Natural MicroSystems Corporation

ITEM 6

Selected Financial Data

Components of selected financial information consist of the following:

SELECTED FINANCIAL INFORMATION

ITEM 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We provide enabling technologies to the world’s leading suppliers of networking and communications equipment. Our customers incorporate our software and hardware products and technologies into their solutions in order to enable service providers and enterprises to rapidly and cost-effectively deploy data, voice and fax applications and enhanced services in converged networks.

Over the past two years, we have been strategically repositioning our business to address new, high growth markets resulting from the growth in the converged network build out. To support this repositioning, we made significant investments in our sales force, built a service organization, expanded our research and development and strengthened our management team. As a result, during 1999, we achieved sequential increases in revenue over the prior quarter of 6% in the second quarter, 15% in the third quarter and 23% in the fourth quarter. In the quarter ended December 31, 1999, we achieved record revenues of $25.0 million, representing a 43% increase over the same period in the prior year.

In December 1999, we acquired QWES.com, Inc. in a transaction accounted for as a pooling of interests. QWES is a business in the differentiated IP service provisioning and application traffic shaping markets. In connection with the acquisition, we exchanged or reserved 1,500,000 shares of our common stock for the outstanding shares, options and warrants of QWES. Our consolidated financial statements have been restated to include the financial position, results of operations and cash flows of QWES from April 3, 1998, when QWES was incorporated, through the acquisition date.