SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549


                                    FORM 6-K


                            REPORT OF FOREIGN ISSUER
                    PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     For the period ended September 30, 2001


                               MADGE NETWORKS N.V.


                           Transpolis Schiphol Airport
                                Polaris Avenue 23
                                2132 JH Hoofddorp
                                 The Netherlands
                    (Address of principal executive offices)


Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F

                Form 20-F        [X]        Form 40-F
                          ----------------            ---------------

Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934

                Yes                 No     [X]
                    --------------     ------------

If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):

                  82-      N.A.
                     ---------------

                               Page 1 of 52 Pages
                       Exhibit Index Appears on Page 46.
                               MADGE NETWORKS N.V.

                                    Form 6-K





                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----
Financial Information:*                                                       3

Condensed Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000                                             3

Condensed Consolidated Statements of Operations for the three months
ended September 30, 2001 and 2000 (unaudited) and the nine months
ended September 30, 2001 and 2000 (unaudited)                                 5

Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and 2000 (unaudited)                                 7

Notes to Condensed Consolidated Financial Statements (unaudited)              9

Forward Looking Statements                                                    21

Operating and Financial Review and Prospects                                  21

Legal Proceedings                                                             31

Risk Factors                                                                  33

Signatures                                                                    45

Exhibit Index                                                                 46

Exhibit A - Third Quarter 2001 Press Release                                  47


- --------------------
* The Company's fiscal year ends on December 31 of each year. For the purposes
of presentation, the Company has indicated its fiscal quarters within the year
as ending on a calendar month end, whereas, in fact, the Company operates on the
basis of thirteen week financial quarters.


                                       2




MADGE NETWORKS N.V.
Condensed Consolidated Balance Sheets
(in thousands)




                                                                   September 30,        December 31,
                                                                        2001                2000
                                                                  --------------        ------------
                                                                   (Unaudited)             Note 3
                                                                                  

ASSETS
Current assets:
      Cash and cash equivalents                                          $ 7,957            $ 18,405
      Restricted cash                                                      2,929               3,686
      Accounts receivable, net of allowance for doubtful
        accounts of $1,448 at September 30, 2001 and
        $1,330 at December 31, 2001                                        4,312              12,220

Inventories:
      Raw materials                                                        1,118               2,329
      Finished goods                                                       5,280               5,242
                                                                   -------------        ------------
                                                                           6,398               7,571
Current deferred tax assets                                                    -                  39
Other receivable                                                               -               6,290
Prepayments and other current assets                                       4,655               8,880
Receivable due from Administration                                         3,745                   -
Other current assets of discontinued operations                              490              13,276
                                                                   -------------        ------------
      Total current assets                                                30,486              70,367

Property and equipment, net                                                9,593              12,167
Property and equipment related to discontinued
  operations net of accumulated depreciation and
  allowances for losses on disposition                                     2,208               2,208
Intangible assets, net of accumulated amortization                         5,253              11,343
Investments of discontinued operations                                     2,000               2,000
Restricted cash                                                            4,079               6,254
                                                                   -------------        ------------
Total assets                                                             $53,619            $104,339
                                                                   =============        ============



                                       3










                                                                   September 30,        December 31,
                                                                        2001                 2000
                                                                  --------------        ------------
                                                                    (Unaudited)             Note 3
                                                                                  

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
      Short-term borrowing                                             $   3,364           $       -
      Accounts payable                                                     5,923              10,588
      Deferred consideration                                               3,016               4,890
      Accrued wages and related liabilities                                  570               2,851
      Other accrued liabilities                                           20,087              30,548
      Income taxes payable                                                 7,892              11,593
      Current portions of lease obligations                                  700                 629
      Current liabilities of discontinued operations                      20,063              64,900
                                                                  --------------        ------------
      Total current liabilities                                           61,615             125,999

Long-term liabilities and lease obligations                                  217                 752
Deposit payable                                                              958                 948
                                                                  --------------        ------------
      Total liabilities                                                   62,790             127,699

Commitments

Shareholders' equity (deficit):
      Common shares                                                       29,245              29,146
      Additional paid-in capital                                         170,305             169,694
      Treasury stock                                                        (404)              (404)
      Retained earnings (deficit)                                       (192,185)           (208,486)
      Accumulated other comprehensive loss                               (16,132)            (13,310)
                                                                  --------------        ------------
Total shareholders' deficit                                               (9,171)            (23,360)
                                                                  --------------        ------------
Total liabilities and shareholders' equity (deficit)                   $  53,619           $104,339
                                                                  ==============        ============


                             See accompanying notes.


                                       4






Madge Networks N.V.
Condensed Consolidated Statements of Operations

(Unaudited) (in thousands, except per share amounts)




                                                   Three Months Ended                     Nine Months Ended
                                                      September 30,                         September 30,
                                                 2001               2000               2001                2000
                                              ---------           ----------         ---------          ----------
                                                                                            

Net sales                                       $14,076             $ 29,024           $58,253             $99,378

Cost of sales:                                    6,463               16,127            27,429              53,236
                                              ---------           ----------         ---------          ----------
      Gross profit                                7,613               12,897            30,824              46,142

Operating expenses:
      Sales and marketing                         3,688                7,449            14,335              30,668
      Research and development                      300                3,575             3,332              13,115
      General and administrative                  2,396                2,975             6,624               7,405
      Special (gain) charge                      (3,763)                 882            (5,112)                882
                                              ---------           ----------         ---------          ----------
Total operating expenses                          2,621               14,881            19,179              52,070
                                              ---------           ----------         ---------          ----------
Operating income (loss) from
  continuing operations                           4,992               (1,984)           11,645              (5,928)

Net interest income (expense)                       (18)                (319)            1,598                (800)
Gain on sale of investment in Red-M                   -                    -             7,997                   -
                                              ---------           ----------         ---------          ----------
Income (loss) from continuing
  operations before income taxes and
  share of losses of associate Red-M              4,974               (2,303)           21,240              (6,728)
Provision for income taxes                           37                   13               932                 378
                                              ---------           ----------         ---------          ----------
Income (loss) from continuing
  operations before share of losses of
  associate Red-M and discontinued
  operations                                      4,937               (2,316)           20,308              (7,106)
Share of losses of associate Red-M                    -                    -            (1,499)                  -
                                              ---------           ----------         ---------          ----------
Income (loss) from continuing
  operations                                      4,937               (2,316)           18,809              (7,106)

Discontinued operations:
Loss from discontinued business                       -              (19,342)           (2,508)            (52,599)
                                              ---------           ----------         ---------          ----------
Net income (loss)                               $ 4,937             $(21,658)          $16,301            $(59,705)
                                              =========           ==========         =========          ==========



                                        5






                                                   Three Months Ended                     Nine Months Ended
                                                      September 30,                         September 30,
                                                 2001                2000              2001                2000
                                              ---------           ----------         ---------          ----------
                                                                                            

Income (loss) per share from
  continuing operations
Basic and diluted                               $  0.09              $ (0.05)          $ 0.35              $(0.16)

Loss per share from discontinued
  operations
Basic and diluted                               $     -              $ (0.41)          $ (0.05)            $ (1.19)

Net income (loss) per share
Basic and diluted                               $  0.09              $ (0.46)          $  0.30             $ (1.35)

Weighted average shares used in
  computing net income (loss) per
  share
Basic and diluted                                54,038               46,832            54,012              44,297





                             See accompanying notes.


                                       6

Madge Networks N.V.
Condensed Consolidated Statements of Cash Flows
(Unaudited) (in thousands)



                                                                       Nine Months Ended
                                                                         September 30,
                                                                     2001               2000
                                                                 ------------       ------------
                                                                                 
Cash flows from operating activities:
  Income (loss) from continuing operations
Adjustments to reconcile income (loss) from
  continuing operations to net cash
  provided by (used in) operating activities
  of continuing operations:                                        $ 18,809            $ (7,106)
  Depreciation                                                        2,306               4,559
  Amortization of intangibles                                         6,090               7,755
  Loss on disposal of fixed assets                                      821               2,932
  Losses from associate Red-M                                         1,499                   -
  Profit on sale of investment in Red-M                              (7,997)                  -
Changes in assets and liabilities
  net of effect of sale of Red-M:
  Accounts receivable                                                 7,899              14,932
  Restricted cash                                                     2,932                (874)
  Net inventories                                                       741               7,093
  Other receivable                                                    6,290              (4,075)
  Prepaid expenses and other current assets                             322                 493
  Accounts payable                                                   (4,208)             (4,822)
  Other accrued liabilities                                         (11,374)            (15,515)
  Amounts due to associate Red-M                                     (2,806)                  -
  Income taxes payable                                               (3,701)             (1,641)
  Deferred tax                                                           39                   6
  Deferred revenue                                                        -              (1,063)
  Deferred consideration                                             (1,874)             (2,353)
  Deposit payable                                                        10                   -
                                                                   --------            --------
Net cash provided by operating activities of                         15,798                 321
  continuing operations
Net cash used in operating activities of                            (34,559)            (33,241)
discontinued operations
                                                                   --------            --------
Net cash used in operating activities                               (18,761)            (32,920)

Cash flows from investing activities:
  Additions to property and equipment                                (1,555)               (631)
  Purchase of Olicom                                                      -              (2,000)
  Proceeds from sale of investment in Red-M                           8,731                   -
  Proceeds from sale of Video Business                                    -                 305
                                                                   --------            --------
Net cash provided by (used in) investing                              7,176              (2,326)
  activities of continuing operations
Net cash used in investing activities of                                  -             (32,438)
  discontinued operations
                                                                   --------            --------
Net cash provided by (used in) investing
  activities                                                          7,176             (34,764)




                                       7




                                                                       Nine Months Ended
                                                                         September 30,
                                                                     2001               2000
                                                                 ------------       ------------
                                                                                 

Cash flows from financing activities:
  Repayments of mortgage and capital
  lease obligations                                                    (464)             (1,243)
  Proceeds from (repayments of) short-term
  loan, net                                                           3,364              (5,120)
  Proceeds from issue of common shares                                  710              65,358
                                                                   --------            --------
Net cash provided by financing activities
  of continuing operations                                            3,610              58,995
Net cash provided by financing activities
  of discontinued operations                                              -              27,633
                                                                   --------            --------
Net cash provided by financing activities                             3,610              86,628

Net decrease in cash and cash equivalents                          $ (7,975)           $ 18,944
                                                                   ========            ========
Cash and cash equivalents at the beginning of
  the period                                                       $ 18,405             $18,417
Effect of exchange rate changes on cash                              (2,473)             (3,159)
                                                                   --------            --------
Cash and cash equivalents at the beginning of
  the period (at period-end exchange rates)                          15,932              15,258
Cash and cash equivalents at the end of the
  period                                                              7,957              34,202
                                                                   ========            ========
Net decrease in cash and cash equivalents                          $ (7,975)           $ 18,944
                                                                   ========            ========


                             See accompanying notes.




                                       8



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. PREPARATION OF FINANCIAL STATEMENTS - GOING CONCERN


     Madge Networks N.V. ("Madge" or the "Company") is a global provider of
advanced networking product solutions to large enterprises and is the market
leader in Token Ring. Until April 2001 the Company operated through three
subsidiary groups: Madge.connect, Red-M and Madge.web. Madge.connect is a global
supplier of Token Ring LAN product solutions for mission-critical enterprise
networks. Red-M is a pioneering developer and leading supplier of wireless
networking product solutions that enable access to a range of voice, video and
data from a range of mobile devices. Madge.web was a global provider of rich
content applications, content distribution and managed network services.


     Until October 2000, Red-M was within the Madge.connect legal structure. As
at December 31, 2000 it was owned directly by Madge Networks N.V. as a separate
subsidiary and operating division. As described in Note 6, during April 2001,
the Company sold a portion of its shareholding in Red-M for a total of $8.6
million. As a result of this sale and the issue of new shares in Red-M to the
purchasers and Red-M employees, the Company's shareholding in Red-M has fallen
to less than 50%. Red-M is now an associated company and Madge no longer has any
funding commitment to it.


     On April 27, 2001 the Company publicly announced that the Board of Madge
Networks decided not to provide further operational funding for Madge.web and
that it was searching for a purchaser of the Madge.web business. Madge.web
Limited in the United Kingdom and Madge SE Asia Pte Ltd in Singapore were put
into Administration and Interim Judicial Management, respectively, on April 27,
2001 and May 15, 2001, respectively, in accordance with their local laws in
processes broadly similar to Chapter 11 in the United States. The Company
provided an aggregate of $6.3 million of funding to the respective
Administration and Interim Judicial Management processes for these two entities.
On July 19, 2001 the Company announced that the Administrators had entered into
an agreement with Tullett & Tokyo Liberty Plc. ("Tullett & Tokyo") for the sale
of certain assets relating to the Trader Voice business of Madge.web in Asia and
Europe. The sale provided continuity of employment for a number of Madge.web
employees and provided a release for Madge Networks of significant guarantee
obligations relating to the Trader Voice business. The employment of a majority
of the other Madge.web employees was subsequently terminated. As of August 17,
2001 and September 14, 2001, Madge.web Limited and Madge SE Asia Pte Ltd,
respectively, were put into insolvent liquidation. The Liquidators of Madge.web
Limited are continuing to collect debts of Madge.web Limited and seek purchasers
for its other remaining assets, and will then assess the amount of money to be
returned to the creditors. Madge Networks currently only has funding obligations
to Madge.web Inc. in the United States as obligations that Madge.web and Madge
Networks have to third parties are being fulfilled.


     As described in more detail in Note 2, in accordance with Accounting
Principles Board Opinion ("APB") No. 30 and Emerging Issues Task Force ("EITF")
Issue No. 95-18, Madge.web is presented as a discontinued operation within the
accompanying condensed financial statements. The Company has provided guarantees
on behalf of Madge.web in relation to certain property leases, equipment leases
and loans. In determining the loss on disposal, the Company made an estimate of
the amount of the obligations that would not be assumed by Tullett & Tokyo, in
relation to the sale of the Trader Voice business in Asia and Europe and by
purchasers of other assets and, therefore, would have to be discharged by the
Company.


     The Company has received $1.5 million from the Administrators as part
payment of the funding provided. The Company has given an indemnity to the
Administrators for this funding to refund part or


                                       9


all of this money should further creditor claims be discovered beyond their
current expectations. The Company does not expect to have to refund any of the
$1.5 million. In total, the Company expects approximately half of the $6.3
million administrative funding provided to be returned to Madge Networks. The
Company does not expect any of the $300,000 funding to be returned from the
liquidators in Singapore and this amount was written off in September 2001. The
timing and the amount of any further repayment of the funding provided for the
Administration process is uncertain, but the Company expects to receive the
majority of the amount expected to be repaid by the end of the first half of
2002. Failure to receive these further funds or the Company's inability to
further mitigate its exposure to Madge.web liabilities could materially impact
its liquidity position and the Company's ability to continue as a going concern.


     The Company had a net working capital deficit (excluding restricted cash)
of $34.1 million and a shareholders' deficit of $9.2 million as of September 30,
2001. Restricted cash as of September 30, 2001 was $7.0 million.


     Throughout 2001, the Company has undertaken reductions in the Madge.connect
business and corporate overheads in order to maintain the profitability of its
continuing business going forward and expects it will have to make further cost
reductions in the first quarter of 2002. The Company intends to seek further
revenue generating activities over which to spread this cost base by the
introduction of new products to its customer base. The Company believes that
Madge.connect and the corporate function, following these restructuring
activities, will maintain positive cashflow from continuing operations
throughout 2001 and 2002. At the end of the fourth quarter the Company's
headcount in its continuing operations, is expected to be 123, down from 160 as
at June 30, 2001. The Company is also in the process of changing the key
supplier of product to Madge.connect, Celestica, and has agreed an exit plan to
end all production by Celestica by the end of the second quarter of 2002 and to
transfer its subcontract manufacturing to Sanmina SCI in Ireland and Thailand.
It is important for the future success of the business that the transition to
Sanmina SCI takes place smoothly. The Company expects to see a reduction in its
manufacturing costs per product with the movement to Sanmina SCI. The Company
also believes that Madge.connect's funding facilities will remain available on
acceptable terms. These terms currently provide for either party to terminate on
giving three months notice in writing. If there is a material adverse change in
the Company's business, as determined by the lender, the funding facility can be
terminated immediately. There has been no indication from the lender that it
intends to terminate the facility.


     Based on (i) expected future operating results of the Madge.connect
business, (ii) continuation of Madge.connect's funding facilities, and
(iii) repayment of a further portion of the $6.3 million provided to the
Administrators, and assuming the Company can effectively discontinue the
Madge.web business including the successful mitigation of amounts payable for
guarantees and other obligations, the Company believes that its current
liquidity levels and committed financial resources are sufficient to meet the
needs of its ongoing operations at least through the end of 2002. Consequently,
the Company is of the opinion that it is appropriate to prepare the condensed
consolidated financial statements on a going concern basis. The condensed
consolidated financial statements do not include any adjustment that would
result if the Company were to cease being a going concern.


     There does, however, exist doubt about the Company's ability to continue as
a going concern as there can be no assurance that its assumptions and estimates
will prove correct or that its currently available sources of funding will
remain available. To the extent that the Company's guarantees on behalf of
Madge.web and other obligations cannot be mitigated as planned and have to be
fully and immediately discharged by the Company, the Company's future cash flow
and liquidity will be materially adversely

                                       10



affected. Furthermore, it may be necessary to place the remaining Madge.web
entities (Madge.web Inc. and Madge.web N.V.) into liquidation. In addition, the
anticipated repayment of a portion of the funds provided to the Administrators
could also not occur.


     If further liquidity is required, the Company will attempt to raise
additional funds through working capital financing and other sources of finance
such as bank credit, a pledge of its shares in Red-M, or, at a later stage, a
private placement of shares in Madge Networks. If Madge Networks N.V. shares
were to be delisted from The Nasdaq National Market and listed on either The
Nasdaq SmallCap Market or the Over-The-Counter-Bulletin-Board, the Company would
find it more difficult to raise funds through an equity offering of its shares.
In addition, Madge's ability to sell its shares in Red-M and the price that
could be obtained for the Red-M shares are subject to certain restrictions based
on the investment agreement between Madge and the recent purchasers of Red-M
shares. There can be no assurance that Madge can raise any such additional
funds.


2. DISCONTINUED OPERATIONS


     In accordance with APB 30 and EITF Issue No. 95-18, Madge.web has been
presented as a discontinued business as at December 31, 2000.


     Accordingly, the operating losses for the period January 1, 2001 to April
27, 2001, the date the decision was made to discontinue the Madge.web business,
was accrued as at December 31, 2000. In addition, the loss from the decision to
discontinue the business was also accrued as at December 31, 2000. This was
determined based on our estimate of (i) the amount receivable from the
Administrators of Madge.web Limited related to amounts due to Madge Networks
N.V., (ii) operating losses of the companies not in liquidation or bankruptcy
from April 27, 2001 to the estimated date of liquidation, (iii) the net
realizable value from the sale or liquidation of such companies, (iv) additional
liabilities resulting from guarantees provided by Madge Networks N.V. and
contracts entered into by other Madge Networks companies and (v) obligations
related to companies not in liquidation or bankruptcy including amounts payable
for claims that may be made by former employees of Madge.web. During the second
quarter of 2001 our estimate of the operating losses for the period January 1,
2001 to April 27, 2001 was revised, which had the effect of increasing the loss
by $784,000. In addition, our estimate of the loss on disposition was also
increased by $1,724,000. The revisions to the estimated loss on disposition was
due to our re-estimation of the portion of the $6.3 million funding provided to
the Administrators of Madge.web Limited which we expect to recover, our
expectation that we will not receive any funds from the Interim Judicial
Management in Singapore and our adjustment of other estimates related to the
discontinued business. The collection of the debts of Madge.web Limited and sale
of the remaining assets of the Madge.web business in all locations worldwide,
except the United States, is expected to be mostly completed by the end of the
fourth quarter of 2001; however it is expected that it will take until the end
of 2003 to settle all claims and liabilities that relate to the liquidation of
the Madge.web business and until the end of the first half of 2002 before the
final payment of the funding is returned.



                                       11





     Assets, liabilities and losses of discontinued operations (in thousands)
are as follows:




                                                          September 30,         December 31,
                                                              2001                 2000
                                                         --------------         ------------
                                                                            
Current assets of discontinued operations:
    Cash and cash equivalents                               $     -               $ 9,431
    Accounts receivable                                           -                 3,355
    Amounts due from Madge.web discontinued                     490                   490
    operations
                                                            -------               -------
    Total                                                      $490               $13,276
                                                            =======               =======
Property and equipment of discontinued operations:
    Leasehold improvements                                  $ 2,208               $ 2,208
                                                            =======               =======
Investment in Emmperative                                   $ 2,000               $ 2,000
                                                            =======               =======

Current liabilities of discontinued operations:
    Accounts payable                                        $     -               $10,647
    Provision for liabilities/losses of discontinued         20,063                54,253
    operations including amounts payable under
    guarantees
                                                            -------               -------
    Total                                                   $20,063               $64,900
                                                            =======               =======




     During 2000 Madge.web invested $2.0 million in Magnifi, now called
Emmperative, a California-based, privately owned developer and operator of
business-to-business extranet services targeted at the marketing and brand
management requirements of large international organizations. Madge.web acquired
what is now 623,053 Series E Preferred Stock of Emmperative, equal to 8.1% of
the fully diluted Series E stock or approximately a 1.3% holding of
Emmperative's total fully diluted equity as at December 31, 2000. We intend to
pledge Madge.web's interest in Emmperative during the next six months.



3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Preparation


     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with U.S. Generally Accepted Accounting Principles
("GAAP") for interim financial information and the requirements of Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September


                                       12



30, 2001 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001.


     The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by U.S. GAAP for complete financial statements.


     For further information, refer to the consolidated financial statements and
footnotes thereto included in our Annual Report on Form 20-F for the year ended
December 31, 2000.


Consolidation


     The consolidated financial statements include the accounts of Madge and its
subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation.


Discontinued Operations


     The operating results, financial position and cash flows of the Madge.web
business have been disclosed within the condensed consolidated financial
statements as a discontinued business, in accordance with APB No. 30 and EITF
Issue No. 95-18. As such, the operations, assets and liabilities of Madge.web
have been shown separately from the continuing operations of Madge Networks.


Revenue recognition


     We recognize revenue from product sales upon shipment of product. Net sales
from non-recurring technology licensing or engineering is recognized on customer
acceptance. Software license royalty revenue is recognized upon notification by
the licensee that products incorporating our software have been shipped by the
licensee. Subject to certain limitations, we permit some distributors to
exchange products or to return products in exchange for credits against future
purchases. In addition, in the event we reduce our selling prices, we credit our
distributors for the difference between the purchase price of products remaining
in the distributors' inventories and our reduced price for such products,
subject to certain limitations. An allowance for sales returns and price
reduction adjustments, based on historical experience, is accrued concurrently
with the recognition of revenue.


Inventories


     Inventories are stated at the lower of cost or market value, determined on
a weighted average cost method.


                                       13


Property and equipment


     Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are calculated using the straight-line method over the
lesser of the estimated useful lives or period of lease of the assets as
follows:


                                                                                       

Furniture and fixtures                             4 years     Manufacturing equipment                1-3 years
Computer and network equipment                   3-5 years     Electronic office equipment              3 years
Motor vehicles                                     3 years     Leasehold improvements           Shorter of the estimated
                                                                                                useful life of the asset or
                                                                                                the period of the lease.




     Depreciation for the three months ended September 30, 2001 and 2000 was
$684,000 and $3,943,000, respectively. For the nine months ended September 30,
2001 and 2000, depreciation was $2,306,000 and $11,618,000, respectively. Assets
in the course of construction are not depreciated.


Goodwill and other intangible assets


     We amortize goodwill and other intangible assets on a systematic basis over
their estimated useful lives, which range from three to ten years. Goodwill has
been calculated as the excess of the purchase consideration paid over fair value
of the net assets acquired. The basis for other intangible assets has been
calculated through cash flow analysis to determine the fair value of the
specific intangible assets. The carrying amount of goodwill is reviewed on a
regular basis for indicators of impairment. Indicators of impairment include an
adverse change in the opportunities or business climate in which we operate.
Should indicators of impairment exist, such impairment will be reviewed through
the examination of discounted cash flows.


Investments


     Investments in companies in which we hold less than a 20% interest are
carried at cost or estimated realizable value, if less.


Capital leases


     Assets held under capital leases are capitalized in the balance sheet and
are depreciated over their useful lives. Amortization of these assets is
included in the statement of operations with depreciation and amortization of
purchased assets.


Research and development


     All research and development expenses are charged to operations as
incurred. Statement of Financial Accounting Standard ("SFAS") No.86, Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility.


                                       14



     Based on our product development process, technological feasibility is
established on completion of a working model. Costs incurred by Madge between
completion of the working model and the point at which the product is ready for
release have been insignificant. All research and development costs have been
expensed as incurred.


Accrued warranty costs


     We provide limited warranties on our software and hardware products.
Warranty periods range from 90 days for some software products to one year
warranties for some hardware products. We have the option to either repair or
replace defective products or return the price paid. We accrue for expected
future warranty costs.


Cash equivalents and short-term investments


     We include in cash equivalents all highly liquid investments with maturity
dates of three months or less at the purchase date. Short-term investments
consist of highly liquid investments that generally mature within two years from
acquisition. The fair value of investments is based on quoted market prices. We
determine the appropriate classification of debt securities at the time of
purchase and re-evaluate such designation as of each balance sheet date.
Securities classified as available-for-sale are reported at fair market value
with the related unrealized gains and losses included in retained earnings.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in general
and administrative expenses. The cost of securities sold is based on the
specific identification method.


Foreign currency translation


     We account for foreign currency in accordance with SFAS No. 52, Foreign
Currency Translation. Under this Statement, assets and liabilities of our
non-U.S. dollar subsidiaries are translated into U.S. dollars at exchange rates
in effect at the close of the period. The resulting translation adjustments are
excluded from net earnings, and accumulated as a separate component of
shareholders' equity. The income and expenses of these operations are translated
at monthly market exchange rates.


     Foreign currency transaction gains and losses are included in results of
operations in the periods in which they occur. The total amount of currency
transaction gain recognized in the three months ended September 30, 2001 was
$836,000 and for the three months ended September 30, 2000 was $2,203,000. The
total amount of currency transaction gain recognized in the nine months ended
September 30, 2001 was $3,231,000 and for the nine months ended September 30,
2000 was $3,485,000.


Advertising costs


     We account for advertising costs as an expense in the period in which they
are incurred. Advertising expenses for the three months ended September 30, 2001
were $12,000 and for the three months ended September 30, 2000 were $70,000.
Advertising expenses for the nine months ended September 30, 2001 were $119,000
and for the nine months ended September 30, 2000 were $304,000.

                                       15


Per share data


     Basic earnings per share is calculated using the weighted average number of
common shares outstanding. The diluted EPS is calculated based on the weighted
average number of common shares plus the dilutive common shares from the
exercise of employee share options. In periods when we report a net loss, basic
and diluted EPS are the same because the effect of potential common shares is
anti-dilutive.





In thousands                            Three months ended           Nine months ended
(except shares)                           September 30,                September 30,
                                        2001         2000           2001           2000
                                      -------      -------        -------        --------
                                                                    

Numerator for the basic and
diluted earnings per share:
Total net income (loss)               $ 4,937      $(21,658)      $16,301       $ 59,705
                                      =======      ========       =======       ========
Income (loss) from
continuing operations                 $ 4,937      $ (2,316)      $18,809       $ (7,106)
                                      =======      ========       =======       ========
Income (loss) from
discontinued operations               $    --      $(19,342)      $(2,508)      $(52,599)
                                      =======      ========       =======       ========
Denominator for the basic and
diluted earnings per share:
Weighted average common
shares outstanding:                    54,038        46,832        54,012         44,297
                                      =======      ========       =======       ========

Total net income (loss) per share:
Basic and diluted                     $  0.09      $  (0.46)      $  0.30       $  (1.35)
                                      =======      ========       =======       ========
Income (loss) from
continuing operations per share:
Basic and diluted                     $  0.09      $  (0.05)      $  0.35       $  (0.16)
                                      =======      ========       =======       ========

Income (loss) from
discontinued operations per share:
Basic and diluted                     $    --      $  (0.41)      $ (0.05)      $  (1.19)
                                      =======      ========       =======       ========




                                       16




4. SEGMENTAL INFORMATION


     Our businesses are organized, managed and internally reported as separate
products and services segments which are reportable under SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The
Madge.connect and Red-M business segments develop, manufacture and market
networking products. The discontinued segment (Madge.web) supplied networking
services to businesses, with expertise in IP-enabled networks.


     We are an integrated enterprise characterized by substantial
inter-segmental co-operation, cost allocation and inventory transfers.
Therefore, management does not represent that these segments, if operated
independently, would have reported the operating results and other financial
information shown. Going forward there will be only one segment for us to
report.


Business Segment Information




(In thousands)
(Unaudited)                        Three months ended            Nine months ended
                                      September 30,                September 30,
                                   2001          2000           2001           2000
                                 --------      --------       --------       --------
                                                                 
NET SALES
Madge.connect                    $ 14,076      $ 29,024       $ 58,098       $ 99,378
Red-M                                  --            --            155             --
                                 --------      --------       --------       --------
Total                            $ 14,076      $ 29,024       $ 58,253       $ 99,378
                                 ========      ========       ========       ========
OPERATING INCOME
Madge.connect                       1,159         2,323         11,243          2,482
Red-M                                  --        (3,538)        (5,312)        (7,601)
Corporate and other                 3,833          (769)         5,714           (809)
                                 --------      --------       --------       --------
Total                            $  4,992      $ (1,984)      $ 11,645       $ (5,928)
                                 ========      ========       ========       ========



     As discussed in Note 6, Red-M is not a subsidiary with effect from April
12, 2001 and, therefore, the operations of Red-M are not included in operating
income (loss) for the period after April 12, 2001.


     The above tables are based on management estimates and may include
differences from U.S. GAAP, including estimates of costs and allocation of
overheads between divisions.

                                       17


5. COMPREHENSIVE INCOME (LOSS)


     Under SFAS No. 130, Reporting Comprehensive Income, foreign currency
translation adjustments are included in other comprehensive income (loss). No
income tax effect has been recorded related to the foreign translation
adjustment. The following are the components of comprehensive income (loss):




(in thousands)                       Three months ended           Nine months ended
                                         September 30,              September 30,
                                      2001         2000          2001          2000
                                    --------     --------      --------      --------
                                                                 

Income (loss) from
continuing operations               $  4,937     $ (2,316)     $ 18,809      $ (7,106)

Foreign currency translation
Adjustments                              110       (2,133)       (2,822)       (6,656)
                                    --------     --------      --------      --------
Comprehensive income
(loss) from continuing
Operations                          $  5,047     $ (4,449)     $ 15,987      $(13,762)



Comprehensive income
(loss) from discontinued
Operations                          $     --     $(19,342)     $ (2,508)     $(52,599)
                                    ========     ========      ========      ========

Comprehensive income
(loss)                              $  5,047     $(23,791)     $ 13,479      $(66,361)
                                    ========     ========      ========      ========



6. SALE OF RED-M SHARES


     On April 12, 2001, we secured additional funding for Red-M from Apax
Partners Funds and Amadeus Capital Partners the ("Red-M Investors"). On
September 10, 2001 a further investment in Red-M was made by Intel Capital
Corporation ("Intel). Red-M has called in a further US$3.1 million of funds from
the Red-M Investors and Intel in return for additional shares being issued. The
effect of these investments will be that we will hold 37.2% of the voting rights
and 29.7% of the equity in Red-M. The Red-M Investors and Intel together will
hold 62.1% and 49.5% of the voting and equity rights, respectively, and the
management and employees of Red-M will hold the balance. These investments,
together with the fact that all shares issued have certain tag-along, rights of
first refusal and pre-emptive rights attached to them and that Red-M will be
seeking additional funding from further strategic investors, mean that our
shareholding in Red-M will likely be further diluted over time. There are also
certain events, such as the liquidation of Madge Networks N.V., in which we
would be required to sell our shares in Red-M to the Red-M Investors and Intel,
under certain circumstances at a discount to the value at the time.


                                       18



     We do not have control of the Red-M board or its operations. Of the seven
members of the new Red-M board of directors, we have designated two, the Red-M
Investors have also designated two, the chairman is an independent non-executive
nominated by all parties, a second non-executive director is to be appointed by
agreement by the board and the chief executive officer of Red-M is the remaining
director. It is possible that additional investors in Red-M may also require
board representation or an observer seat (as Intel has required). In addition,
although certain of the officers of Red-M were employed by Madge, their
employment arrangements with Madge terminated when their employment was
transferred to Red-M in April 2001.


     Since April 12, 2001, Red-M is no longer a subsidiary of the Madge group
but is classified as an associated company, and we no longer consolidate the
results of Red-M in the accounts of Madge Networks. Therefore, in accordance
with U.S. GAAP, we now account for Red-M under the equity method and recognize
our allocable percentage of Red-M's net income or loss on our income statement
based upon our equity holding in Red-M. The carrying value of our investment has
been reduced to zero and we will recognize no further operating losses. We will
recognize our share of profits as, when and if Red-M becomes profitable on a
cumulative basis. In addition, we recognized a gain of $8.0 million on the sale
of a portion of our shares for $8.65 million cash.


7. SPECIAL CHARGES


     During September 2001, we released a $3.8 million provision related to the
tax provision on the sale of our Lannet subsidiary completed in 1998. During
June 2001, we released a $1.3 million provision that we had made to cover the
real estate-related claim by Terastor in California on our U.S. subsidiary,
Madge Networks Inc. because Terastor withdrew the court action.


8. NEW ACCOUNTING PRONOUNCEMENTS


     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.


     We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. We will perform the first of the
required impairment tests of intangible assets as of January 1, 2002. We do not
expect SFAS 141 and 142 to have a significant impact as annual impairment tests
were already performed.


     In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No.
144 is first applicable to our financial statements for the year ending December
31, 2002, though earlier application is encouraged. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and provides a single accounting model for long-lived
assets to be disposed of. Although SFAS No. 144 retains many of the recognition
and measurement provisions of SFAS No. 121, it significantly changes the
criteria that have to be met in order to classify long-lived assets as
held-for-sale and excludes goodwill and intangible assets not being amortized
from its impairment provisions.

                                       19


     SFAS No. 144 also supersedes the provisions of APB No. 30 with regard to
reporting the effects of a disposal of a segment of a business and requires
expected future operating losses from discontinued operations to be displayed in
discontinued operations in the periods in which the losses are incurred rather
than as of the measurement date as currently. In addition, more dispositions
will qualify for discontinued operations treatment in the income statement.


     As the provisions of SFAS No. 144 are to be applied prospectively the
impact, if any, upon adoption will depend upon the circumstances existing at
that time.


9. RECEIVABLE DUE FROM ADMINISTRATION PROCESSES


     On April 27, 2001, we publicly announced that, after 16 months of seeking
additional financing for Madge.web, the Board of Madge Networks decided not to
further fund the operations of Madge.web and that we were searching for a
purchaser of Madge.web. In order to provide for orderly administration of
Madge.web and to further the ability to sell it as a going concern, Madge.web
Limited in the United Kingdom and Madge SE Asia Pte Ltd in Singapore were put
into Administration and Interim Judicial Management, respectively, in accordance
with their local laws in processes broadly similar to Chapter 11 in the United
States. In June 2001, Madge Networks provided $3.7 million of funding to the
Administration of Madge.web Limited and a further $0.3 million to the Interim
Judicial Management of Madge SE Asia Pte Ltd in Singapore. During September
2001, we decided that the $0.3 million funding to the Interim Judicial
Management of Madge SE Asia Pte Ltd in Singapore would not be repaid as the
liquidation in Singapore had not realized enough funds. The $3.7 million of
funding has been reported separately in the condensed consolidated financial
statements. This forms part of the $6.3 million total provided to the
Administrators and Interim Judicial Management. Of this $3.7 million receivable
we received $1.5 million on December 21, 2001 and so this will reduce
accordingly.


10. SUBSEQUENT EVENT


     The shareholders meeting held on October 10, 2001 approved an amendment to
the Articles of Association for Madge Networks N.V. to convert our share capital
from Dutch guilders to Euros to reflect the fact that the Dutch guilder will be
replaced by the Euro as the official currency of the Netherlands on January 1,
2002. With effect from October 10, 2001 the nominal value of each share is EUR
0.45.


                                       20


FORWARD LOOKING STATEMENTS


Our operating results have in the past and may be in the future affected by
various risk factors, many of which are beyond our control. Certain of the
statements included in this Form 6-K express our "anticipation," "belief,"
"commitment," "expectation," "intention," "goals," "plans" or similar terms,
regarding, among other things,

o    our ability to complete the planned sale of Madge.web's assets and to
     mitigate Madge Networks liabilities for the discontinued Madge.web business

o    the adequacy of our financial resources and our ability to raise additional
     financing

o    events that could reduce the value of our Red-M shareholding or further
     dilute our holding in Red-M

o    the success of cost reduction plans in Madge.connect and our corporate
     functions

o    the success of our plans to develop new revenue-generating business
     opportunities

o    the size of markets for our products and services

o    our expected results of operations

Such statements as well as other statements that are not historical fact, are
forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and involve risks and uncertainties
referred to in this Form 6-K and in our Annual Report on Form 20-F for the year
ended December 31, 2000 (the "Form 20-F") under "Description of Business - Risk
Factors." Actual results, actions or events could differ materially.


OPERATING AND FINANCIAL REVIEW AND PROSPECTS


     Madge Networks N.V. ("Madge") is a global provider of advanced networking
product solutions to large enterprises and is the market leader in Token Ring.
Until April 2001, we operated through three subsidiary groups; Madge.connect,
Red-M and Madge.web. Madge.connect is a global supplier of Token Ring LAN
product solutions for mission-critical enterprise networks. Red-M is a
pioneering developer and leading supplier of wireless networking product
solutions that enable access to a range of voice, video and data from a range of
mobile devices. As of April 2001 we no longer own a majority of the voting or
equity interests of Red-M. Madge.web was a global provider of rich content
applications, content distribution and managed network services. We have
discontinued all activities of Madge.web except for its limited business
activities in the United States and are seeking purchasers for the Madge.web
assets that remain. Madge.connect is, therefore, our only continuing operating
business. We will need to make further cuts in our Madge.connect and corporate
cost base to maintain the profitability of our business as the revenues reduce
over time and to add further revenue-generating activities over which to spread
the cost base. In addition to our Madge.connect business we also have a
corporate function that provides services to our Madge.connect business, to
Red-M and to the remaining operations of Madge.web. We are reimbursed for these
services through a quarterly fee that is charged to Red-M. Red-M has indicated
that it intends to seek alternative methods of receiving a number of the
services that our corporate team currently provides to them and accordingly as
this demand decreases, we will make further headcount reductions during the
fourth quarter of 2001 and first quarter of 2002.

                                       21


     We did experience a downturn in our business in the United States following
the events of September 11, 2001 and are still experiencing lower revenues than
we had forecast for the United States for the fourth quarter. The events of
September 11, 2001 also had a negative impact on our attempts to find a tenant
for our offices in lower Manhattan.


     In April 2001, we secured additional funding for Red-M. We received $8.65
million in exchange for some of our shares in Red-M and the Red-M Investors also
invested a further $21.3 million directly into the Red-M business in exchange
for additional shares being issued. In addition, on September 10, 2001, Intel
invested approximately $2.9 million and were issued shares in Red-M. Red-M has
called in a further $3.1 million of funds committed from the Red-M Investors and
Intel. The Red-M Investors and Intel also agreed to invest a further $7.5
million between January 2002 and April 2002, subject to certain conditions being
met. From April 12, 2001 Red-M is classified as an associate company and we no
longer have any funding commitment to it. The carrying value of our investment
has been reduced to zero and we will recognize no further operating losses. We
will recognize our share of profits as, when and if Red-M becomes profitable on
a cumulative basis.


     As at September 30, 2001 we held 39.4% of the voting rights and 31.0% of
the equity in Red-M. The Red-M Investors and Intel held 59.8% and 47.2% of the
voting and equity rights respectively, and the management and employees of Red-M
held the balance. Once the further $3.1 million has been received from the Red-M
Investors and Intel, our percentage will decrease to 37.2% of voting rights and
29.7% of equity rights.


     On April 27, 2001, we publicly announced that, after 16 months of seeking
additional financing for Madge.web, the Board of Madge Networks decided not to
further fund the operations of Madge.web and that we were searching for a
purchaser of Madge.web. In order to provide for orderly administration of
Madge.web and to further the ability to sell it as a going concern, Madge.web
Limited in the United Kingdom and Madge SE Asia Pte Ltd in Singapore were put
into Administration and Interim Judicial Management, respectively, in accordance
with their local laws in processes broadly similar to Chapter 11 in the United
States. Madge Networks provided $6.3 million of funding to the respective
Administration and Interim Judicial Management processes for these two entities.
Following the failure to secure a purchaser for the whole Madge.web business, on
June 12, 2001 we received permission from the Dutch courts for an Insolvent
Liquidation of Madge.web B.V., the Dutch registered European sales subsidiary of
Madge.web with branches in France, Germany, Italy, Spain and Sweden.


     On July 19, 2001 we announced that the Administrators had entered into an
agreement with Tullett & Tokyo for the sale of certain assets relating to
Madge.web's Trader Voice business in Asia and Europe. The sale provided
continuity of employment for a number of Madge.web employees and provided a
release for Madge Networks of significant guarantee obligations relating to the
Trader Voice business. The majority of the other Madge.web employees were
subsequently terminated. The sale proceeds, together with the receivables from
the Madge.web business since the Administration process began on April 27, 2001,
are being used by the Administrators of Madge.web to repay a proportion of the
debts due to Madge.web's creditors and of the funds supplied by Madge Networks
for the Administration process.


     As of August 17, 2001 and September 14, 2001, Madge.web Limited and Madge
SE Asia Pte Ltd, respectively, were put into insolvent liquidation. The
Liquidators of Madge.web Limited are continuing to collect the debts of
Madge.web Limited and seek purchasers for its other remaining assets and will
then assess the amounts of money to be returned to the creditors. Madge Networks
currently

                                       22


only has funding obligations to Madge.web Inc. in the United States as
obligations that Madge.web and Madge Networks have to third parties are being
fulfilled.


     We do not expect that the funds realized by the Administration processes in
total will be sufficient to repay the full US$6.3 million funding provided by us
to the Administrators and Interim Judicial Management. We do not expect to
receive any of the US$300,000 paid to the Interim Judicial Management in
Singapore, accordingly, this amount was written off in September 2001. In late
December 2001, we received $1.5 million from the Administrators as part payment
of the funding provided. We gave an indemnity to the Administrator for this
funding, to refund part of all of this money should further creditors claims be
discovered beyond their current expectations. We do not expect to have to refund
any of the $1.5 million. In total we expect approximately half of the $6.3
million administrative funding to be returned to us, with the majority of that
amount expected to be repaid by the end of the first half of 2002.


     In accordance with U.S. GAAP, Madge.web is presented as a discontinued
business within this report and the results for 2000 have been reclassified
accordingly. In addition, the assets and liabilities of Madge.web at December
31, 2000 were re-valued in light of these events and presented at the value
expected to be realized on the sale of the global Trader Voice business as a
going concern and on the sale of other assets of Madge.web. We also made a
provision of $54.8 million against the future expected losses of the business
from December 31, 2000 to the expected date of sale of the global Trader Voice
business and against liabilities which would crystallize on our exit of the
Madge.web business, which includes operational guarantees given by Madge
Networks on behalf of Madge.web that we may be unable to mitigate. As at
September 30, 2001 this provision was $15.6 million. The decrease in the
provision of $39.2 million related to the utilization of the future losses
provision of $36.6 million, payments for operational guarantees by Madge
Networks of $1.7 million and funding and other related costs of $0.9 million.


     To optimize the current and future business of Madge Networks, a new
management team has been appointed through internal promotion. Martin Malina,
previously Senior VP Lines of Business, Madge.web, was appointed as our Chief
Executive Officer on July 19, 2001 taking the place of Robert Madge who
continued as Chairman and President of the Management Board. On October 10, 2001
Martin Malina was elected to the Management Board by the shareholders, Robert
Madge resigned from the Management Board and was elected to the Supervisory
Board. In addition the Articles of Madge Networks N.V. were amended to allow for
the Supervisory Board to appoint a Designated Supervisory Board Member who would
have additional responsibilities including working more closely with the
Management Board. The Supervisory Board then appointed Robert Madge to this
role.


     The Supervisory Board have reached agreement with Robert Madge to terminate
his employment by mutual consent with effect from October 10, 2001 following the
replacement of Mr Madge as Chief Executive Officer and the relinquishing of his
responsibilities as Managing Director. The agreement requires a settlement
payment to be made to Robert Madge, as compensation for loss of office of
$24,167 per month for 24 months starting October 28, 2001. This settlement is in
line with Dutch employment law practices. Robert Madge has agreed to the
settlement payment being paid over an extended period in order to accommodate
our cash flow position. We have also entered into a consultancy arrangement with
Mr Madge for him to provide consulting services to Madge Networks and our
affiliates for a period of 24 months in relation to past activities of these
companies and the strategic development of our businesses. Under this
arrangement, he will receive a further $10,000 per month for 24 months starting
October 28, 2001. Mr Madge is entitled to receive a bonus of $100,000 under his
previous employment arrangements for the year ended December 31, 2000. Such
bonus payment will be paid in 24 monthly installments


                                       23


starting October 28, 2001. Mr Madge has also been paid three months' salary in
lieu of his notice period. This amount of $134,880 is being paid in three
monthly instalments starting October, 2001.


     Mr. Madge will also receive compensation in his new roles of Supervisory
Director and Designated Supervisory Director as approved by our shareholders at
the shareholders' meeting on October 10, 2001. As Supervisory Director, Robert
Madge will receive an annual fee of $32,500 (plus meeting attendance fees) and
has received options for 100,000 shares upon his election. In addition, as the
Designated Supervisory Director, he will receive an additional annual fee of
$65,000 and has been granted options over an additional 400,000 shares following
his appointment to this role.


     Chris Bradley, Chief Financial Officer has announced his intention to leave
Madge Networks at the end of the year in order to pursue other opportunities.
Chris will continue as Chief Financial Officer and be a committed member of the
senior management team until his departure. Chris Semprini, previously Director,
Finance, Madge.web is now acting in the capacity of Deputy Chief Financial
Officer with the intention of moving into the role of Chief Financial Officer in
the new year.


     As announced in June 2001, our Management Board is developing a strategy
and a number of actions to refocus Madge moving forward. These actions include
maintaining profitability in our remaining operating subsidiary, Madge.connect,
through close management of pricing, product costs and overheads; further
streamlining our corporate organization; benefiting from any increase in the
value of Red-M, which could include selling or pledging some of our shares in
Red-M; exploring new business opportunities that can leverage our assets and
core competencies without significant use of resources; and seeking additional
equity funding at an appropriate time when we have made progress in developing
our value-generation strategy. We will remain focused on networking products and
enterprise customers and have investigated several new product areas. During
2002 we expect to announce new products that will enhance our existing Token
Ring product offering and expand our offering to new network areas. There can be
no assurance that this overall strategy will be successful.


                                       24



OPERATING RESULTS


     The following table shows the percentage of net sales represented by
certain items in our statements of operations for continuing operations:



(Unaudited)                                   Three months ended        Nine months ended
(in thousands)                                   September 30,             September 30,
                                               2001         2000         2001         2000
                                             --------     --------     --------     --------
                                                                           
Net sales                                       100%         100%         100%         100%
Cost of sales                                    46           55           47           53
                                               ----         ----         ----         ----
Gross profit                                     54           45           53           47
Operating expenses:
Sales and marketing expenses                     26           26           24           31
Research and development expenses                 2           12            6           13
General and administrative expenses              17           10           11            7
Special (gain) loss                             (26)           3           (8)           1
                                               ----         ----         ----         ----
Total operating expenses                         19           51           33           52
                                               ----         ----         ----         ----
Income (loss) from operations                    35           (6)          20           (5)
Net interest (income) loss                       --           (1)           3           (1)
Gain on sale of investment in Red-M              --           --           13           --
                                               ----         ----         ----         ----
Income (loss) before income taxes                35           (7)          36           (6)
Provision for income taxes                       --           --           (2)          (1)
Share of losses from associate Red-M             --           --           (2)          --
                                               ----         ----         ----         ----
Net income (loss)                                35%          (7)%         32%          (7)%
                                               ====         ====         ====         ====




Net Sales


     Total net sales for the three months ended September 30, 2001 were $14.1
million compared to $29.0 million for the three months ended September 30, 2000.
Total net sales for the nine months ended September 30, 2001 were $58.3 million
compared to $99.4 million for the nine months ended September 30, 2000. The
decrease in net sales in 2001 compared to 2000 reflected the reduced demand for
our products. In addition, net sales in 2000 included video networking products
up to the end of September 2000, when the business was sold. Because the market
for our Token Ring products (principally adapter cards) continues to decline as
companies turn to other technologies, we have been and are continuing to take
steps to reduce overheads and streamline the Madge.connect business as well as
to look for new business opportunities.


Gross Profit


     Gross profit from continuing operations was 54% of net sales for the three
months ended September 30, 2001 compared to 45% for the three months ended
September 30, 2000. Gross profit from continuing operations was 53% of net sales
for the nine months ended September 30, 2001 compared to 47% for the nine months
ended September 30, 2000. This increase was due to our cost reduction activities
and the discontinuation of lower margin product lines. We do not expect to be
able to maintain margins at these levels given expected price pressure and new
product introductions.

                                       25


Sales and Marketing


     Sales and marketing expenses were $3.7 million and $7.4 million for the
three months ended September 30, 2001 and 2000, respectively. For both periods
these expenses represented 26% of net sales. Sales and marketing expenses from
continuing operations were $14.3 million for the nine months ended September 30,
2001 compared to $30.7 million for the nine months ended September 30, 2000.
These expenses represented 24% and 31% of net sales, respectively. During 2000,
we reduced the size of our sales and marketing activities in Madge.connect,
resulting in the substantial reduction in our expenses. As discussed, further
headcount reduction in Madge.connect as well as in our corporate functions may
be required in the future but it is not envisaged that this will materially
affect the sales and marketing groups.


Research and Development


     Research and development expenses were $0.3 million and $3.6 million for
the three months ended September 30, 2001 and 2000, respectively. These expenses
represented 2% and 12% of net sales, respectively. Research and development
expenses from continuing operations were $3.3 million for the nine months ended
September 30, 2001 compared to $13.1 million for the nine months ended September
30, 2000. These expenses represented 6% and 13% of net sales, respectively. The
decline in expenditure reflected our strategy to reduce research and development
headcount focussed on the mature Token Ring market and video networking. All of
our research and development costs have been expensed as incurred. In order to
do sustaining engineering on existing products and to start the development of
new products we have started to build internal research and development
capabilities and have established a research and development outsourcing
agreement. To this end, we have also signed an agreement with a company in India
for it to carry out some research and development activity on our behalf.


General and Administrative


     General and administrative expenses were $2.4 million and $3.0 million for
the three months ended September 30, 2001 and 2000, respectively. These expenses
represented 17% and 10% of net sales, respectively. General and administrative
expenses from continuing operations were $6.6 million for the nine months ended
September 30, 2001 compared to $7.4 million for the nine months ended September
30, 2000. These expenses represented 11% and 7% of net sales, respectively.


     As a result of the dissolution of Madge.web and the sale of our majority
stake in Red-M, we have already reduced and expect to make further cost
reductions in our corporate function to enhance the profitability and cash
generation of Madge.connect as the remaining operation of Madge.


Special Charges


     During September 2001, we released a $3.8 million provision related to the
tax provision on the sale of our Lannet subsidiary completed in 1998. During
June 2001, we released a $1.3 million provision that we had made to cover the
real estate-related claim by Terastor in California on our U.S. subsidiary,
Madge Networks Inc. because Terastor withdrew the court action.

                                       26

Gain on Sale of Investment in Red-M


     In the second quarter of 2001 we recognized a special gain of $8.0 million
relating to the sale of shares in Red-M (Communications) Limited.


Earnings before interest, tax, depreciation and amortization


     Earnings before interest, tax, depreciation and amortization ("EBITDA") is
not a measurement in accordance with U.S. GAAP. EBITDA is presented as a
management tool and is not necessarily comparable to similar measures used by
other companies. EBITDA for continuing operations (which includes Madge.connect
and corporate) for the three months ended September 30, 2001 was $3.7 million
compared to $2.8 million for the three months ended September 30, 2000. EBITDA
for continuing operations for the nine months ended September 30, 2001 was $13.4
million compared to $7.4 million for the nine months ended September 30, 2000.
We do not expect this increase to continue and expect a slight decrease in
EBITDA for the fourth quarter 2001.


Income Taxes


     Our provision for income taxes as a percentage of pre-tax income from
continuing operations for the nine months ended September 30, 2001, was 4%
compared to 6% of pre-tax loss for the nine months ended September 30, 2000.


     The tax expense for the nine months ended September 30, 2001 and 2000 was
$0.9 million and $0.4 million, respectively. The tax expenses were principally
the result of profits in certain entities against which we were unable to offset
losses. The current deferred tax assets were nil at September 30, 2001 and
$38,000 at September 30, 2000.


Sale of Video Networking


     In September 2000 Madge.connect sold its video networking business to
Initia Inc. ("Initia"), a provider of scalable, multi-service network solutions
for videoconferencing and distance learning applications based in New Jersey. As
part of this agreement, key staff transferred to Initia and Initia agreed to
acquire inventory we owned to support this business over the following twelve
months. All such inventory has now been sold or scrapped. Initia have now paid
the majority of the monies due under this agreement and the remainder is due by
the end of January 2002. The sale of this business gave rise to a special charge
of $0.9 million, comprised of a $2.0 million provision to cover the
restructuring program, offset by income and various assets/liabilities relating
to the video networking business.


     At the same time, the manufacturing function of the video networking
business was sold separately to Freedom Vertical Technologies Inc. ("Freedom")
and our support staff within this business were transferred to them. In order
that Freedom can continue to manufacture the video networking products for
Initia, we agreed with Freedom that for a period we would continue our direct
relationship with Kbyte Hibbing Manufacturing ("Hibbings"), the PCB suppliers to
the video networking business. The components purchased by Madge from Hibbings
under this direct relationship were delivered to Freedom and were placed with
all the other Madge inventory which had been consigned to Freedom. Initia is
obliged to pay Madge for all inventory it uses from this consigned inventory
during its operation of the video networking business and all such inventory has
now been sold or scrapped. We have


                                       27





indicated to Freedom that we have met all of our existing purchase obligations
for long leadtime items and that we will not be entering into any new purchase
orders once the existing ones in place have been used up and some legacy issues
resolved. Freedom have now entered into a direct relationship with its PCB
suppliers.


Alliance with Magnifi, now Emmperative


     In October 2000 Madge.web entered a strategic alliance with Magnifi, (now
Emmperative), a Los Gatos, California-based developer and operator of
business-to-business extranet services targeted at the marketing services
industry.


     During the fourth quarter of 2000, Madge.web also acquired $2.0 million
worth of Series E preferred stock of Magnifi, giving us 623,053 or 8.1% of the
fully diluted Series E stock or approximately 1.3% holding of Magnifi's total
fully diluted equity as at December 31, 2000. As a result of the joint venture
between Proctor & Gamble and Magnifi and these shares were converted into a
right to receive the same number of shares in the joint venture company,
Emmperative. The shares are transferable or can be pledged subject to compliance
with the investor rights agreement, which is intended to ensure compliance with
the federal securities laws. We intend to pledge these shares during the next
six months.


Foreign Currency Exchange Rates


     The functional currency of Madge Networks N.V. is the U.S. dollar and a
significant portion of net sales are collected in U.S. dollars. A substantial
portion of our net sales are also collected in currencies other than the U.S.
dollar, principally the British pound and the Euro. Because we have a
substantial portion of our operations located outside the United States,
principally in the United Kingdom, a significant portion of our manufacturing,
logistics, research and development expenses, and general administrative
expenses are incurred in British pounds rather than U.S. dollars. Although it is
impossible to predict future exchange rate fluctuations between the U.S. dollar
and other currencies, it can be anticipated that to the extent the U.S. dollar
strengthens or weakens against the British pound, or to a lesser extent other
currencies, a substantial portion of our reported net sales, cost of goods sold
and operating expenses will be commensurately lower or higher than they would
have been with a stable foreign currency relationship. A portion of our
operations are effectively hedged by the distributed nature of our world-wide
sales and expenses. To the extent that we do not have balanced assets and
liabilities in one or more currencies, we can attempt to estimate the exposure.
At certain points throughout 2000 we hedged this exposure by purchasing or
selling foreign currencies one month forward. These transactions do not
eliminate our foreign currency risks as they involve estimates based on
incomplete information. The use of forward contracts was actively reviewed
throughout 2000 and the nine months ended September 30, 2001 and the decision to
hedge using these instruments depended upon our view of the foreign exchange
market at the time the decision whether or not to hedge was taken. We did not
hedge any of this exposure during the nine months ended September 30, 2001.


     Foreign currency gains or losses are charged to, or offset against, general
and administrative expenses. Madge and our subsidiaries periodically record
gains and losses from transactions in, and re-measurements of foreign currency
balances and accounts denominated in, currencies other than their respective
functional currencies. This permits Madge and our subsidiaries to present our
financial statements in their respective functional currencies. As a result of
these foreign currency translations and re-measurements, we booked net gains of
approximately $3,231,000 for the nine months ended September 30, 2001.




                                       28




     Madge accounts for foreign currency in accordance with SFAS No. 52, Foreign
Currency Translation. Under this Statement, assets and liabilities of our
non-U.S. dollar subsidiaries are translated into U.S. dollars at exchange rates
in effect at the close of the period. The resulting translation adjustments are
excluded from net earnings, and accumulated as a separate component of
shareholders' equity. The income and expenses of these operations are translated
at monthly market exchange rates. As of September 30, 2001, cumulative
translation adjustments decreased shareholders' equity by approximately
$16,132,000.


LIQUIDITY AND CAPITAL RESOURCES


     As at September 30, 2001, we had cash and cash equivalents of $8.0 million
and an additional $7.0 million of cash that was restricted. In addition, under
our Madge.connect working capital financing arrangement, secured by
Madge.connect accounts receivable (for further details see below), we had
approximately $4.5 million available as at September 30, 2001.


     During April 2001, we transferred to Red-M cash of $2.7 million to settle
inter-company accounts and received $8.65 million from the sale of our Red-M
shares.


     We provided an aggregate of $6.3 million to the Administrators of Madge.web
Limited in the United Kingdom and the Interim Judicial Management in Singapore
to operate their respective Madge.web operations while attempts to secure a
buyer for the Madge.web business and assets were made. We have and continue to
provide funds to Madge.web Inc. in the United States as obligations that
Madge.web and Madge Networks have to third parties are being fulfilled. Madge
Networks currently has no funding obligations to any other Madge.web subsidiary.


     We believe that our current liquidity levels and committed financial
resources are sufficient to meet the needs of our ongoing operations at least
through the end of 2002. However, our belief is based on the following
assumptions, some or all of which may not prove accurate, in which case, we
would need to raise money sooner and there would be substantial uncertainty
about our ability to continue as a going concern:

o    that we meet our planned revenue targets going forward;

o    that our currently available sources of funding will remain available to
     us;

o    that we will be able to mitigate substantial liabilities under the
     operational guarantees that we made on behalf of Madge.web, the maximum
     value of which we estimate to be approximately $15.5 million as at
     September 30, 2001 for equipment leases and loans, leasehold improvements
     and property leases;

o    that a total of approximately half of the funds provided to the
     Administrators will be returned to us and that the majority of that amount
     expected to be repaid by the end of the first half of 2002;

o    that we will generate some limited revenues from new business opportunities
     during the next 12 months;

o    that the further cuts in our overhead and headcount are making will be
     sufficient to cause Madge.connect together with our corporate function to
     maintain positive cashflow in 2001 and 2002; and



                                       29


o    that we will be able to sell the remaining assets of Madge.web and not have
     to put Madge.web Inc. into liquidation.

     If further liquidity is required, we will attempt to raise additional funds
through working capital financing and other sources of finance such as bank
credit. We might also seek to pledge our shares in Red-M, although our ability
to pledge our shares in Red-M is subject to certain contractual restrictions
that could affect our ability to do so and the amount of money that could be
raised on such security. We may also, at a later stage, attempt to raise
additional funds through private placement of our shares, but if our common
shares were to be delisted from The Nasdaq National Market and listed on either
The Nasdaq SmallCap Market or the Over-The-Counter-Bulletin-Board, we would find
it more difficult to raise funds through an equity offering of our shares. See
"Risk Factors" below for further details.


     If we are unable to raise additional funds as outlined above or our
assumptions above prove incorrect, there would be substantial uncertainty about
our ability to continue as a going concern. The condensed consolidated financial
statements do not include any adjustment that may result from the outcome of
that uncertainty.


     As outlined above, we had cash and cash equivalents from continuing
operations of $8.0 million as at September 30, 2001 and an additional $7.0
million of cash was restricted. Of this restricted cash $3.0 million was held in
the escrow established pursuant to our 1999 agreement with Olicom whereby we
placed $8.5 million in escrow relating to further minimum guaranteed payments to
be made over three years from 1999 based on a percentage of our Token Ring
revenues, and $4.0 million is held on deposit against leased assets for the
Madge.web data center in New York City. We paid $1.9 million from the Olicom
escrow during 2001 which related to royalty payments due on our sales. The
remaining $3.0 million held in escrow is a minimum payment due on current and
future Token Ring sales.


     Our Madge.connect working capital financing arrangement is for a maximum of
$5.0 million, secured by accounts receivable generated by U.K. and U.S.
Madge.connect entities. In November 2001 we reduced this facility from $30.0
million as we never utilized this amount, thereby obtaining a more favorable
facility fee. Availability of financing under this facility depends upon the
level of receivables for these entities. The arrangement ran for an initial two
year period to September 30, 2001 and continues thereafter until terminated by
either party giving three months notice. We currently have no intention of
giving notice to terminate this agreement. The finance company is able to
terminate this agreement immediately if it considers there to have been a
material adverse change in our business. We have no indication from it that it
intends to terminate this arrangement. There was no balance outstanding under
the arrangement as at December 31, 2000. At September 30, 2001, availability
under this facility was $4.5 million of which we had utilized $4.3 million.


     Net cash provided by operating activities for continuing operations for the
nine months ended September 30, 2001 was $15.8 million. The net cash inflow was
attributable to the net profit for the period excluding non-cash transactions
(such as gain on sale of Red-M and depreciation and amortization) of $21.5
million, offset by a $5.7 million net increase in cash from the change in levels
of working capital. Net cash used in operating activities for discontinued
operations for the nine months ended September 30, 2001 was $34.5 million. This
was due to the net loss for the period excluding non-cash transactions (such as
depreciation, amortization and impairment) of $2.5 million and a net increase in
working capital of $32.0 million.


                                       30


     Net cash provided by investing activities for continuing operations for the
nine months ended September 30, 2001 was $7.2 million of which $8.7 million
related to the sale of our investment in Red-M offset by $1.5 million related to
purchases of property and equipment.

     Net cash provided by financing activities for continuing operations for the
nine months ended September 30, 2001 was $3.6 million. Cash inflow was
attributable to the issue of common shares of $0.7 million and short-term loans
(from our working capital financing arrangement mentioned above) of $3.4
million. This was offset by outflows of $0.5 million for repayment of capital
leases.

     Although we did generate cash flow from continuing operations, we did not
generate cash from total operations in either the nine months ended September
30, 2001 or the year ended December 31, 2000. We funded the investments we made
in Madge.web and Red-M in 2000 through various sources of financing including
$29.2 million in net proceeds from a public offering and $29.7 million in net
proceeds from the private sale to Volendam Investeringen N.V. ("Volendam") of
common shares. A further $29.8 million was raised from the issue of Class B
Preferred shares of Madge.web N.V. to Volendam. These were issued on January 26,
2001 and Volendam effectively waived the repayment of the principal amount of
the loan we had to draw down at the time ($28.0 million) and paid the final $2.0
million due. Volendam were entitled to offset these sums under the loan
agreement. In February 2001, we received $7.0 million (plus $1.2 million
interest) from Celestica, as performance-related consideration from the sale of
our Irish manufacturing plant to Celestica in February 1998. During April 2001,
we successfully secured additional funding for Red-M. We received a total of
$8.6 million from the Red-M Investors in exchange for 2,763,578 shares we held
in Red-M.

     On August 10, 2000 we signed an agreement with Inktomi Corporation whereby
they are committed to invest in Madge.web shares, subject to certain conditions,
at the next round of financing, which was expected to be completed by end of
March, 2001. As we failed to secure this financing by the required deadline this
agreement lapsed. However, in March 2001 Inktomi agreed to purchase $5.0 million
worth of shares in Madge Networks N.V. instead. These shares were to have been
purchased by Inktomi following the filing of the Form 20-F at the closing price
one day after the Form 20-F was filed (with a provision for us to require a
resetting of the price if it is less than $1.00, to the price on the fifth day
after such filing). This agreement is subject to there being no "material
adverse change" in our business. Inktomi have not purchased these shares and may
argue that the current position regarding the future of the Madge.web is
regarded as a "material adverse change" in our business and refuse to make the
investment. We have written to Inktomi to ask what they intend to do about this
investment but have received no reply. It seems most likely that Inktomi will
not make this investment given the changing nature of the Madge Networks
business and the contract we had in place.

LEGAL PROCEEDINGS

     From time to time Madge and our subsidiaries are involved in disputes
relating to claims arising out of our operations in the normal course of
business, which disputes have increased substantially as a result of the
financial difficulties and liquidation of Madge.web. Among other things, such
claims may relate to allegations of patent infringement, employment-related
claims, product warranty claims and service claims. Specific claims (none of
which is currently a formal legal proceeding) relating to the Madge.web
discontinuation include claims from equipment leasing companies, unpaid
invoices, and claims from landlords for unpaid rent. If the judgment in the
class action litigation filed in the United States District for the Northern
District of California in August 1996 were to be successfully appealed by the
plaintiffs or if a large proportion of the other disputes we currently have were
litigated and we lost,



                                       31


our results of operations and financial position would likely be materially
adversely affected. For more details of the Class Action see Form 20-F. Since
the Form 20-F was filed we received a date of December 4, 2001, for the Court of
Appeals hearing. Given that the insurer for our our directors and officers
insurance, Reliance, has now gone into liquidation, we have applied for and have
been granted a stay of this appeal upon the request of Reliance.



                                       32



RISK FACTORS


     From time to time, in connection with the United States Private Securities
Litigation Reform Act 1995, reference may be made to risks addressed in our
public filings with the Securities and Exchange Commission. All the following
factors should be considered carefully before making an investment decision. If
any of the following risks actually occur, our business, financial condition or
results of operations could be materially adversely affected. In that event, the
trading price of our shares could decline, and you could lose part or all of
your investment.


            RISKS RELATED TO OUR FINANCIAL CONDITION AND OUR BUSINESS


If our assumptions about our future operations are significantly inaccurate,
there will be a material adverse affect on our entire business, which could
affect our ability to operate as a going concern.


     We believe that our current liquidity levels and committed financial
resources are sufficient to meet the needs of our ongoing operations at least
through the end of 2002. However, our belief is based on the following
assumptions, some or all of which may not prove accurate, in which case, we
would need to raise money sooner and there would be substantial uncertainty
about our ability to continue as a going concern:

o    that we meet our planned revenue targets going forward;

o    that our currently available sources of funding will remain available to
     us;

o    that we will be able to mitigate substantial liabilities under the
     operational guarantees that we made on behalf of Madge.web, the maximum
     value of which we estimate to be approximately $15.5 million as at
     September 30, 2001 for equipment leases and loans, leasehold improvements
     and property leases;

o    that a total of approximately half of the funds provided to the
     Administrators will be returned to us and that the majority of that amount
     expected will be repaid to us by the end of the first half of 2002;

o    that we will generate some limited revenues from new business opportunities
     during the next 12 months;

o    that the further cuts in our overhead and headcount we are making will be
     sufficient to cause Madge.connect together with our corporate function to
     maintain positive cashflow in 2001 and 2002; and

o    that we will be able to sell the remaining assets of Madge.web and not have
     to put Madge.web Inc. into liquidation.

     If further liquidity is required, we will attempt to raise additional funds
through working capital financing and other sources of finance such as bank
credit. We might also seek to pledge our shares in Red-M, although our ability
to pledge our shares in Red-M is subject to certain contractual restrictions
that could affect our ability to do so and the amount of money that could be
raised on such security. We may also, at a later stage, attempt to raise
additional funds through private placement of our shares, but if our common
shares were to be delisted from The Nasdaq National Market and listed on either
The Nasdaq SmallCap Market or the Over-The-Counter-Bulletin-Board, we would find
it more difficult to raise funds through an equity offering of our shares.


                                       33


Claims by suppliers or customers of Madge.web have been made against Madge
Networks.

     As Madge.web Limited and Madge SE Asia Pte Ltd have both been placed into
Insolvent Liquidation and Madge.web B.V. has been declared bankrupt, these legal
entities cannot pay any debts due to their suppliers and customers. Madge.web
has also ceased to support substantially all of its operations, the only
exception to this being the limited business operated by Madge.web Inc. in the
United States which will be funded as obligations of Madge.web and Madge
Networks are being settled. As a result, claims have been made, and may be made
in the future, against Madge Networks under the terms of operational guarantees
given by or contracts entered into by Madge Networks and otherwise. If one or
more significant claims are successful, our business and resources will be
materially adversely affected. Customers, suppliers or former employees of
Madge.web could also attempt to bring claims against Madge Networks' group of
companies. Work has been done to reduce these risks but they still exist and
could still have an adverse effect.

We are expending a lot of time and resources on Madge.web matters and need to be
in a position where we can focus more on forward looking matters.

     Many of our employees are involved in the winding up of the Madge.web
business, the sale of assets, the restructuring of the company and the
mitigation of the remaining liabilities that related to the Madge.web business.
This work needs to be done but is not allowing a number of key individuals to
focus on existing or possible new lines of Madge business in order to generate
further revenue.

We will be wholly dependent upon revenue generated by our Token Ring business
for the foreseeable future.

     Our revenue has increasingly been derived from the sale and licensing of
Token Ring products and technology. We depend upon the continued market
acceptance of Token Ring and related technologies. Our total sales of Token Ring
products have declined over the last five years and have declined steadily from
$22.0 million to $14.0 million in the first and third quarters of 2001,
respectively. We expect Token Ring sales to continue to decline as companies
turn to other technologies. Following the sale or liquidation of Madge.web and
because since April 2001 we hold only an equity investment in Red-M, we are
totally dependent on sales and licensing of Token Ring products and technology
for revenues and we expect that our net sales will continue to decrease.
Although we are working on new revenue opportunities, we do not expect to
generate revenue in these areas until the second half of 2002.

Our inability to change our main subcontract manufacturer successfully would
cause our business to suffer.

     We have secured alternative sources of supply for our products, moving away
from Celestica as our sole subcontract manufacturer. We have agreed an exit plan
from Celestica but have not yet signed an agreement with Sanmina SCI, our
proposed new manufacturer. There is a risk that these attempts may not be
successful and our business would suffer as a result if there were any
disruption in supply of our products or problems with the quality of the
products received from our new supplier. Our reliance upon third-party
manufacturers and suppliers involves several potential risks, including the
absence of adequate capacity, manufacturing yields and costs. In the event that
a significant subcontract manufacturer or a significant supplier were to become
unable or unwilling to continue to manufacture our key products in required
volumes, we would be required to identify and qualify acceptable additional
sources for our products or to manufacture the products ourselves. The
identification and qualification process could lead




                                       34


to further delays and additional costs and no assurance can be given that
additional sources would become available to us on a timely basis or that we
could manufacture such products ourselves on a timely or cost-effective basis.
In addition, if any other significant suppliers were to establish a strategic
working relationship with one or more of our competitors or were to enter into
direct competition with us, our business could be materially adversely affected.

Loss or modification of Madge.connect relationships with third-party
distributors and resellers would harm our operations and sales.

     Substantially all of our Madge.connect sales are fulfilled and distributed
world-wide through a network comprised of distributors, value-added resellers
and original equipment manufacturers. Our Madge.connect indirect distribution
channels vary from country to country. In the United States, the majority of our
products are sold through two major national distributors, Ingram Micro, Inc.
and Tech Data Corporation, Inc. In Europe, Asia and other markets, we sell our
Madge.connect products predominantly through marketing representatives,
distributors and resellers. We have undertaken a restructuring of our channel
relationships world-wide and substantially reduced the number of channel
partners and third party sales agents we deal with directly in order to
streamline our business to reflect the declining Token Ring market. Any
contracts we have with our channel partners and third party sales agents are
typically not long-term. The loss of a distributor or reseller or a sales agent
in a particular region could impair our operations in that region. Any resulting
declines in sales could decrease revenue. Until alternative distribution
channels could be established, if at all, our business would suffer. The loss of
a significant number of key sales personnel including sales agents would also
affect our ability to manage our distributors and resellers and continue to
secure revenue from them.


If we fail to establish or maintain relationships with parties that agree to
resell our Madge.connect products on an original equipment manufacturer basis,
our revenue will decrease.


     We anticipate that a portion of our future Madge.connect revenue will be
derived from sales to customers that integrate our products into their own or
resell our products under their own brand names. Therefore, our revenue will be
increasingly dependent upon the ability and willingness of these original
equipment manufacturers ("OEMs") to promote products that incorporate our
products and technology. The ability and willingness by OEMs to do so is based
upon a number of factors, including:

o    our timely supply of products with the required reliability, functionality,
     speed and performance at acceptable prices;

o    the compatibility of our technology with emerging and changing industry
     standards and with the products being developed by the potential OEM
     partners;

o    general industry competition; and

o    overall economic conditions.

     Many of these factors are beyond our control. Additionally, these customers
may have profitability or other incentives to promote internal solutions or
competing products in lieu of products incorporating our technology. Sales by
these customers also could compete with our products, possibly impacting our
sales, reducing margins and adversely affecting the marketability of our
products. Our inability to promote sales through these manufacturers and provide
ongoing support to existing OEM partners could decrease our revenues.



                                       35




     We may also enter into agreements to obtain products from another
manufacturer or manufacturers for resale on a Madge labelled or OEM basis. We
are dependent in any such arrangement upon the manufacturer of products to
provide us with timely shipments of quality products on a cost-effective basis,
and may also depend upon our OEM supplier for technology, intellectual property
indemnification, support and other assistance. There is no guarantee that an OEM
supplier can or will continue to provide such things on a cost-effective basis
or that such relationships will last if our product strategy changes.


We are dependent upon a limited number of product suppliers.


     The chipsets and components used in certain of our Token Ring products are
currently available only from a single source or limited sources. For example,
the ASIC we have designed that are used in certain of our Token Ring adapter
card products are currently available only from NEC Corporation. The nature of
the high technology components business is such that the vendors supplying such
chips and components are few and it takes time and effort to identify and
qualify alternative sources for such components. While our operating results
have not, to date, been materially adversely affected by any shortages, we have
experienced delays in the receipt of certain of our key components and this may
be exacerbated by moving to a new subcontract manufacturer. The inability to
obtain sufficient key components as required, or to develop alternative sources
as we anticipate could be required in the future, could result in increased
costs and delays or reductions in product shipments, which, in turn, could have
a material adverse effect on our results of operations. Texas Instruments
withdrew its Token Ring components from the market in June 2000. We used a
number of the Texas Instruments components and have purchased a sufficient
number of these components to meet our anticipated sales through 2001 and 2002.
There are now substitute product ranges available that do not use such
components, so we expect to be able to transition our customers to these
products.


Our products or services may contain defects that may cause us to incur
significant costs, divert our attention from our core Madge.connect business
and/or result in the loss of customers.


     Information Technology products frequently contain undetected software and
hardware defects when first introduced or as new versions are released. Our
Madge.connect products are complex and defects may occasionally be found. In
addition, such products are often embedded in or deployed in conjunction with
customers' products, which incorporate a variety of components produced by third
parties. We may on occasion sell products that are manufactured wholly or partly
by others and for which we lack resources and familiarity to trouble-shoot
effectively. As a result, when problems occur, it may be difficult to identify
the source of the problem. If problems are found in our Madge.connect products,
we may divert resources to address the problem and may incur significant damages
or warranty and repair costs. We may divert the attention of our engineering
personnel from product and/or services development and we could face significant
market acceptance or customer relation problems or the loss of customers.


     Although the current Madge.connect product range is mature, customers
report defects from time to time. Because of a loss of research and development
staff with the necessary Token Ring product expertise caused by customary
attrition, restructuring and personnel movements to Red-M, we may encounter
technical issues that we are unable to remedy in a timely fashion. Although
Red-M has retained some of our Token Ring research and development skills that
could be temporarily re-deployed into Madge.connect in order to resolve any
technical problems with Madge.connect products, we cannot be assured that any
such re-deployment will be possible, timely or effective. This loss of research
and development staff within Madge.connect will also affect our ability to
develop new product lines or




                                       36



expand existing ones for Madge.connect. We have however started to build
internal research and development capabilities and have established a research
and development outsourcing agreement in order to do sustaining engineering on
existing products and to start the development of new products.


Our Token Ring sales, could be adversely affected because we have outsourced our
technical support function for Madge.connect and our customers are now required
to pay for support.


     In April 2000, we began outsourcing our technical support function for our
Token Ring products to Vital Networks LLC ("Vital"). Vital agreed to provide our
Madge.connect customers with certain measurable levels of support until at least
April 2005. We believe that Vital has delivered a reasonable service to our
customers, who are being moved to a market whereby they will ultimately be
required to pay for the limited range of technical support services that we had
provided ourselves free of charge. This may reduce customer satisfaction and
could have an adverse impact on our future product revenues. However, as Vital
are able to offer a more comprehensive range of services, we believe that
customers will, on balance, receive an improved service. Although many customers
would prefer to continue with Madge.connect's free service, the chargeable
nature of Vital's support services will help to maintain the viability of
support for Madge's Token Ring products in the long term, thus helping customers
to retain and build upon their investment of Madge Token Ring products. There is
a possibility that some customers may decline to pay for support services from
Vital, which could have an adverse effect on Token Ring sales, although we do
not believe any decline in our Token Ring sales is currently attributable
directly to our agreement with Vital. If Vital were to cease business or to
withdraw its support for Token Ring, sales of our Token Ring products would be
adversely affected and we would need to find a new support partner. Providing
support for any new products we launch will be key to their success and we are
in discussions with Vital to provide this too.


Returns or warranty costs from our Madge.connect business in excess of our
budgeted amounts could harm our results of operations.


     The terms of our Madge.connect reseller and distributor relationships
subject us to certain risks. we grant some resellers and distributors limited
rights to exchange unsold products for new purchases. Although we allow for
projected returns, these allowances may not be sufficient in the future to
offset future Madge.connect product returns. In addition, we provide price
protection to certain of our distributors. a significant decrease in the price
of our Madge.connect products, which exceeds the amounts that we have reserved,
could have an adverse effect on our operating results. Moreover, we generally
provide a limited warranty to users for our adapter cards and a one year
warranty on our Token Ring hubs and switches. There can be no assurance that our
warranty reserves will be adequate to cover future warranty costs. if any one of
these allowances is inadequate, our business could be materially adversely
affected. We anticipate this economic slowdown will also make it more difficult
to launch our planned new product lines to generate other revenue opportunities.


Our ability to maintain our revenues and continue as a going concern depends on
overall demand for computer hardware, which, in turn, has been affected by the
overall slowdown in general economic conditions.


     The nature and extent of the effect of the current economic climate on our
ability to sell Token Ring products is uncertain. A softening of demand for
computer hardware caused by weakening of the economy could further accelerate
the decline in our revenues and could also affect our ability to continue as a
going concern.


                                       37


Terrorist attacks and the military and other responses to them have and may
continue to adversely affect all aspects of our operations, revenues, and share
price.


     On September 11, 2001, unprecedented acts of terrorism occurred in New York
City, Washington, D.C. and Pennsylvania. On October 7, 2001, the United States
and its allies launched military attacks on Afghanistan in response to those
acts. These events, as well as the possibility that future related events could
occur, including additional terrorist attacks on the United States, the United
Kingdom or other targets, escalation or broadening of the current military
response, and military or trade disruptions affecting our suppliers, third party
distributors or resellers, have and may continue to adversely affect our
operations, including, among other things, causing delays or losses in the
delivery of supplies and products to us and decreased sales of the products we
carry. More generally, any of these events could cause business and consumer
confidence and spending to decrease further, result in increased volatility in
the United States and worldwide financial markets and economy and result in
economic recession in the United States and internationally. Any of these
occurrences would likely have a significant adverse effect on our operations,
costs and revenues and could increase the volatility and decrease the market
price of our common shares


Our difficulty in managing our changing operations and acquisitions has harmed
and may continue to harm our business.


     In recent years, we have reorganized our operational and internal reporting
structures more than once, including establishing Madge.web in 1999 and Red-M in
May 2000, each of which will no longer be a part of the future of Madge, and
reducing headcount on several occasions at Madge.connect to better align it with
the declining market for Token Ring products. These ongoing restructurings have
placed great strain on our operational, management, financial and other
resources as well as weakened our ability to retain employees. The current
winding up of all Madge.web operations (except the limited business operating in
the United States), will also result in further job cuts in our corporate
function, putting increased strain on those individuals who remain.


     We are continually working towards restructuring our Madge.connect group to
create a more simplified business model. As a result, a number of sales and
corporate offices world-wide have been or will be closed or substantially
downsized as we have moved to a model of using independent sales agents in
countries where it is cost-effective to do so either in addition to, or more
often, instead of our own employees. Although we believe the use of sales agents
will have a lower commercial risk than retaining a direct Madge presence, there
can be no assurance that sales will not suffer. The challenge of managing
expenses to changing sources of revenue may lead us to adjust further our
business priorities and resource allocation.


We depend upon our international operations, which subject us to currency
exchange rate fluctuations and other additional risks.


     We are a global company, with our headquarters and most of our operations
based outside the United States. We derived approximately $145.0 million, $114.8
million and $36.0 million, or 74%, 73% and 62% of our total net sales from
operations outside of the Americas in the years ended December 31, 1999 and 2000
and the nine months ended September 30, 2001, respectively. We expect that
international sales will continue to represent a majority of our net sales. A
significant portion of our transactions are in currencies other than the U.S.
dollar, principally the British pound. As a result, we are subject to currency
exchange rate fluctuations and the associated difficulty of administering
business globally. Fluctuations in the value of foreign currencies cause revenue
or other numbers tied to the U.S. dollar to change in comparison with similar
numbers in previous periods. Due to the number of currencies involved, the
constantly changing currency exposures, and the substantial volatility of
currency exchange rates, we cannot predict the effect of exchange rate
fluctuations upon future operating results. These exchange rate fluctuations
have in the past and could in the future, distort the results of our operations.
As well as exposure to currency fluctuations, we as a multinational business,
are subject to the risks associated with the greater difficulty of administering
business


                                       38


globally. Fluctuations in the value of foreign currencies cause revenue or other
numbers tied to the U.S. dollar to change in comparison with similar numbers in
previous periods. Due to the number of currencies involved, the constantly
changing currency exposures, and the substantial volatility of currency exchange
rates, we cannot predict the effect of exchange rate fluctuations upon future
operating results. These exchange rate fluctuations have in the past and could
in the future, distort the results of our operations. As well as exposure to
currency fluctuations, we as a multinational business, are subject to the risks
associated with the greater difficulty of administering business globally,
regulatory requirements and other risks, such as import and export licenses,
political and economic instability, overlapping of differing tax structures,
trade restrictions and changes in tariff and freight rates.


At certain points throughout the year we consider hedging our currency exchange
rate exposure by purchasing or selling foreign currencies one month forward.
These transactions do not eliminate our foreign currency risks as they involve
estimates based on incomplete information. The use of forward contracts is
actively reviewed throughout the year and the decision to hedge using these
instruments depends upon our view of the foreign exchange market at the time the
decision whether or not to hedge was taken. At September 30, 2000, there were no
outstanding foreign exchange contracts.


We have experienced fluctuations in operating results and anticipate that these
fluctuations will continue.


We have experienced fluctuations in operating results and anticipate that these
fluctuations will continue. Various factors contribute to this uncertainty,
including:

o    the timing of our operating expenditures;

o    the size and timing of customer orders;

o    the mix of Madge.connect products sold;

o    the mix of distribution channels through which our products and services
     are sold;

o    the pattern of end-user purchasing cycles;

o    availability of product supply;

o    the introduction of new products and services by us and our competitors;
     and

o    general economic conditions.

     Madge.connect ships products to order and generally operates with little
backlog, although we did experience some product supply issues that caused a
backlog until March 31, 2001. In the six months ended September 30, 2001, we did
not have product supply issues because we had built up an inventory of products
in anticipation of potential supply problems with the transfer to a new
subcontract manufacturer. We may have some shortages for lower volume items
before the end of 2001 but nothing that should materially impact revenues. There
can be no guarantee we will not face such shortages in the future. A significant
portion of our operating expenses are fixed expenditures, based primarily on
sales forecasts determined months or years in advance. If net sales do not meet
our expectations in any period, our operating results will be adversely
affected. Moreover, restructuring expenses have strained and will continue to
strain our cash resources.


                                       39


If we lose the services of our management and other key employees and are unable
to recruit high caliber new employees, our results of operations will be harmed
and our growth inhibited.


     We depend upon a limited number of members of senior management and other
key employees. Loss of the services of key personnel in previous restructurings
compromised the efficiency of our operations and there is no assurance that our
future restructurings would not have the same effect. Due to the level of
technical and management expertise necessary to our industry, we must recruit
and retain highly qualified and well-trained personnel. Competition for these
employees is intense. If we cannot attract, hire and retain qualified personnel,
our business and prospects will suffer.


As is common in the computer networking industry, we are subject to the risk of
litigation alleging infringement of third party intellectual property rights.


     We have received letters alleging or implying that our Madge.connect
products infringe certain patents of third parties, including a letter from each
of Lucent Technologies, Acticon Technologies, Nortel and Hitachi and may receive
similar claims in the future. In July 1999 we entered into a three year license
with IBM whereby we licensed a number of its patents and IBM licensed a number
of our Madge.connect patents. There can be no assurance that we will obtain a
future license from IBM when this license expires or from any other third party,
if required in the future, on commercially acceptable terms. We can similarly
give no assurances that third parties will not assert infringement claims
against us in the future with respect to current or future Madge.connect
products. Any such assertion could require expending significant sums on
external advisors fees whether or not the case goes to court, could require the
payment of damages, and could require the use of other, more expensive and/or
less suitable technology, the development of non-infringing technology or the
acquisition of licenses to the technology that is the subject of asserted
infringement.


We may not adequately protect our intellectual property, which could increase
our costs of sales.


     Our ability to compete successfully depends, in part, on our ability to
protect the proprietary technology contained in our products and services. We
currently rely on a combination of patent, trademark, copyright and trade secret
laws and contractual provisions to establish and protect the proprietary rights
in Madge.connect products. We generally enter into confidentiality and/or
license agreements with our employees, distributors, customers, suppliers and
fellow developers that limit access to and distribution of our proprietary
information. Olicom, which sold us its Token Ring business in 1999, has
warranted that the intellectual property we acquired from it does not infringe
third party rights and has provided us with an indemnity to this effect. We also
rely upon a number of third party licenses that Olicom had in order to continue
to produce their products. All material licenses have been assigned; however, we
have only oral agreements regarding a number of licenses of lesser importance.
There can be no assurance that these protections will be adequate to deter
misappropriation of our technology or independent third-party development of
similar technologies.


We do not control Red-M and future events will further reduce our holding.


     As of December 1, 2001, we held 39.4% of the voting rights and 31.0% of the
equity in Red-M, the Red-M Investors and Intel together held 59.8% and 47.2% of
the voting and equity rights, respectively, and the management and employees of
Red-M held the balance. Red-M has called in further committed funds from the
Red-M Investors and Intel. As a result, when these funds are paid our
shareholding will decrease further to 37.2% of the voting and 29.7% of the
equity rights. Our




                                       40


shareholding in Red-M will likely be further diluted over time. There are also
certain events, such as the liquidation of Madge Networks N.V., in which we
would be required to sell our shares in Red-M to the Red-M Investors and Intel,
under certain circumstances at a discount to the value at the time.


     We do not have control of the Red-M board or its operations. Of the seven
members of the new Red-M board of directors, we have designated two, the Red-M
Investors have also designated two, the chairman is an independent non-executive
nominated by all parties, a second non-executive director is to be appointed by
agreement and the chief executive officer of Red-M is the remaining director. It
is possible that additional investors in Red-M may also require board
representation or an observer seat (as Intel has required). In addition,
although certain of the officers of Red-M were employed by Madge, their
employment arrangements with Madge terminated when their employment was
transferred to Red-M in April 2001.


     Since April 12, 2001, Red-M is no longer a subsidiary of the Madge group
but is classified as an associated company, and we no longer consolidate the
results of Red-M in the accounts of Madge Networks. Therefore, in accordance
with U.S. GAAP, we now account for Red-M under the equity method and recognize
our allocable percentage of Red-M's net income or loss on our income statement
based upon our equity holding in Red-M. The carrying value of our investment has
been reduced to zero and we will recognize no further operating losses. We will
recognize our share of profits as, when and if Red-M becomes profitable on a
cumulative basis.


The value of our shareholding in Red-M will fluctuate and will affect our
ability to realize value from our Red-M shares.


     Red-M operates in the largely unproven mobile-Internet marketplace and the
success of this business is dependant upon numerous factors including:-

o    Red-M's decision to also move into the 802.11b marketplace will mean it is
     spreading its limited resources thinner and the business may suffer as a
     result;

o    Red-M may not develop revenue generating products from its research and
     development efforts and may fail to establish itself as anything other than
     a Bluetooth product company;

o    Red-M may not secure development partners, manufacturing subcontractors,
     key component suppliers and reseller relationships it will need if it is to
     become successful;

o    Red-M may require additional funding sooner than anticipated if it does not
     meet its cash flow projections;

o    Red-M's ability to protect its intellectual property and not infringe on
     the rights of others;

o    Red-M's ability to develop products that meet the regulatory and product
     certification requirements to sell its products, which will be especially
     complex if Red-M decides to move into the consumer market;

o    Red-M's ability to agree with original equipment manufacturers to promote
     products that incorporate Red-M's products and technology;

o    Red-M's ability to ensure compatibility and operability of Red-M products
     with products of other leading vendors, as well as with various personal
     computer architectures and network operating systems; and


                                       41



o    Competition in this marketplace.

     If Red-M fails to generate significant revenues, or to become profitable,
for the reasons listed above, or any other reason, the fair market value of our
shareholding will decline and we may never be able to realize any value from our
Red-M shareholding. Our agreement with the Red-M Investors and Intel restricts
our ability to sell or charge our Red-M shares and may well reduce the value we
could realize in any sale or pledge of some or all of our interest.


                     RISKS RELATED TO OUR CAPITAL STRUCTURE


Our common shares may be delisted from the Nasdaq National Market.


     Our common shares trade on the Nasdaq National Market ("Nasdaq"), which has
certain compliance requirements for continued listing. We did not satisfy
several of these listing criteria and had been in the process of appealing the
decision of the Nasdaq to delist us from the National Market. On October 1, 2001
we received notification from the Nasdaq that they have suspended our listing
requirements and that we can remain listed on the Nasdaq National Market until
January 1, 2002 when they will again review our position to see whether we then
comply with the listing requirements applicable at that time. Should we be
delisted at any time after the January 1, 2002 extension, we believe that we may
be able to move to trade on the Nasdaq SmallCaps Market and if that fails, onto
the Over-the-Counter-Bulletin-Board. If we are delisted from the Nasdaq National
Market, there would likely be a reduction in the liquidity of our common shares
and a further adverse effect on their trading price. Lack of liquidity would
also make it more difficult for us to raise capital in the future.


Our common share price has been, and is likely to continue to be, volatile and
could drop unexpectedly.


     The trading price of our common shares has been volatile and may continue
to be volatile in response to the following factors:

o    a continuing decline in sales of Token Ring products of Madge.connect;

o    quarterly variations in our operating results, our financing efforts and
     our ability to generate revenue from new business opportunities;

o    our inability to secure a further return of funds from the Administrators
     of Madge.web Limited and to mitigate related Madge.web guarantees;

o    the perception of the value of our Red-M share holding;

o    announcements of technical innovations, new products or services by us or
     our competitors;

o    investor perception of us, the markets we operate in or the high tech
     section in general;

o    changes in financial estimates by securities analysts; and

o    general economic and market conditions.

     Declines in the market price of our common shares could also materially
adversely affect employee morale and retention, our access to capital and other
aspects of our business.



                                       42




If our share price remains volatile, we may become subject to securities
litigation, which is expensive and could divert our resources.


     In the past, following periods of market volatility in the price of a
company's securities, security holders have instituted class action litigation.
Many Internet-related companies have been subject to this type of litigation. If
the market value of our common shares experiences adverse fluctuations, and we
become involved in this type of litigation, regardless of the outcome, we could
incur substantial legal costs and our management's attention could be diverted,
causing our business to suffer.


Our founder continues to exercise control over us and could have interests that
differ from shareholders' interests.


     Various trusts established by Robert Madge, our founder and chief executive
officer, owned approximately 53.61% of the outstanding common shares as of
December 1, 2001. This percentage takes into account shares subject to options
that Mr. Madge holds personally, that are currently exercisable or will be
exercisable within 60 days of December 1, 2001. Therefore, the various trustees,
as a group, have the power to control matters submitted for shareholder
approval, including the election of directors, proxy contests, acquisitions,
tender offers, open market purchase programs or other purchases of common shares
that could give our shareholders the opportunity to realize a premium over the
then-prevailing market price for their shares. Mr. Madge personally holds
options to purchase common shares, of which options with respect to 1.85% of our
outstanding common shares have vested on December 1, 2001. As per the terms of
our employee stock option plan, Mr. Madge will not be entitled to receive any
further options as an employee but will have 90 days from October 10, 2001 to
exercise the options that have already vested. At our shareholders' meeting held
on October 10, 2001, the shareholders acknowledged Robert Madge's resignation
from the Management Board and elected him to the Supervisory Board of the
Company. The Supervisory Board then appointed Mr. Madge, Designated Supervisory
Director. For both these roles Mr. Madge will receive compensation as approved
by our shareholders at the shareholders' meeting, including stock options a
third of which vested on October 10, 2001 as per the other Supervisory Board
members. For details of Mr. Madge's proposed severance, see "Operating and
Financial Review and Prospects" above.


The pledgee could foreclose upon Madge Networks shares that have been pledged by
certain of the trusts established by Robert Madge.


     Of the 28,494,763 shares owned directly or indirectly by trusts established
by Mr. Madge, 17,378,000 shares have been pledged to J P Morgan H&Q pursuant to
a margin loan agreement by Hartland Holdings Ltd., the registered holder
thereof, in respect of an $8 million loan. Under that agreement, as revised, it
is an event of default allowing foreclosure on the shares or if the closing
price per common share on the Nasdaq is less than $1.00 per share, as it has
been recently. We have been advised by Hartland Holdings that JP Morgan H&Q has
not indicated that it intends to foreclose on the shares. However, under
applicable federal securities laws, JP Morgan H&Q could currently be deemed a
beneficial holder of those 17,378,000 shares either separately or together with
Hartland Holdings. If JP Morgan H&Q were to foreclose on all of the pledged
shares for that or any other event of default, the number and percentage
ownership of shares as at December 1, 2001 would be 12,119,180 and 22.11%,
respectively, for Mr. Madge, and 17,378,000 and 32.08%, respectively, for JP
Morgan H&Q. The interests of J P Morgan H&Q could differ from the interests of
our general shareholders.
                                       43

     Our charter documents and the laws of The Netherlands could make it more
difficult for a third party to acquire us.

     The shareholders have authorised our Management Board to issue preferential
shares and common shares for a fixed period of time without further shareholder
approval. The issuance of such preferred shares and common shares, 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 voting shares of Madge Networks N.V.


It may be difficult to enforce a U.S. judgement against us and our executive
officers and directors or to serve process on a substantial majority of our
executive officers and directors.


Because substantially all of our assets and the assets of our executive officers
and directors are located outside the United States, a judgment obtained in the
United States against us or any of these individuals may not be collectible
within the United States. Furthermore, service of process upon these
individuals, most of whom reside outside the United States, may be difficult to
obtain. In addition, judgments of U.S. courts, including judgments against us or
our executive officers and directors based upon allegations of violations of
U.S. federal or state securities laws, may not be enforceable in The Netherlands
or elsewhere outside the United States.




                                       44




                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.



                                                    Madge Networks N.V.



                                                   By: /s/ Martin Malina
                                                       -----------------
                                                       Martin Malina
                                                       Managing Director



     Date: December 27, 2001








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                                  EXHIBIT INDEX

                                                                            Page

         Exhibit A      Third Quarter 2001 Press Release                      47






                                       46