Total ViaDSP purchase price was allocated as follows:

The unaudited proforma results listed below reflect purchase price accounting adjustments assuming the ViaDSP acquisition occurred at the beginning of each year presented:

In December 1999, the Company acquired QWES.com, Inc. (“QWES”) in a transaction accounted for as a pooling of interests. QWES is a business in the differentiated IP service provisioning and application traffic shaping market. In connection with the acquisition, the Company exchanged or reserved 1,500,000 shares of its common stock for the outstanding shares, options and warrants of QWES, at an exchange ratio of 0.1372 shares for each QWES common equivalent. Upon effectiveness of the merger, the Company issued an aggregate of 1,449,785 shares of common stock in exchange for the outstanding shares of capital stock of QWES, and it reserved 30,314 shares and 19,901 shares, respectively, for issuance upon exercise of the options and warrants that it assumed from QWES. The consolidated financial statements of the Company for 1998 have been restated to include the financial position, results of operations and cash flows of QWES, since QWES was incorporated in April 1998. The Company incurred a charge of $1.2 million in the fourth quarter of 1999 consisting of investment banking, accounting and legal fees connected with closing the QWES acquisition.

Net revenue for the combined companies in 1998 was $76.5 million which was totally related to Natural MicroSystems, as QWES had no revenues in 1998. Operating income (loss) for the combined companies in 1998 was ($10.1 million) of which ($9.3 million) related to Natural MicroSystems and ($0.8 million) related to QWES. Net income (loss) for the combined companies in 1998 was ($6.1 million) of which ($5.3 million) related to Natural MicroSystems and ($0.8 million) related to QWES.

Net revenue for the combined companies in 1999 was $79.5 million which was totally related to Natural MicroSystems, as QWES had no revenues in 1999. Operating income (loss) for the combined companies in 1999 was ($16.6 million) of which ($14.2 million) related to Natural MicroSystems and ($2.4 million) related to QWES. Net income (loss) for the combined companies in 1999 was ($18.7 million) of which ($15.9 million) related to Natural MicroSystems and ($2.8 million) related to QWES.

QWES will continue to operate as a separate operation maintaining its West Coast location and expects to market its family of products through a dedicated sales force.

4—RESTRUCTURING AND OTHER SPECIAL CHARGES

In the fourth quarter of 1998, in response to changes in the Company’s business environment, several actions were taken to create efficiency, to decrease cash outflows and to manage the business more effectively, that resulted in restructuring and other special charges. To eliminate payroll and other related expenditures, the Company reduced headcount by three senior international managers. The accrued cost to implement this reduction was approximately $951,000 (of which approximately $65,000 was paid in 1998). The Company also committed to reduce future lease commitments for a new corporate office and engineering space of which neither will be occupied. The accrued cost to reduce or terminate these lease commitments was approximately $2.1 million.

The Company was able to buy out the lease commitment at one location and sublease the other location at an aggregate cost of approximately $958,000, resulting in a savings of approximately $1.1 million from the original estimate. There is no remaining balance for the lease accruals at December 31, 1999.

In 1999, the Company completed the management reorganization and terminated two additional senior managers. The severance costs were approximately $441,000. In addition, in the fourth quarter of 1999, the Company incurred a special charge of approximately $557,000 for payroll-related taxes on an option exercise by one of the terminated managers. At December 31, 1999 the aggregate severance accruals have a remaining accrued balance of approximately $450,000 which will be fully paid in 2000.