTORNEY-IN-FACT
</TABLE>

II-5

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<C> <S> <C>
*1.1 -- Form of Underwriting Agreement............................
*3.1 -- Restated Articles of Organization of the Company..........
*3.3 -- Amended and Restated By-laws of the Company...............
*4 -- Specimen of stock certificate for shares of common
stock.....................................................
*5.1 -- Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
LLP.......................................................
*10.1 -- NETsilicon, Inc. Amended and Restated 1998 Incentive and
Nonqualified Stock Option Plan............................
*10.2 -- NETsilicon, Inc. 1998 Amended and Restated Director Stock
Option Plan...............................................
*10.3 -- Supply Agreement between Osicom Technologies, Inc. and
the Company dated as of May 1, 1998.......................
*10.4 -- Intercompany Agreement between Osicom Technologies, Inc.
and the Company dated as of May 1, 1998...................
*10.5 -- Agreement of Sublease between Osicom Technologies, Inc.
and the Company dated as of August 1, 1998................
*10.6 -- Loan and Security Agreement between the Company and Coast
Business Credit dated October 11, 1996, as amended........
*10.7 -- Amendment No. 2 to the Loan and Security Agreement
between the Company and Coast Business Credit dated
October 28, 1998..........................................
*10.8 -- Employment Agreement between the Company and Michael
Evensen dated October 1, 1998.............................
*10.10 -- Trademark License Agreement between ARM Limited and
Osicom Technologies Inc. dated July 14, 1998..............
*10.11 -- Software License Agreement between Integrated Systems,
Inc. and Osicom Technologies Inc. dated November 14, 1997,
as amended................................................
*10.12 -- License Agreement between Peerless Systems Corporation
and Osicom Technologies Incorporated, DPI Print Server
Division for Peerless Standard Input/Output (PSIO) dated
August 10, 1998...........................................
*10.13 -- Novell Embedded Systems Technology Master Agreement
between Novell, Inc. and Digital Products, Inc., dated
December 1, 1995, as amended..............................
*10.14 -- Letter Agreement Amendment to Intercompany Agreement
between Osicom Technologies, Inc. and the Company.........
*10.15 -- Letter Agreement between the Company and Cornelius
Peterson VIII.............................................
23.1 -- Consent of BDO Seidman, LLP...............................
*23.3 -- Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
LLP (included in Exhibit 5.1).............................
*24.1 -- Power of Attorney (included on signature page)............
*27.1 -- Financial Data Schedule...................................
</TABLE>

- ------------

* Previously filed.

STATEMENT OF DIFFERENCES
------------------------

The trademark symbol shall be expressed as .............................. 'TM'

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

NETsilicon, Inc.
Waltham, Massachusetts

We hereby consent to the inclusion in the Prospectus constituting a part of
this Registration Statement on Form S-1 of our report dated February 26, 1999
(except for note I (ii) and (iii) as to which the date is June 30, 1999) on the
financial statements of NETsilicon, Inc. (the 'Company'), as of January 31, 1998
and 1999, and for each of the three years in the period then ended. We also
consent to the references to us under the headings 'Selected Financial Data' and
'Experts' in the Prospectus which are part of such Registration Statement.

BDO SEIDMAN, LLP

Boston, Massachusetts
July 20, 1999