Natural MicroSystems Corporation

YEAR 2000 READINESS DISCLOSURE

We believe that all of our current major product offerings are Year 2000 compliant. Certain older legacy products, which we no longer sell, may not be Year 2000 compliant. We have addressed the issue of legacy products by publishing on our external website a notice to the effect that certain of these products may not be Year 2000 compliant and that each customer who purchased these products should test and, as needed, repair or replace any of them to the extent that they are still in use. We spent approximately $1.0 million during 1999 in addressing Year 2000 compliance issues. To this date, we are not aware of any material problems resulting from Year 2000 issues, either with our products, our internal systems or the products and services of third parties.

EUROPEAN UNION CURRENCY CONVERSION

On January 1, 1999, 11 member nations of the European Economic and Monetary Union began using a common currency, the euro. For a three-year transition period ending June 30, 2002, both the euro and each of the currencies for such member nations will remain in circulation. After June 30, 2002, the euro will be the sole legal tender for those countries. The adoption of the euro will affect many financial systems and business applications, as the commerce of those countries will be transacted in both the euro and the existing national currency during the transition period. We have subsidiary operations in three of the eleven countries currently using the euro, France, Germany and Italy, and we have branch operations in a fourth country, Spain. We have assessed the potential impact of the euro conversion in a number of areas, particularly the potential impact on pricing and other marketing strategies and on product development. Although we do not currently expect that the conversion, either during or after the transition period, will adversely affect our operations or financial condition, the conversion has only recently been implemented and we cannot be sure that it will not have some adverse impact.

OTHER

Our primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. Our investment portfolio of cash equivalents and marketable securities is subject to interest rate fluctuations, but we believe this risk is immaterial due to the short-term nature of these investments. At December 31, 1999, we had $2.9 million of short-term and $306,000 of long-term debt outstanding. The short-term debt was issued under various notes payable and due to their short-term maturities, a hypothetical 10% decrease in our weighted-average short-term borrowing rate at December 31, 1999 would not have materially affected the year-end carrying value of the debt. Our exposure to currency exchange rate fluctuations has been and is expected to remain moderate due to the fact that the operations of our international subsidiaries are primarily conducted in their respective local currencies.

For U.S. federal income tax purposes we have net operating loss carryforwards available to reduce taxable income of approximately $16.4 million at December 31, 1999, of which $2.9 million is subject to Internal Revenue Code Section 382. These carryforwards will begin to expire in 2004. We also have a foreign net operating loss carryforward of approximately $845,000. Utilization of net operating loss carryforwards is subject to an annual limitation of approximately $772,000 under Internal Revenue Code Section 382. We have $1.5 million of tax credits which are composed of federal research and development credits and state and local credits. These credits expire beginning in 2004.

We believe that our revenues and results of operations have not been significantly impacted by inflation during the past three fiscal years.