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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)
|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the Fiscal Year Ended March 28, 2003
                                       OR
|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ______________ to ______________

                         COMMISSION FILE NUMBER 0-15323

                      NETWORK EQUIPMENT TECHNOLOGIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                            94-2904044
            --------                                            ----------
 (State or Other Jurisdiction of                             (I.R.S. Employer
 Incorporation or Organization)                             Identification No.)

                            6900 PASEO PADRE PARKWAY
                         FREMONT, CALIFORNIA 94555-3660
                                 (510) 713-7300
           (Address of principal executive offices, including zip code
                   and telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

  COMMON STOCK, $0.01 PAR VALUE                NEW YORK STOCK EXCHANGE
  -----------------------------                -----------------------
      (Title of Each Class)          (Name of Each Exchange on Which Registered)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                   7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No |_|

The aggregate market value of voting and non-voting common stock held by
non-affiliates of the registrant (based on the closing price for the common
stock on the New York Stock Exchange on September 26, 2002, which is the last
business day of the Registrant's most recently completed second fiscal quarter)
was approximately $82,066,300. Shares of common stock held by each officer and
director and by each person who owns 5% or more of the outstanding common stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

The number of shares outstanding of the Common Stock, $0.01 par value, on June
9, 2003 was 22,921,814.

                      DOCUMENTS INCORPORATED BY REFERENCE:
The registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on August 12, 2003 is incorporated by reference in Part
III of this Form 10-K to the extent stated herein.

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                                NETWORK EQUIPMENT TECHNOLOGIES, INC

                                             FORM 10-K

                                           March 28, 2003

                                          TABLE OF CONTENTS

                                                                                                 Page
                                                                                                 ----
                                               PART I

<S>                                                                                              <C>
Item 1. Business..................................................................................2

Item 2. Properties................................................................................9

Item 3. Legal Proceedings.........................................................................9

Item 4.  Submission of Matters to a Vote of Security Holders......................................9

                                               PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters....................9

Item 6.  Selected Financial Data ................................................................10

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations...10

Item 7A  Quantitative and Qualitative Disclosures About Market Risk..............................24

Item 8.  Financial Statements and Supplementary Data.............................................25

Item 9.  Changes and Disagreements with Accountants on Accounting and Financial Disclosure.......45

                                               PART III

Item 10. Directors and Executive Officers of the Registrant......................................45

Item 11. Executive Compensation .................................................................46

Item 12. Security Ownership of Certain Beneficial Owners and Management..........................46

Item 13. Certain Relationships and Related Transactions .........................................47

Item 14. Controls and Procedures ................................................................47

Item 15. Principal Accountants Fees and Services ................................................47


                                               PART IV

Item 16. Exhibits and Reports on Form 8-K........................................................47

         Signatures..............................................................................50

         Financial Statement Schedules...........................................................53
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                                     PART I

FORWARD-LOOKING STATEMENTS

Statements contained in this Form 10-K that are not historical facts are
forward-looking statements within the meaning of the federal securities laws
that relate to future events of our financial performance. A forward-looking
statement may contain words such as "plans," "hopes," "believes," "estimates,"
"will continue to be," "will," "continue to," "expect to," "anticipate that,"
"to be," or "can impact." Forward-looking statements are based upon management
expectations and involve risks and uncertainties that may cause actual results
to differ materially from those anticipated in the forward-looking statements.
Many factors may cause actual results to vary including, but not limited to, the
factors discussed in this Form 10-K. We expressly disclaim any obligation or
undertaking to revise or publicly release any updates or revisions to any
forward-looking statement contained in this Form 10-K. Investors should
carefully review the risk factors described in this document along with other
documents we file from time to time with the Securities and Exchange Commission.

ITEM 1.  BUSINESS

OVERVIEW

Network Equipment Technologies, Inc., doing business as net.com, is a global
provider of networking technology platforms that are used for mission-critical
communications solutions. Our multiservice wide area networking (WAN) products,
comprising the Promina product line, use circuit-switched technology to provide
an effective platform for developing reliable and secure networks. In response
to the growth of next-generation networks using packet-switching technologies
and the Internet protocol (IP), we developed our service creation platforms for
broadband, IP telephony, and multiservice networks. These broadband platforms
allow network service providers to rapidly create and deliver new service
offerings that we believe can help them to accelerate the return on their
network investment, reduce capital and operating expenditures, and achieve
greater profits. Network Equipment Technologies, Inc. was founded in 1983 and
has been doing business as net.com since 2000.

We have a worldwide customer base that includes governmental entities,
telecommunications service providers, and enterprise customers in North America,
Latin America, Europe and Asia. Our growth over the past seven quarters was
primarily due to our government business. Our government customers include but
are not limited to U.S. defense and intelligence agencies, civilian agencies
such as the Federal Emergency Management Agency, the Federal Aviation
Administration, and international organizations such as NATO, the World Health
Organization, and the British Ministry of Defence.

Our global support and service organization, along with third-party service
organizations, provides installation, maintenance, technical assistance and
customer training.

INDUSTRY BACKGROUND

Among the significant advances in networking technologies over the past decade
is the increasing use of packet switching to divide information into relatively
small packets for transportation over a network. Packet switching enables
convergence of disparate applications onto a single packet infrastructure,
allows use of public infrastructure rather than requiring dedicated network
lines, and is particularly well suited to the fast transmission of high volumes
of information, often referred to as "broad bandwidth" or "broadband"
communications. In contrast, circuit-switching is generally suitable only for
low-to-medium volumes of information, often referred to as "narrow bandwidth" or
"narrowband" communications.

Due to its capabilities for the fast transmission of high volumes of
information, there has been an increasing adoption of packet-switched networks
and equipment. This technology transition was slowed somewhat by the upheaval in
the telecommunications market over the past few years, as well as the renewed
interest in secure communications following the events of September 11, 2001.
Also, telecommunications service providers have historically made incremental
changes with proven technology, including circuit-switched equipment, rather
than wholesale changes to their networks. Despite some expectations to the
contrary during the Internet boom, this trend appears to be continuing.
Nonetheless, we believe that as economic conditions improve and new technologies
mature, telecommunications equipment customers ultimately will adopt newer
technology that leverages the inherent benefits of packet-switching, for greater
capacity, greater flexibility, and lower cost.

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Telecommunications service providers have faced a number of difficult challenges
resulting from changes in the telecommunications market in recent years. With
the rapid growth of the Internet and the development of advanced communications
applications such as video and audio content on demand, wireless access, and
video conferencing, the telecommunications industry foresaw enormous growth in
the demand for network capacity. Carriers and service providers rapidly built
out their core infrastructure to accommodate expected surges in IP traffic. In
addition, alternative broadband access technologies were developed and
commercialized, including Digital Subscriber Line (DSL) and digital cable.
Although demand for broadband communications has continually increased, numerous
factors created a hyper-competitive telecommunications environment that has
prevented many service providers from earning an adequate return on their
capital expenditures. These factors include deregulation in the
telecommunications industry, homogeneity and commoditization of transport
services, and excess capacity from over-investment. The pressure on carriers has
been exacerbated by the high costs and difficulties in deploying DSL services,
which slowed the rate of adoption and limited revenue growth, as well as the
success of cable providers in capturing a large share of new residential
broadband customers. These challenges have come at the same time that carriers
are experiencing a decline in revenue from their voice networks, as households
increasingly turn to other sources for voice connections, such as wireless
communications.

Although the still-growing demand for broadband communications is expected to
gradually absorb the market's current excess capacity, and the industry shakeout
may lessen some of the competitive pressures, incumbent carriers must examine
their business models, focusing on architectural changes that can make their
investments in broadband profitable. In mid-2002, the North American incumbent
carriers (BellSouth, SBC Communications, Verizon Communication, and Bell Canada)
together submitted a proposed draft document to the DSL Forum, which is
primarily composed of equipment vendors. This draft became Working Texts (WT)
080 and 081 of the DSL Forum and offered a proposal for a unified architecture
for DSL connections, enabling them to deliver a standard level of service across
multiple networks and via multiple carriers, and provided a roadmap for
competing with cable providers. The proposal increases the number of services
available via DSL and offers a real-time, on-demand capability for the users.
Ideally, the new architecture will enable carriers to create a new layer of
network intelligence that supports the widespread deployment of comprehensive
and affordable integrated service packages that can be dynamically selected and
self-provisioned by DSL customers. This new network architecture represents a
potential opportunity for telecommunications equipment providers to deliver new
products that carriers can use at the edge of their existing networks to create
and deliver new, differentiated DSL services.

BUSINESS STRATEGY

Our objective is to become a leader in the telecommunications equipment industry
by providing service creation solutions that enable service providers to achieve
a greater potential for profit through the creation and delivery of
differentiated services. We are addressing service provider needs to lower the
cost of operations through automation and on demand provisioning and to increase
revenue from new services, together with the consolidation of multiple
technologies onto a single platform. To achieve these objectives, our business
strategy includes the following key elements:

     o    DESIGN AND DEVELOP INDUSTRY LEADING BROADBAND HARDWARE AND SOFTWARE
          SERVICE CREATION SOLUTIONS TO MEET THE OPPORTUNITIES IN THE CUSTOMERS'
          NETWORKS. We consider our technological and product leadership to be
          critical to our future success. Having developed the essential product
          platforms that address our target markets, additional refinements will
          enable us to meet increasing customer requirements. We must continue
          to enhance our SCREAM platform to meet the service providers' current
          rollout plans for new technology in their networks, especially as it
          relates to the initiatives for a unified architecture for DSL
          connections proposed in WT-080 and 081 of the DSL Forum. Additionally,
          new developments for certain of our products, including Promina and
          SCREAMlink are designed so that current customers can leverage their
          investments and more cost-effectively migrate to our new broadband
          technologies.

     o    LEVERAGE MARKET POSITION AND REVENUE CONTRIBUTION OF OUR PROMINA
          CUSTOMER BASE. net.com was a pioneer of the concept of multi-service
          networking and has been delivering these mission-critical capabilities
          for nearly twenty years.

          The installed base and revenue contribution from our narrowband
          Promina product line continues to be the majority of our revenue
          today. In particular, the Federal Government has continued to deploy
          new networks based on this technology, due in part to its time-proven
          ruggedness and reliability.

          As new standards evolve for quality of service and security for the
          Internet, we expect the government customers to adopt newer technology
          and purchase our new service creation and IP telephony platforms. In
          the interim, our product development strategy incorporates
          technologies that enable us to leverage this installed base. In
          particular, our SCREAMlink program and our secure voice enhancements
          to the SHOUT

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          platform are aimed at our installed base, particularly the government.
          Further, our new SCREAM platform is currently being sold to government
          customers globally.

          We anticipate that our expertise in government contracting together
          with the relationships that we have built up over an extended period
          of time will allow us to successfully migrate this customer base to
          our new technology when they require it. In addition, in some parts of
          the developing world where deregulation has lagged, or where
          circuit-switched technology continues to be the technology of choice,
          our multi-service platforms continue to be an appropriate solution.

     o    LEVERAGE RELATIONSHIPS WITH KEY PARTNERS. We continually seek to
          establish relationships with third-party application software vendors,
          product original equipment manufacturers (OEMs), resellers and our
          customers. net.com also seeks relationships with the large incumbent
          vendors globally that could facilitate our entry and success in
          incumbent carriers' networks. Further, SCREAM's open programmability
          through the open programming interface allows a service provider or
          third-party developer to develop new applications sought by end-users.

          In June 2002, net.com co-founded the Service Creation Community(TM)
          along with Accenture, ADC Telecommunications, Microsoft, Oracle,
          Paradyne, and Siemens. The Community is an independent alliance of
          equipment vendors, technology and infrastructure suppliers,
          integrators, and service/content providers dedicated to the rapid
          creation and delivery of new content and communications services. We
          have taken a leadership position within the Community, engaging
          service provider end customers to define pilot solutions that member
          companies can develop and deliver.

     o    PROVIDE VALUE-ADDED SERVICE AND SYSTEM INTEGRATION CAPABILITIES. Since
          our inception, we have viewed customer service and support as a key
          element of our overall strategy and a critical component for our
          long-term relationship with customers. Customers around the world turn
          to us not only for the reliability and performance of our products but
          also for our comprehensive support services that optimize the value of
          those products. Additionally, by offering an upgrade path to new
          products in lieu of costly "time and materials" options for
          long-discontinued products, we are able to reintroduce ourselves to
          customers who recognize our tradition for building high performance,
          reliable and well-supported products.

     o    CONTINUE TO IMPROVE BUSINESS OPERATIONS AND PROFITABILITY. We have
          upgraded and consolidated our core business process systems onto an
          Oracle enterprise platform, including order management, financial,
          human resource and quality and manufacturing systems, encompassing
          global operations. In addition, net.com invested this year in
          certification under the ISO 9001:2000 standards, a refined product
          life cycle process, and new service solutions. Other company
          initiatives continue to focus on supply chain management to lower
          supply costs and to better manage inventory levels. Collectively,
          these initiatives are designed to allow us to reduce our operating
          costs and increase gross margins, operating income and cash flow.

PRODUCTS

     PROMINA -- NARROWBAND MULTISERVICE ACCESS PLATFORMS

Our Promina family of multi-service access platforms integrates voice, data,
image and video traffic across a single network infrastructure. The Promina
platform relies on circuit-switched technology to provide mission-critical
support for a wide variety of communications applications and traffic types,
including asynchronous transfer mode (ATM), frame relay, IP, and integrated
services digital network (ISDN) signaling. Promina products offer a broad range
of user-side interfaces, enabling standards-based connection of communications
equipment, whether located at a service provider's switching facility or at an
enterprise or government customer's premises.

The Promina platform features advanced network management services, which
provide a high degree of visibility into network operations. For fault tolerance
and high network reliability, our Promina products can be configured with
redundant power, memory, common logic, and port interfaces. Internally, these
products incorporate distributed network intelligence that allows the network to
quickly and automatically reroute traffic in the event of failure of a
component. Additionally, Promina's modular design, with application and
interface modules that are interchangeable across the product series, provides
great flexibility and scalability, especially important in a quickly changing
communications environment and also in rapid deployment for field operations.

The Promina product family includes the Promina 800 Series, Panavue network
management platform, and various processor, application, and interface modules.
We now offer a broadband migration path for Promina customers with the
SCREAMlink program. SCREAMlink allows Promina customers to protect their
investments in existing architectures while accommodating immediate needs
through a logical migration to a hybrid Promina/SCREAM

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solution, monitored and controlled by an integrated network management solution
that is currently under development.

In fiscal 2003, 2002, and 2001, our Promina products accounted for 80.9%, 87.1%,
and 81.9% of product revenue, respectively.

     SCREAM -- BROADBAND SERVICE CREATION MANAGER

Announced in June 2000, the SCREAM(R) (Service Creation Manager) platform
enables service providers to dynamically define, deliver, and manage new
broadband services. SCREAM is a universal broadband services switch designed to
support a broad array of services delivered through DSL. Built for the carrier
environment, SCREAM is also well suited for government and enterprise customers
wishing to add or connect broadband services to their existing networks. The
SCREAM platform's processing power can closely examine DSL subscriber traffic,
and apply special handling instructions at wire speed, which is as fast as
transmission. This enables service providers to differentiate broadband
subscribers based on their identity or use, tailor the services provided to
individual subscribers or groups of subscribers, and monitor and report billable
events, all in real time. As a result, service providers using SCREAM have a
means to generate incremental revenue from innovative services based on factors
such as broadband content delivery, IP quality-of-service (QoS) guarantees,
class-of-service (CoS) subscriptions, and dynamic bandwidth allocation. These
capabilities fulfill many of the requirements identified by WT 080 and 081 of
the DSL Forum for a new unified DSL network architecture.

SCREAM delivers single-platform integration of broadband aggregation, subscriber
management, IP services, ATM switching, edge routing, and broadband service
creation. By aggregating a broad range of services and historically disparate
technologies on a single platform, SCREAM can help service providers reduce
their capital equipment expenditures while they advance their DSL offerings.
SCREAM functions at the edge of a service provider's network, where service
providers can launch new services directly to customers without re-architecting
their core network.

The SCREAM platform is architected to enable service provider or third-party
solutions to be readily implemented using an open programming interface, which
allows for a rapid and cost-effective integration to operational and business
support systems. Through this open programming interface, application developers
can control network resources and every characteristic of the SCREAM platform as
part of a larger hosted business or consumer network solution.

     SHOUTIP -- IP TELEPHONY GATEWAY

The SHOUTIP platform integrates trunking, signaling, gatekeeper/call agent
functions, packet aggregation, network management, and configuration tasks in a
single system. The carrier-class SHOUT2500 platform, announced in April 2002,
supports one to 32 T1/E1 connections or up to 960 simultaneous voice calls. This
platform offers integrated SIP/H.323 interoperability and protocol conversion,
along with integrated SS7/C7 signaling, interactive voice response, call
control, media conversion and billing record generation, all in a five-inch high
chassis that can be easily configured for a variety of services. The SHOUT2500
platform reduces space requirements by eliminating multiple stand-alone devices
and the complex integration efforts required by other solutions on the market.

In October 2002, net.com expanded the SHOUTIP family with the SHOUT900 platform.
The SHOUT900 supports one to eight T1/E1 connections or 240 simultaneous voice
calls, with support for secure telephone units (STU) and calling card
applications, in a chassis 1.75 inches high.

CUSTOMERS AND MARKETS

net.com pioneered the concept of multiservice networking and has been delivering
these capabilities for nearly 20 years. The focus of our narrowband Promina
product has been on governments and large enterprises, as well as carriers for
their enterprise business and the delivery of leased-line service. The primary
focus of our broadband SCREAM product family is on telecommunications carriers,
while the SCREAMlink program has generated interest among our government and
enterprise customers. For both our broadband and narrowband products, we focus
primarily on information and communication-intensive organizations. These
customers may be local, national, or global in their operations.

SCREAM is designed for the demands of the carrier market. The specific physical
requirements of the SCREAM platform meet the demanding specifications of the
incumbent carriers' environment, including a small footprint, all front access,
and reduced power consumption.

We have targeted our Promina product line at government customers, service
providers and enterprises. In the service provider marketplace, carriers use
Promina networks for backbone services. Current enterprise customers include
corporations representing the financial, banking, insurance, energy,
transportation, manufacturing and retail

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sectors. Government customers represent a variety of federal and international
agencies and organizations, including civilian and defense agencies.

Sales to the Federal government and its agencies represented 65%, 50%, and 54%
of net.com's revenue in fiscal 2003, 2002, and 2001, respectively. The
Department of Defense (DoD) contracts may be used by other government agencies
to purchase net.com products and services. See discussions in Business
Environment and Risk Factors in this Form 10-K. Beyond government customers, the
Promina product line currently has more demand outside the United States than
within the United States, especially in emerging markets such as Eastern Europe,
China, and Latin America where telecommunications infrastructure is still being
developed. Applications that can be enabled by Promina-based solutions include
digital data networks (DDNs) that provide basic data services in these emerging
markets. International sales represented 25%, 31%, and 28% of net.com's revenue
in fiscal 2003, 2002, and 2001, respectively.

Other than orders from a variety of agencies in the U.S. Federal Government, no
single customer accounted for more than ten percent of net.com's revenue in
fiscal 2003, 2002 or 2001.

COMPETITION

The market for telecommunications equipment is highly competitive and dynamic
and has been characterized by the easy entrance of new start-up companies, rapid
changes to and the convergence of technologies and a worldwide migration from
existing circuit technology to the new packet-based technologies. The severe
downturn in the market for telecommunications equipment that began in April 2001
has seen a decline in spending of nearly 50%. We compete directly, both
internationally and domestically, with many different companies, some of which
are large established suppliers of end-to-end solutions such as Alcatel, Cisco,
Juniper, Lucent, Nortel and Siemens. Most of the large suppliers have greater
financial, marketing and technical resources and offer a wider range of
networking products than we do. These suppliers can often provide a complete
network solution rather than a partial solution that may make their products
more attractive to potential net.com customers. However, these companies have
also suffered from the industry decline, and many have eliminated entire
divisions, leaving the carriers with concerns about support for the larger
vendors' products, as well as for the ability of smaller companies to support
them. SCREAM competitors include Juniper, Cisco, Cosine, Nortel, Copper
Mountain, Advanced Fiber Communications, and Redback. For our SHOUTIP product
line, competition includes the established market leader, Cisco, and smaller
companies such as Nuera.

SALES

We sell our products and services through both direct and indirect sales
channels worldwide. We believe that to effectively market and sell our products,
a local sales organization is beneficial to understand the business and network
environment of local countries. We also believe that a sales force effort
supported by sales engineers who provide customers with pre-sale and post-sale
technical assistance allows net.com to gain more in-depth knowledge of
customers' network requirements. We have approximately 60 sales personnel
located in nine countries. This sales effort is supported through a variety of
channel partners. Our business is generally not seasonal.

We sell products and services in North America primarily through direct
channels, although we make use of a small number of distributors in some
markets, especially for the SHOUTIP product line. Our international sales are
made almost entirely through indirect channels that are augmented by the efforts
of a local sales force. In addition to the marketing and sale of products,
international resellers provide system installation and technical support. In
most cases, international resellers have non-exclusive agreements to resell
net.com products within particular geographic areas. Resale agreements do not
contain a sales commitment or required sales quota.

We sell to governments through net.com's wholly owned subsidiary, N.E.T.
Federal, Inc.( N.E.T. Federal), which sells products both directly and through
collaborative government contracting and by contracting agencies at their
convenience or at annual intervals. N.E.T. Federal supports sales to the Federal
Government's defense and civilian sectors and to government agencies worldwide.
Sales to governments include sales under contracts with certain agencies within
the DoD intelligence and civilian agencies.

Our selling model makes use of our field sales, engineering, product management,
and executive personnel to establish and maintain customer contacts at multiple
levels within a customer organization. We believe the successful execution of
this multi-tiered selling model is important to our success.

BACKLOG

We manufacture our products based upon our forecast of customer demand and we
typically build products in advance of receiving firm orders from our customers.
Orders for net.com's products are generally placed by customers on an as-needed
basis and we typically have been able to ship these products within 30-90 days
after the customer submits a firm purchase order. As a U.S.-based company,
Federal Government rated "defense-expedite"

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(DX) orders may cause the backlog of other customers' orders to become
delinquent. Because of the possibility of customer changes in delivery schedules
or cancellation of orders, net.com's backlog as of any particular date may not
be indicative of sales in any future period.

CUSTOMER SERVICE

The markets, customers and complex challenges of the networking industry
described above require not only hardware and software based solutions, but also
support, service and other assistance in the development, operation and
expansion of a customer network. Since our inception, we have viewed customer
service and support as a key element of our overall strategy and a critical
component of our long-term relationship with customers. Customers around the
world turn to net.com not only for the reliability and performance of our
products, but also for our comprehensive support services that optimize the
value of those products. Customers rely on net.com to help maintain the highest
possible availability of their mission-critical networks.

We provide a wide range of service and support options to customers and
resellers of net.com products. Service offerings include product installation, a
choice of different hardware and software maintenance programs to meet the
varying needs of our customers, parts repair, remote and on-site technical
assistance, and customer training. In addition, net.com provides web-based
customer support services through our Electronic Support Center. Services
available over the web include first-line troubleshooting information for
net.com products; technical information, such as trouble shooting guides and
frequently asked questions; and a web-based interface to net.com's Technical
Assistance Center (TAC) through an online case management system.

TAC is staffed 24 hours a day, seven days a week by engineers trained in
networking products. TAC assists customers remotely over the telephone and has
multiple language capabilities, including Spanish, Portuguese, Italian,
Mandarin, French and German. TAC engineers have the ability to replicate
customer problems and test proposed solutions prior to implementation.
Maintenance support from TAC, whether provided over the web or over the
telephone, is fee-based under either an annual fee contract or on a
time-and-materials basis.

Customer training on net.com products, OEM products and the underlying
technologies is provided to both end-users and resellers worldwide. We have
training facilities at our Fremont, California, U.S. headquarters and in our
facilities in Ashburn, Virginia; London, U.K.; and Singapore. In addition,
net.com trainers travel to customer and reseller facilities to provide training.
Our training services can be customized to meet the special requirements of our
customers. Customers are charged per person per class for net.com training. In
addition, certain net.com resellers provide training to net.com end-users on
behalf of net.com.

Historically, a significant amount of net.com's revenue and profits have been
generated by our service and support offerings. In fiscal 2003, 2002 and 2001,
service and support offerings accounted for 16.5%, 26.4%, and 46.6%,
respectively, of net.com's revenue. Consistent with our business strategy,
during fiscal 2001, we divested our Federal Services Business (FSB) and sold its
assets to CACI International Inc. (CACI). The divestiture of our government
services business to CACI allowed net.com to concentrate on the execution of our
product strategies, and develop a good strategic alliance for our Federal
business in CACI. We will continue to sell products directly to the Federal
Government while CACI provides maintenance and other services to our Federal
customers.

MANUFACTURING

We have one manufacturing facility located at our Fremont, California facility.
Assembly of printed circuit boards and circuit testing of net.com-designed
products are outsourced to a single subcontractor, Solectron. We plan in the
near term to transition some of our product manufacturing to another vendor,
with contract terms that will likely involve some of the same provisions for
compensation of the vendor as we have with Solectron. For our Promina products,
final assembly, quality control and final testing are performed in the Fremont
manufacturing facility. We maintain control over parts procurement, design,
documentation and selection of approved suppliers. We have a multi-year contract
with Solectron that requires it to meet defined performance specifications.
Because Solectron is a sole source vendor, any interruption in Solectron's
manufacturing processes or a failure to renew our contract could have a material
adverse effect on our financial results and operations.

Currently, several key components of our Promina and SCREAM products are
available only from a single source, including certain integrated circuits and
power supplies. In addition, some components are in short supply generally
throughout the industry. Depending upon the component, there may or may not be
alternative sources or substitutes. Some of these components are purchased
through purchase orders without an underlying long-term supply contract. Any
delay or difficulty in obtaining needed components could seriously impact our
ability to ship products.

We maintain sufficient inventory to ship products quickly, normally within 30 to
90 days after receipt of an order. Scheduling of production and inventory supply
is based on internal sales forecasts. Generally, our customer

                                       7
<PAGE>

contracts allow the customers to reschedule delivery dates or cancel orders
within certain time frames before shipment without penalty and outside those
time frames with a penalty. Because of these and other factors, there are risks
of excess or inadequate inventory that could materially impact our expenses,
revenue and earnings. Additionally, DX-rated orders from the Federal Government
can interrupt scheduled shipments to our other customers.

We anticipate achieving improved margins based on increased sales of new
products, while also achieving better pricing based on larger volumes of
components.

We are focused on continually enhancing the quality of products and services
delivered to customers worldwide. This includes improving the quality of
supplied components, subassemblies and internal processes. As part of this
continuing process, net.com is ISO 9001:2000 certified.

RESEARCH AND DEVELOPMENT

We believe that our long-term success depends on our ability to maintain product
and technology leadership. The networking equipment industry is characterized by
rapid technological change, evolving industry standards, frequent new product
introductions, enhancements to products currently in the market and constantly
changing customer requirements. To compete effectively, net.com must be able to
bring new products to market in a timely and cost-effective manner and enhance
existing products to extend their useful life. Along with making continued
investments in our internal research and development, we will also consider
strategic acquisitions where appropriate to provide needed technology and
resources.

We continually monitor relevant markets and our customers' businesses and
technology developments in order to develop products that proactively address
customer needs. Our SCREAM products were designed with an open architecture to
facilitate the development by third parties of products that will enhance the
capabilities of SCREAM. Further, we design to industry standards and support
industry standards bodies in their endeavors. Despite our efforts, however,
there is no guarantee that we will be able to successfully develop new products
or that our customers or our targeted markets will accept any products we
develop.

The majority of our research and development activity is focused on our
broadband products, primarily the SCREAM product line. The development costs for
SCREAM have declined in the most recent fiscal year, reflected in lower research
and development spending, while development costs for SHOUTIP were relatively
constant. We continue to provide engineering support to Promina and to provide
feature enhancements required to maintain Promina's viability, and to invest in
the SCREAMlink migration program. While most product development activity is
undertaken in-house, external development organizations are sometimes used to
shorten time to market.

In fiscal 2003, 2002, and 2001, net.com's research and development expenditures
were $26.0 million, $33.0 million, and $40.4 million, respectively.

EMPLOYEES

As of March 28, 2003, we had 428 full-time employees. None of our employees are
represented by a labor union. We consider our employee relations to be good.

GEOGRAPHIC INFORMATION

See Note 14 to our consolidated financial statements.

INTELLECTUAL PROPERTY

Our ability to invent and develop new technologies and then to protect these
technologies from abuse by others outside net.com is an important part of our
success. We use all available means to protect our proprietary technology
including patents, trade secrets, trademarks and copyrights. All of our
employees sign confidentiality and invention disclosure agreements and anyone
outside net.com receiving information either signs a non-disclosure agreement
prior to receiving information or is a net.com licensee. To foster disclosure of
patentable inventions, we provide financial incentives to employees. We believe
that ownership of patents, copyrights and trade secrets is important to our
ability to compete and to defend ourselves against patent infringement
allegations.

Over the past twenty years, a number of patents have been issued to net.com in
the United States, Europe and Japan. These include some very early basic ATM
inventions that conform to ATM Forum standards. We have a highly focused effort
to identify and patent our proprietary SCREAM and SHOUTIP technology. We expect
to continue filing patent applications as our development process for SCREAM and
SHOUTIP moves forward. In addition, as part of our acquisition of FlowWise
Networks (FlowWise) in December 1999, we became the successor to several filed
patent applications relating to the FlowWise product.

                                       8
<PAGE>

Although we have a number of patent applications pending, we cannot guarantee
that any one will result in the issuance of a patent. Even if issued, the patent
may later be found to be invalid or may be infringed without our knowledge. It
is difficult to monitor use of our technology by others. If we do not
effectively protect our intellectual property, it could have a material adverse
effect on our competitive position and sales of our products.

We have not historically pursued claims against other companies based on
possible infringements of our patent portfolio, but we believe that our
investment in intellectual property protection can offer defenses and bargaining
positions in the event other companies pursue such claims against us. In June
2000, we entered into our first patent cross-licensing agreement. The agreement
is with Lucent Technologies, ARL Corporation (Lucent), whereby net.com and
Lucent licensed patents to each other. Lucent will receive a license under all
of our patents relating to our data networking products and/or our access system
products and we will receive a license under all of Lucent's patents relating to
any and all of Lucent's products and services. Our portfolio includes patents in
basic networking and ATM technologies supported by the ATM Standards Forum and
other standard setting bodies. This cross-license agreement with Lucent has a
five-year term.

WHERE YOU CAN FIND MORE INFORMATION

We make our annual report on From 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to such reports filed pursuant to
Section 13(a) or 15(d) of the Exchange Act, available free of charge on or
through our Internet website located at WWW.NET.COM, as soon as reasonably
practicable after they are filed with or furnished to the SEC.

ITEM 2.  PROPERTIES

net.com is headquartered in Fremont, California. In December 2000, we entered
into a ten-year lease for two buildings totaling 185,790 square feet for our
headquarters and research and development personnel as well as to house our
manufacturing operations. net.com and our subsidiaries also lease sales and
service offices at other locations in the United States, Canada, United Kingdom,
France, Mexico, Singapore, Uruguay, China, Japan, and Hong Kong.

ITEM 3.  LEGAL PROCEEDINGS

None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the shareholders during the quarter ended
March 28, 2003.


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

See Note 9 and 10 in the "Notes to Consolidated Financial Statements." At June
9, 2003, there were approximately 500 registered stockholders of record of
net.com.


                                       9
<PAGE>

MARKET PRICE

net.com's common stock is traded on the New York Stock Exchange under the symbol
"NWK." The following table sets forth, for the quarterly periods indicated, the
high and low sale prices of our common stock:

      Fiscal 2003                                 High              Low
      -----------------------------------------------------------------

      First quarter                            $  5.98          $  4.00

      Second quarter                              4.30             3.23

      Third quarter                               4.60             2.84

      Fourth quarter                           $  7.24           $ 3.80
      -----------------------------------------------------------------

      Fiscal 2002                                 High              Low
      -----------------------------------------------------------------

      First quarter                            $  4.95          $  3.00

      Second quarter                              4.35             2.80

      Third quarter                               5.10             2.40

      Fourth quarter                           $  5.81          $  4.60
      -----------------------------------------------------------------

net.com has never declared or paid dividends on our capital stock and does not
intend to pay dividends in the foreseeable future. In addition, our 7 1/4%
convertible subordinated debentures trade in the over-the-counter market.

ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial information has been derived from the audited
consolidated financial statements. The information set forth below is not
necessarily indicative of results of future operations and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes thereto included elsewhere in this Form 10-K.

(In thousands, except per share amounts)

<TABLE>
<CAPTION>
FISCAL YEARS ENDED                                    2003         2002        2001        2000       1999
-------------------------------------------------------------------------------------------------------------

<S>                                                 <C>        <C>          <C>          <C>        <C>
Total revenue                                       $122,100   $101,546     $144,286     $225,686   $263,835

Net loss                                             (18,448)   (37,398)     (20,790)     (40,070)    (7,054)

Diluted loss per share                                 (0.82)     (1.69)       (0.96)       (1.86)     (0.32)

7 1/4% convertible subordinated debentures            24,706     24,706       24,706       24,706     24,706

Total assets                                        $164,818   $187,422     $235,346     $259,994   $313,112
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
financial statements and the accompanying notes. Statements contained in this
discussion that are not historical facts are forward-looking statements within
the meaning of the federal securities laws that relate to future events of our
financial performance. A forward-looking statement may contain words such as
"plans," "hopes," "believes," "estimates," "will continue to be," "will,"
"continue to," "expect to," "anticipate that," "to be," or "can impact."
Forward-looking statements are based upon management expectations and involve
risks and uncertainties that may cause actual results to differ materially from
those anticipated in the forward-looking statements. Many factors may cause
actual results to vary

                                       10
<PAGE>

including, but not limited to, the factors discussed in this discussion. Net.com
expressly disclaims any obligation or undertaking to revise or publicly release
any updates or revisions to any forward-looking statement contained in this
discussion. Investors should carefully review the risk factors described in this
document along with other documents net.com files from time to time with the
SEC.

RESULTS OF OPERATIONS

The following table depicts data derived from the consolidated statements of
operations expressed as a percentage of revenue:

<TABLE>
<CAPTION>
                                                                          Fiscal years ended:

                                                                    Mar. 28,    Mar. 29,    Mar. 30,
Percent of revenue                                                    2003        2002        2001
----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>         <C>
Product revenue                                                       83.5%       73.6%       53.4%
Service and other revenue                                             16.5        26.4        46.6
----------------------------------------------------------------------------------------------------------
     Total revenue                                                   100.0       100.0       100.0
----------------------------------------------------------------------------------------------------------
Product revenue gross margin                                          48.5        37.5        42.8
Service and other revenue gross margin                                 9.2        10.0        33.7
----------------------------------------------------------------------------------------------------------
     Total gross margin                                               42.0        30.3        38.5
----------------------------------------------------------------------------------------------------------
Sales and marketing                                                   26.3        32.5        31.0
Research and development                                              21.3        32.5        28.0
General and administrative                                             9.2        12.0         8.8
Restructure costs (benefits)                                           1.7         1.2        (1.0)
Amortization of goodwill and other intangible assets                   -           3.4         2.3
----------------------------------------------------------------------------------------------------------
     Total operating expenses                                         58.5        81.6        69.1
----------------------------------------------------------------------------------------------------------
     Loss from operations                                            (16.5)      (51.3)      (30.6)
Interest income                                                        2.1         5.6         5.5
Interest expense                                                      (1.7)       (1.9)       (1.3)
Other                                                                  5.7         8.8        10.4
----------------------------------------------------------------------------------------------------------
Loss before income taxes                                             (10.4)      (38.8)      (16.0)
Income tax benefit                                                    (3.1)       (2.0)       (1.5)
----------------------------------------------------------------------------------------------------------
Loss before cumulative change in accounting
     principle, relating to goodwill                                  (7.3)      (36.8)      (14.5)
----------------------------------------------------------------------------------------------------------
Cumulative change in accounting principle, relating to goodwill       (7.8)          -           -

----------------------------------------------------------------------------------------------------------
Net loss                                                             (15.1)%     (36.8)%     (14.5)%
==========================================================================================================
</TABLE>

COMPARISON OF 2003, 2002 & 2001

REVENUE  Total revenue increased 20.2% to $122.1 million in fiscal 2003 compared
to $101.5 million in fiscal 2002, due to increased product revenue. Fiscal 2002
total revenue decreased 29.2% from $144.3 million in fiscal 2001, due mostly to
a decrease in service revenue, which was substantially reduced by the sale of
our federal services business in that year, as well as slightly reduced product
revenue.

Product revenue increased 36.3% to $101.9 million in fiscal 2003, as compared to
$74.8 million in fiscal 2002. Fiscal 2002 product revenue decreased 2.9% from
$77.0 million in fiscal 2001. Product revenue is generated primarily from our
circuit-switched product line, Promina, which accounts for the majority of our
worldwide product sales. Product revenue increased in fiscal 2003 primarily due
to the strength of our Promina sales to government agencies, both domestically
and internationally. In addition, product sales of our new broadband products
SCREAM and SHOUTIP, contributed to the product revenue increase in fiscal 2003
but remain less than 10% of total revenues. Product revenue declined in 2002
primarily as a result of a general decline in the overall

                                       11
<PAGE>

market for circuit-switched products. Product revenue was also impacted in 2002
by the end of life for our SONET Transmission Manager (STM), product line, which
accounted for $9.3 million in revenue in fiscal 2001 and no revenue in fiscal
2002. The 2002 decrease was partially offset by revenue growth in our Federal
business, fueled by increased government defense spending and increased security
initiatives after the events of September 11, 2001.

Product revenue for the Federal Government sales channel, which includes sales
to the U.S. Government and government contractors, increased 59.0% to $76.8
million in fiscal 2003 from $48.3 million in fiscal 2002, which was an increase
of 17.0% compared to $41.3 million in fiscal 2001. The revenue growth for the
Federal Government sales channel is partially a result of our SCREAMlink
program. In fiscal 2003, we announced our SCREAMlink program that combines the
Promina platform and SCREAM under a single management architecture and allows
our customers who use our narrowband product to migrate to a broadband ATM/IP
network. The SCREAMlink strategy is partially responsible for the renewed demand
in our Promina product line and some of the initial interest in our new SCREAM
product line from our traditional government customers. Product revenue for the
North America (other than government) sales channel was $1.8 million in fiscal
2003 representing a decrease of 46% compared to $3.3 million in fiscal 2002,
which represented a decrease of 68.0% from $10.3 million in fiscal 2001. Product
revenue for the Asia Pacific/Latin America sales channel was $6.0 million in
fiscal 2003, representing a decrease of 26.0% compared to $8.1 million in fiscal
2002, which represented a decrease of 12% from $9.2 million in fiscal 2001.
Product revenue for the European sales channel was $17.3 million in fiscal 2003,
representing an increase of 15.0% compared to $15.1 million in fiscal 2002,
which represented a decrease of 7.0% compared to the $16.2 million in fiscal
2001.

Service and other revenue decreased 24.6% to $20.2 million in fiscal 2003, as
compared to $26.8 million in fiscal 2002, as the result of enterprise customers
lowering service levels to reduce costs. Fiscal 2002 service and other revenue
decreased 60.2% compared to $67.3 million in fiscal 2001, primarily due to the
sale of our Federal Services Business (FSB) to CACI International Inc. (CACI) in
the third quarter of fiscal 2001. The FSB revenue in fiscal 2003, 2002, and 2001
was $2.6 million, $1.9 million and $34.3 million, respectively.

We have developed service creation solutions that expand our service offerings
for our newer product lines, SCREAM and SHOUTIP, which may offset part of the
decline in service and other revenue experienced in fiscal 2003 and 2002. In
addition, we have recently announced the end of life for service on our IDNX
product line, and to the extent customers make network upgrades to our current
products, we would expect a level of related service revenue. Despite
incremental service and other revenue from the new product offerings and the
network upgrades, we believe service and other revenue will remain relatively
flat or decrease in fiscal 2004, compared to fiscal 2003, as a result of a
decline in the installed base of Promina equipment.

GROSS MARGIN  Total gross margin, comprised of product and service margin,
increased as a percentage of total revenue to 42.0% in fiscal 2003 compared to
30.3% in fiscal 2002 and 38.5% in fiscal 2001. The increase in total gross
margin in fiscal 2003 is primarily the result of the following:

     1)   Higher product margins. Product gross margins as a percentage of
          product revenue increased to 48.5% in fiscal 2003 compared to 37.5% in
          fiscal 2002. The increase in product gross margins resulted from the
          higher product revenue and lower manufacturing variances compared to
          fiscal 2002. Manufacturing variances were reduced, primarily by lower
          charges for excess and obsolete inventory, which was $2.3 million in
          fiscal 2003 compared to $6.3 million in fiscal 2002. The $2.3 million
          charge in fiscal 2003 resulted primarily from the obsolescence of a
          first-generation printed circuit assembly used in the SHOUTIP product
          line.

     2)   A mix of total revenue that included a lower percentage of service and
          other revenue and a higher percentage of product revenue. Service and
          other revenue gross margins are lower than product revenue gross
          margins. The percentage of service revenue to total revenue was 16.5%
          in fiscal 2003 compared to 26.4% in fiscal 2002.

The decrease in total gross margin in fiscal 2002 compared to fiscal 2001 is
primarily the result of the following:

     1)   Lower product revenue gross margins. Product gross margin decreased to
          37.5% in fiscal 2002, compared to 42.8% in fiscal 2001. In fiscal
          2002, we incurred charges of $6.3 million related to the write-off of
          excess and obsolete inventory. In fiscal 2001, a charge of $1.4
          million was taken in connection with the end of life and subsequent
          obsolescence of the STM and the Router Accelerator product lines.
          Additionally, in fiscal 2002 and 2001, product margins were impacted
          by unfavorable manufacturing variances resulting from lower revenues.

     2)   Lower service and other revenue gross margin. Services and other
          revenue gross margin decreased to 10.0% of revenue in fiscal 2002 from
          33.7% in fiscal 2001. The decrease in service and other revenue gross
          margin in fiscal 2002 primarily resulted from lower services contract
          revenues resulting from the sale

                                       12
<PAGE>

          of our federal service business (FSB) to CACI in the third quarter of
          fiscal 2001. A significant portion of service costs are fixed, and
          thus margins will continue to be low while service revenue remains
          low.

Gross margins may be adversely affected in the future by increases in material
or labor costs, excess inventory, obsolescence charges, changes in shipment
volume, loss of cost savings, increased price competition, geographic mix and
changes in channels of distribution or in the mix of products and services sold.
If product or related warranty costs associated with our products are greater
than we have previously experienced, gross margin would also be adversely
affected.

OPERATING EXPENSES  Total operating expenses decreased to $71.4 million in
fiscal 2003 from $82.9 million in fiscal 2002 and $99.8 million in fiscal 2001.
Operating expenses as a percentage of total revenue decreased to 58.5% in fiscal
2003, compared to 81.6% in fiscal 2002 and 69.1% in fiscal 2001. The decrease in
operating expenses as a percentage of total revenue is partly due to tightly
managed expenses, but in fiscal 2003 is also due to higher total revenue over
fiscal 2002 and the completion of amortization of certain assets in fiscal 2002.
The increase in operating expenses as a percentage of total revenue for fiscal
2002 over fiscal 2001 is due to the sharp reduction in revenue in fiscal 2002,
as well as restructuring expense in fiscal 2002 compared to a credit in fiscal
2001. In the third and fourth quarters of fiscal 2002, we completed two separate
restructurings that each included a reduction in our workforce. These reductions
contributed to lower operating expenses in fiscal 2003 and 2002. In addition,
each quarter of fiscal 2003 included small restructurings of either reductions
in our workforce or downsizing of field offices. The restructure expense in
fiscal 2003 was a charge of $2.1 million compared to $1.2 million in fiscal 2002
and a credit of $1.4 million in fiscal 2001. The credit in fiscal 2001 resulted
from lower costs than initially estimated related to the closure of field
offices.

Sales and marketing expenses in fiscal 2003 decreased $867,000 to $32.1 million
compared to $33.0 million in fiscal 2002 and $44.7 million in fiscal 2001. Sales
and marketing spending as a percentage of total revenue in fiscal 2003 decreased
to 26.3% compared to 32.5% in fiscal 2002 and decreased from 31.0% in fiscal
2001. The decrease in fiscal 2003 spending compared to 2002 resulted primarily
from the following:

     o    a reduction of $763,000 in depreciation and amortization,

     o    a reduction of $373,000 in advertising expense,

     o    a reduction of $300,000 in facility and information systems expenses,

     o    a reduction of $129,000 in third party service costs for international
          sales offices,

     o    a decrease in recruiting expense of $125,000, and

     o    a decrease in communications costs of $68,000.

These decreases were offset in part by an increase in salary and related costs
of $1.0 million, primarily related to sales commissions. The decrease in fiscal
2002 spending, compared to 2001, resulted from a decrease in salary and related
costs of $5.9 million, a decrease in travel expenses of $518,000, a decrease in
depreciation costs of $1.7 million, and a decrease of $1.2 million in lower
sales and marketing related costs consistent with decreased revenue.

Research and development expenses in fiscal 2003 decreased $7.0 million to $26.0
million, compared to $33.0 million in fiscal 2002 and $40.4 million in fiscal
2001. Research and development spending as a percentage of total revenue
decreased to 21.3% in fiscal 2003 compared to 32.5% in fiscal 2002 and 28.0% in
fiscal 2001. The decrease in fiscal 2003 spending, compared to 2002, resulted
from a reduction of $3.0 million in salary related expenses, a decrease of $1.8
million in depreciation and amortization costs and a reduction of $1.6 million
in engineering-related materials expenses. In fiscal 2003, 2002 and 2001, we
focused research and development resources on the development and release of our
broadband and IP-telephony product offerings. The decrease in fiscal 2002
spending, compared to 2001 resulted from a reduction of $4.9 million in salary
related expenses, a decrease of $1.5 million in depreciation costs and a
reduction of $1.2 million in engineering-related materials expenses. In fiscal
2004, we expect that research and development expenses will remain flat or
increase slightly as we balance cost control with the development and
introduction of enhancements to our new products.

General and administrative expenses in fiscal 2003 decreased $1.0 million to
$11.2 million, compared to $12.2 million in fiscal 2002 and $12.7 million in
fiscal 2001. General and administrative spending as a percentage of total
revenue decreased to 9.2% in fiscal 2003 compared to 12.0% in fiscal 2002 and
increased from 8.8% in fiscal 2001. The decrease in general and administrative
spending in fiscal 2003 compared to 2002 was the result of reduction of $556,000
in salary related expenses, a decrease in recruiting and relocation expense of
$271,000 and a decrease in facility and information systems expenses of
$146,000. The decrease in general and administrative spending in fiscal 2002
compared to 2001, was the result of decreased salary related expenses of $1.5
million, offset by an

                                       13
<PAGE>

increase of $912,000 in information technology related expenses. We expect
general and administrative spending to remain relatively flat or decline
slightly due to continued focus on cost control.

The restructuring charge of $2.1 million recorded during fiscal 2003 consisted
of $730,000 for employee separation costs, $818,000 for lease termination costs,
$286,000 for office closure costs, and $245,000 for other charges. The remaining
liability for restructuring charges is $904,000 at March 28, 2003.

The restructuring charge of $1.2 million recorded during fiscal 2002 consisted
of $1.0 million for employee separation costs and $153,000 for other charges.
The remaining liability for restructuring charges was $584,000 at March 29,
2002.

Components of accrued restructuring charges, which are included in accrued
liabilities in the accompanying balance sheet, and changes in accrued amounts
related to this restructuring program during the fiscal years ended March 29,
2002, March 28, 2003 and as of March 20, 2001 were as follows (in thousands):

<TABLE>
<CAPTION>
    ---------------------------------------------------------------------------------------
                              EMPLOYEE                 OFFICE         OTHER
                             SEPARATION     LEASE     CLOSURE     RESTRUCTURING
                                COSTS     WRITE-OFF    COSTS          COSTS         TOTAL
    ---------------------------------------------------------------------------------------
<S>                          <C>           <C>        <C>          <C>           <C>
    Balance at March
       30, 2001              $     847     $     -    $   471      $        -    $   1,318
    Provision                    1,034           -          -             153        1,187
    Payments                     1,707)          -       (214)              -       (1,921)
                           ----------------------------------------------------------------
    Balance at March
       29, 2002                    174           -        257             153          584
                           ----------------------------------------------------------------
    Provision                      730         818        286             245        2,079
    Payments                      (744)       (204)      (507)           (304)      (1,759)
                           ----------------------------------------------------------------
    Balance at March
       28, 2003              $     160     $   614    $    36      $       94    $     904
                           ================================================================
</TABLE>

We believe that all costs associated with our plan of business reorganization
will be paid no later than the end of fiscal 2005.

As a result of the adoption of SFAS 142 in the first quarter of fiscal 2003,
goodwill and other intangible assets were written off. Amortization of goodwill
ceased, and therefore there was no amortization of goodwill in fiscal 2003.
Amortization of goodwill and other intangible assets in fiscal 2002 and 2001 was
$3.4 million in each year. The amortization expense in fiscal 2002 and fiscal
2001 was a result of two acquisitions, Convergence Equipment Company, which
occurred in the first quarter of fiscal 2001, and FlowWise Networks, Inc., which
occurred in the third quarter of fiscal 2000.

SFAS 142 requires goodwill to be tested for impairment under certain
circumstances. If the carrying amount of the goodwill exceeds the implied fair
value of the goodwill, an impairment loss shall be recognized in an amount equal
to that excess, and written down when impaired, rather than being amortized as
previous standards required. We completed our implementation test, which
determined that goodwill was impaired, resulting in a charge of $9.6 million in
the first quarter of fiscal 2003. This charge is presented as a cumulative
effect of change in accounting principle, relating to goodwill.

NON-OPERATING ITEMS  Interest income, primarily related to cash and short-term
investments, decreased $3.2 million to $2.5 million in fiscal 2003 from $5.7
million in fiscal 2002 and $8.0 million in fiscal 2001. The decrease in interest
income is primarily the result of declining yields as well as lower cash
balances of our investment portfolio in fiscal 2003 and 2002 compared to fiscal
2001. Although cash balances may increase in fiscal 2004, we expect interest
income to decline as a result of declining yields from our investment portfolio.

Interest expense increased $121,000 to $2.0 million in fiscal 2003, compared to
$1.9 million in both fiscal 2002 and fiscal 2001. Interest expense is primarily
attributable to the 7 1/4% convertible subordinated debentures. Interest expense
for the debentures remained constant in fiscal 2003, 2002, and 2001 at $1.8
million in each year. The increase in interest expense in fiscal 2003 resulted
from debt obligations assumed by net.com as part of the building repair for our
former Fremont, California campus.

Other income in fiscal 2003 decreased $1.9 million to $7.0 million, compared to
$8.9 million in fiscal 2002 and $15.0 million in fiscal 2001. Other income in
fiscal 2003 included a gain of $2.4 million from insurance proceeds received for
construction costs associated with our new Fremont campus and a gain of $5.0
million from the CACI

                                       14
<PAGE>

agreement for the divestiture of our FSB. Other income in fiscal 2002 included a
gain of $3.7 million from insurance proceeds associated with our new Fremont
campus and a gain of $5.0 million from the sale of our FSB. Other income in
fiscal 2001 included a gain of $14.9 million from the sale of our FSB. We expect
further gains in fiscal 2004 and fiscal 2005 of $1.5 million each year, related
to the CACI agreement for the divestiture of our FSB.

We received tax benefits of $3.8 million in fiscal 2003, $2.0 million in fiscal
2002 and $2.2 million in fiscal 2001. Each year, we evaluate the adequacy of our
tax liability reserves taking into account the statute of limitations on
previously filed tax returns as well as our expected net losses. The result of
this reevaluation was to reduce the amount of reserves and to record a tax
benefit in each of the past three fiscal years.

SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table provides a summary of our contractual cash obligations and
other commercial commitments as of March 28, 2003 (in thousands):

<TABLE>
<CAPTION>
                                                      LESS THAN       1-3         4-5         AFTER
CONTRACTUAL OBLIGATIONS                     TOTAL       1 YEAR       YEARS       YEARS       5 YEARS
--------------------------------------  --------------------------------------------------------------
<S>                                        <C>         <C>          <C>         <C>        <C>
Long-Term Debt                             $ 24,706    $       -    $      -    $      -   $   24,706
Interest on Long-Term Debt                   19,703        1,791       3,582       3,582       10,748
Operating Leases                             35,130        5,621       7,446       6,568       15,495
                                        --------------------------------------------------------------
Total Contractual Obligations              $ 79,539    $   7,412    $ 11,028    $ 10,150   $   50,949
                                        ==============================================================
</TABLE>

SIGNIFICANT ACCOUNTING POLICY JUDGMENTS AND ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires that we make estimates and
judgments, which affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. On
an on-going basis, we evaluate our estimates, including those related to sales
returns, bad debts, inventories, investments, intangible assets, income taxes,
warranty obligations, restructuring charges, contingencies, such as litigation,
and contract terms that have multiple elements and other complexities typical in
the telecommunications equipment industry. We base our estimates on historical
experience and other assumptions that we believe are reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our financial
statements.

REVENUE RECOGNITION:  We recognize revenue, generally upon shipment, when all
four of the following criteria are met:

1) we have a contract with our customer;

2) when delivery has occurred and risk of loss passes to the customer;

3) when our price is fixed or determinable; and

4) when collection of the receivable is reasonably assured.

For transactions where we have not yet obtained customer acceptance, revenue is
generally deferred until the terms of acceptance are satisfied. Revenue for
installation or other services is recognized upon completion of the service.
Maintenance contracts are sold separately from the products and revenue is
recognized ratably over the period of the contracts. A reserve for sales returns
is established based on historical trends in product returns. If the actual
future returns differ from historical levels, our revenue could be adversely
affected.

ALLOWANCE FOR DOUBTFUL ACCOUNTS:  The allowance for doubtful accounts receivable
is based on our assessment of the collectibility of specific customer accounts
and the aging of accounts receivable. If there is a deterioration of a major
customer's credit worthiness or actual defaults are higher than our historical
experience, our estimates of the recoverability of amounts due us could be
adversely affected.

INVENTORY PROVISIONS:  Inventory purchases and commitments are based upon future
demand forecasts. If there is a significant decrease in demand for our products
or there is a higher risk of inventory obsolescence because of rapidly changing
technology and customer requirements, we may be required to make adjustments to
write down our inventory to the lower of cost or market, and our gross margin
could be adversely affected.

                                       15
<PAGE>

WARRANTY ACCRUALS:  We generally warrant hardware product sales for twelve
months and software for three months. We accrue warranty expense based on
historical expense trends calculated as a percentage of new product sales.
Actual expenses are charged against the accrual in the period they are incurred.
On a quarterly basis, the warranty accrual is analyzed for adequacy based on
actual trends and subsequent adjustments are made to the liability balance.

Components of the warranty accrual, which are included in accrued liabilities in
the accompanying balance sheet, during fiscal 2003 were as follows (in
thousands):

<TABLE>
<CAPTION>

    ----------------------------------------------------------------------------------------------------
                               BALANCE AT     CHARGES TO    CHARGES TO         OTHER          BALANCE
                              BEGINNING OF      COST OF      WARRANTY       ADJUSTMENTS       END OF
                                 PERIOD       GOODS SOLD      ACCRUAL           (1)          THE PERIOD
    ----------------------------------------------------------------------------------------------------
<S>                            <C>             <C>           <C>             <C>              <C>
    Year ended March
       28, 2003                $     639       $    210      $   (338)       $    (307)       $   204
    ----------------------------------------------------------------------------------------------------
</TABLE>

(1) Adjustment resulted from a change in warranty cost estimates primarily from
lower hourly costs of labor to repair products and frequency of warranty claims.

STOCK BASED COMPENSATION:  We account for stock-based awards to employees using
the intrinsic value method in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations. Accordingly, no charges were taken in fiscal years 2003, 2002,
and 2001 as all stock options were granted at market price.

DEFERRED TAXES:  We have incurred tax losses in the last four fiscal years and,
at March 28, 2003, we have an estimated $89.9 million of federal net operating
loss carryforwards and $18.3 million of state operating loss carryforwards
available to reduce tax payments in future periods. We have provided a full
valuation allowance against our tax assets, given the uncertainty as to their
realization. In future years, these benefits are available to reduce or
eliminate taxes on future taxable income. Current federal and state tax laws
include provisions that could limit the annual use of our net operating loss
carryforwards in the event of certain defined changes in stock ownership. Our
issuances of common and preferred stock may have resulted in such a change.
Accordingly, the annual use of our net operating loss carryforwards may be
reduced by these provisions. Management has not yet determined the extent of the
limitation, and this limitation may result in the loss of carryforward benefits
due to their expiration.

LIQUIDITY AND CAPITAL RESOURCES

As of March 28, 2003, we had cash and cash equivalents of $20.6 million,
restricted cash of $1.4 million and short-term investments of $72.6 million for
a total of $94.6 million as compared to $94.9 million at the end of fiscal 2002
and $133.8 million at the end of fiscal 2001. In fiscal 2003, the days sales
outstanding (DSO) decreased 27 days to 39 days from 66 days at the end of fiscal
2002. The lower DSO resulted in a decrease in accounts receivable of $4.9
million to $14.6 million at the end of fiscal 2003 compared to $19.5 million at
the end of fiscal 2002. The lower accounts receivable combined with the $5.0
million payment received from CACI and the insurance proceeds of $3.5 million
offset our net operating losses, thus keeping cash and investment balances
relatively flat year-over-year. The fiscal 2002 reduction was primarily the
result of cash used to fund operations, as well as $12.4 million used to build
our new Fremont campus.

Net cash used in operations was $1.8 million in fiscal 2003, compared to $18.8
million in fiscal 2002 and $9.4 million in fiscal 2001. In fiscal 2003, cash
used in operations resulted primarily from a net loss of $18.4 million, a
decrease in accounts payable of $2.5 million and a decrease in accrued
liabilities of $3.8 million. Net cash provided by operations included a
reduction in accounts receivable of $4.9 million, a decrease in inventory of
$235,000 and a decrease in prepaid expenses and other assets of $2.2 million.
Net non-cash operating activity included the adjustment for depreciation and
amortization of $9.5 million, a gain recognized from proceeds relating to the
sale of our FSB of $5.0 million, a gain recognized of $2.4 million from the
insurance settlement relating to our new Fremont campus, cash proceeds from the
insurance settlement of $3.5 million and the cumulative change in accounting
principle for goodwill impairment of $9.6 million. In fiscal 2002, cash used in
operations resulted primarily from a net loss of $37.4 million and a decrease in
accrued liabilities of $11.8 million. Net cash provided by operations in fiscal
2002, resulted primarily from a decrease in accounts receivable of $10.3
million, a decrease in inventory of $5.3 million, and a decrease in prepaid
assets of $1.3 million. Net non-cash operating activity in fiscal 2002, included
the adjustments for depreciation and amortization of $16.7 million, a gain
recognized from proceeds

                                       16
<PAGE>

relating to the sale of our FSB of $5.0 million, a gain recognized of $3.7
million from the insurance settlement relating to our new Fremont campus, and
cash proceeds from the insurance settlement of $5.3 million.

Net cash provided by investment activities was $5.0 million in fiscal 2003,
compared to $13.0 million in fiscal 2002 and $13.3 million in fiscal 2001. Cash
provided by investment activities was primarily from maturing temporary
investments, net of new purchases, of $3.5 million; $5.0 million received from
the sale of our FSB and a decrease in restricted cash of $1.9 million, offset by
$5.9 million of cash used for the purchases of fixed assets, net of retirements.
Net cash provided by investment activities in fiscal 2002 consisted primarily of
the proceeds from maturing temporary cash investments, net of new purchases, of
$36.1 million, and $5.0 million received from the sale of our FSB, offset by
$24.9 million of cash used for the purchases of fixed assets, most of which were
leasehold improvements on our new Fremont campus, and an increase in restricted
cash of $2.7 million used primarily to secure a line of credit required by the
lease provisions.

Net cash provided by financing activities was $1.5 million in fiscal 2003
compared to $1.1 million in fiscal 2002 and $1.3 million in fiscal 2001. In
fiscal 2003, cash provided by financing activities was $1.6 million from the
sale of common stock, offset by the use of $53,000 in cash for the payment of
capital leases. In fiscal 2002, cash provided by financing activities was $1.3
million from the sale of common stock, offset by the use of $154,000 in cash for
the payment of capital leases. In fiscal 2001, cash provided by financing
activities was $2.9 million from the sale of common stock, which was partially
offset by the use of $1.4 million in cash for the repurchase of common stock and
$154,000 in cash for the payment of capital lease.

We believe that our existing current cash and cash equivalents, short-term
investments and cash flows from operations will be sufficient to fund
operations, purchases of capital equipment and research and development programs
currently planned at least through the next 12 months.

RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. SFAS 150 requires that those
instruments be classified as liabilities in statements of financial position.
SFAS 150 is effective for interim periods beginning after June 15, 2003. We are
currently evaluating the effect of SFAS 150 on our balance sheet, results of
operations and cash flows.

In April 2003, the FASB issued, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, which amends SFAS 133 for certain decisions
made by the FASB Derivatives Implementation Group. In particular, SFAS 149 (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative, (2) clarifies when a derivative
contains a financing component, (3) amends the definition of an "underlying" to
conform it to language used in FASB Interpretation No. (FIN) 45, and (4) amends
certain other existing pronouncements. SFAS 149 is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. In addition, most provisions of SFAS No. 149 are
to be applied prospectively. We are currently evaluating the effect of this
statement on our balance sheet, results of operations and cash flows.

In December 2002, FASB issued SFAS 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which amends SFAS 123, Accounting for
Stock-Based Compensation. SFAS 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require more prominent and more frequent disclosures
in financial statements about the effects of stock-based compensation. SFAS 148
is effective for fiscal years ending after December 15, 2002. We adopted the
disclosure provisions of SFAS 148 as of March 28, 2003. We have not yet
determined the effect that the transition provisions of SFAS 148 would have on
our operating results or financial position, if any.

In November 2002, the FASB issued FIN 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which elaborates on the disclosures to be made by guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it is issued. We adopted the disclosure requirement of FIN 45.
We are currently determining what effect if any, the other provisions of FIN 45
will have on our operating results or financial condition.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain
Employee Termination

                                       17
<PAGE>

Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under EITF 94-3, a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. SFAS 146 also establishes that the
liability should initially be measured and recorded at fair value. We have
adopted the provisions of SFAS 146 for exit or disposal activities that are
initiated after December 31, 2002. The adoption of SFAS 146 did not have an
impact on our historical consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS 144
supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, it retains many of the fundamental
provisions of SFAS 121. SFAS 144 also supersedes the accounting and reporting
provisions of APB 30, Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business. However, it retains the requirement in APB 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. We adopted SFAS 144 on March 30 2002.
The adoption of SFAS 144 did not have a material impact on our consolidated
financial statements.

BUSINESS ENVIRONMENT AND RISK FACTORS

Our business is subject to the risks and uncertainties described below. Although
we have tried to identify the material risks to our business, this is not an
all-inclusive list. There may be additional risks that have not yet been
identified and risks that are not material now but could become material. Any
one of these risks could hurt our business, results of operations or financial
condition.

WE HAVE INCURRED NET LOSSES IN THE PAST AND MAY CONTINUE TO INCUR LOSSES IN THE
FUTURE.

For each of the past five fiscal years, we have incurred net losses. Although
the Company has reduced operating expenses over the past few years, we will need
revenues to continue to grow in order to achieve profitability. Our narrowband
product line, Promina, currently provides the bulk of our revenue, but we expect
revenue from that product line to decline over the next few years. Our newer
broadband and IP-telephony product lines, SCREAM and SHOUTIP, have not yet
achieved market acceptance or broad commercial sales, and we are incurring
substantial product development and marketing expenses for those product lines.
Accordingly, we will not likely be profitable unless our newer product lines
achieve commercial success that outpaces the anticipated decline of our Promina
product line. In addition, we must contain our operating expenses, many of which
are fixed in the short term making it difficult to reduce expenses rapidly in
response to shortfalls in revenue.

OUR OPERATING RESULTS MAY CONTINUE TO FLUCTUATE.

Our operating results vary significantly from quarter to quarter. These
fluctuations may result from a number of factors, including:

     o    the volume and timing of orders from and shipments to our customers;

     o    the length and variability of the sales cycle of our products;

     o    the timing of and our ability to obtain new customer contracts;

     o    the timing of new products and services;

     o    the mix of sales among products and services,

     o    the timing and level of prototype expenses;

     o    the availability of products and services;

     o    the overall capital expenditures of our customers;

     o    the market acceptance of new and enhanced versions of our products and
          services or variations in the mix of products and services we sell;

     o    the availability and cost of key components;

     o    the timing of revenue recognition/deferrals;

     o    the adoption of new accounting standards, such as the potential
          requirement to record expenses for employee stock option grants;

                                       18
<PAGE>

     o    changes to revenue recognition rules or changing interpretations of
          such rules as they apply to our sales;

     o    the obsolescence of inventories;

     o    the timing and size of Federal Government budget approvals; and

     o    general economic conditions as well as those specific to the
          telecommunications, Internet and related industries.

Due to the foregoing factors, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. Any
shortfall in revenue may adversely affect our business, results of operations
and financial condition. Investors should not rely on our results or growth for
one quarter as any indication of our future performance.

OUR STOCK PRICE MAY BE VOLATILE AND COULD DECLINE SUBSTANTIALLY.

The market price of our common stock has fluctuated significantly in the past,
will likely continue to fluctuate in the future and may decline. Fluctuations or
a decline in our stock price may occur regardless of our performance. Among the
factors that could affect our stock price, in addition to our performance, are:

     o    variations between our operating results and the published
          expectations of securities analysts;

     changes in financial estimates or investment recommendations by securities
     analysts following our business;

     o    announcements by us or our competitors of significant contracts, new
          products or services, acquisitions, or other significant transactions;

     o    our sale of common stock or other securities in the future;

     o    the inclusion or exclusion of our stock in various indices or
          investment categories, especially as compared to the investment
          profiles of our stockholders at a given time;

     o    changes in economic and capital market conditions;

     o    changes in business regulatory conditions; and

     o    the trading volume of our common stock.

WE ARE DEPENDENT ON REVENUE FROM THE PROMINA PRODUCT LINE.

Currently, we derive the majority of our product revenue from our Promina
product line, a circuit-based narrowband technology. The market for our Promina
product is expected to decline as networks are expected to increasingly employ
packet-based broadband technology. This technology migration has already
resulted in a significant drop in sales of our Promina products in the
commercial markets over the last three years. If this decline extends into our
government markets in a similar fashion before we gain traction on our newer
packet-based broadband product lines, our revenue will decrease, and our
business and results of operations will suffer.

A SIGNIFICANT PORTION OF OUR REVENUE IS GENERATED FROM SALES TO GOVERNMENTAL
AGENCIES.

A significant portion of our total revenue from product sales comes from
contracts with governmental agencies, most of which do not include long-term
purchase commitments. Historically, the government has been slower to adopt new
technology, such as packet-based technology, which has had the effect of
extending the product life of our Promina product. However, the government has
purchased and is evaluating some of our new products for broader deployment. If
the government accelerated adoption of new technology, and replaced the Promina
product line in their networks with products other than ours, our product
revenue would decline sharply. We anticipate that our past experience will
result in future contracts with the Federal Government; however, we face
significant competition in this endeavor. If we fail in renewing a significant
number of Federal Government contracts or if sales to the Federal Government
decline sharply, our revenue may not increase to profitable levels.

CONTINUED DECLINES IN PURCHASES BY OUR COMMERCIAL CUSTOMERS AND THE OVERALL
DECLINE OF PRODUCT SALES IN THE SERVICE PROVIDER MARKET COULD NEGATIVELY AFFECT
OUR OPERATIONS AND FINANCIAL RESULTS.

Over the last three years, the financial health of many of our commercial
customers, particularly telecommunications service providers, has deteriorated,
resulting in a decreased demand for our products. In addition, the timing and
volume of purchases by service providers can be unpredictable due to their need
to generate new revenue with sharply reduced capital budgets while reducing
operating expenses. Further, our ability to recognize revenue on sales to these
customers will depend on our meeting various acceptance criteria imposed on the
company in connection with these products by our early adopter customers, and on
the relative financial condition of these customers and whether receivables
balances from them are deemed to be collectible. Also, the selling cycle of our

                                       19
<PAGE>

SCREAM and SHOUTIP product lines could be extended if our service provider
customers continue to reduce their capital budgets. Declines in revenue as a
result of any of these factors could cause a material adverse effect on our
business, operating results and financial condition.

OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP NEW PRODUCTS AND PRODUCT
ENHANCEMENTS THAT WILL ACHIEVE MARKET ACCEPTANCE.

Our operating results will depend on the successful design, development,
testing, introduction, marketing, and broad commercial distribution of our newer
packet-based products, the SCREAM and SHOUTIP product lines. The success of
these and other new products is dependent on several factors, including proper
product definition, competitive pricing, timely completion and introduction to
the market, differentiation from competitors' products, and broad market
acceptance. The markets for our products are characterized by rapidly changing
technology, evolving industry standards, frequent new product introductions and
evolving methods of building and operating networks. Our SCREAM product line is
targeted at long-established incumbent carriers, such as BellSouth, SBC
Communications, Sprint, Verizon, British Telecom and France Telecom, who
typically have stringent product requirements and who are reluctant to purchase
products from vendors lacking a large market capitalization. Our SHOUTIP product
line is largely targeted at start-up telecommunications companies who demand
highly competitive pricing. We may not successfully identify new product
opportunities, develop and bring new products to market in a timely manner, or
achieve market acceptance of our products. Products and technologies developed
by others may render our products or technologies obsolete or non-competitive,
which in turn could adversely affect our ability to achieve profitability.

THE SUCCESS OF OUR SCREAM PRODUCT LINE DEPENDS LARGELY ON IT BEING CHOSEN BY
SERVICE PROVIDERS AS A PLATFORM FOR THE DELIVERY OF NEW SERVICES.

Since the second quarter of our fiscal year 2000, we have spent the majority of
our research and development and marketing resources to position ourselves, and
our SCREAM family of products, as the next generation of telecommunications
equipment that will enable carriers to optimize the delivery of differentiated
services. The future success of the SCREAM product line will depend in large
measure on service providers choosing to invest in products, such as SCREAM,
that can be used to deliver new services such as quality-of-service guarantees,
class-of-service subscriptions, or bandwidth-on-demand, to increase their
revenue and lower their operating expenses. If service providers do not
meaningfully invest in such new technologies, or do not choose the SCREAM
product line for such investment, our revenues from SCREAM will be negatively
affected, which will in turn have a negative effect on our business and
operating results.

WE NEED PARTNERSHIPS TO ACCELERATE THE ACCEPTANCE OF OUR NEW PRODUCTS BY SERVICE
PROVIDERS.

Building relationships with partners, such as software application partners,
system integrators, OEMs or resellers can accelerate the sales of new products.
The importance of the software application partners is that they provide
functions, such as billing, mediation, provisioning and configuration that are
needed to create a total solution for our customers. We need product OEM or
resale partners to supplement and enhance our sales force both in the United
States and overseas. Service providers rely on systems integrators to support
new equipment or services into their network. These integrators are important in
the large incumbent carrier networks and could facilitate our entry into those
networks. While we have begun the process of identifying and signing software
application, system integrator and OEM or resale partners, more partners may be
necessary in all these areas for us to be successful. We may need to pursue
strategic partnerships with vendors who have broader technology or product
offerings in order to compete with the end-to-end solution providers, as well as
to bolster our co-marketing efforts. Failure to sign up these new strategic
partners could affect our ability to grow overall revenue.

GROSS MARGINS COULD DECLINE OVER FUTURE PERIODS.

Due to increases in competition, material and labor costs, subcontractor costs,
change in absorption rate and changes in the mix of products we sell, our gross
margins could decline in future quarters. Our newer product lines, SCREAM and
SHOUTIP, currently have lower gross margins than our Promina product line. These
lower gross margins are a result of higher discounts awarded to early adopter
customers and higher component costs due to low purchase volumes of these
components. A decline in our gross margins could have a material adverse effect
on our business, results of operations and financial condition.

FACTORS BEYOND OUR CONTROL COULD AFFECT OUR ABILITY TO SELL INTO INTERNATIONAL
MARKETS.

We conduct significant sales and customer support operations in countries
outside of the United States and depend on non-US operations of our subsidiaries
and distribution partners. In addition, we also maintain a satellite research
and development facility in Ottawa, Province of Ontario, Canada and, on a
case-by-case basis, we outsource research and development activities to third
parties here in the US and abroad. As a general rule, international sales

                                       20
<PAGE>

tend to have risks that are difficult to foresee and plan for, including
political and economic stability, regulatory changes, currency exchange rates,
changes in tax rates and structures, and collection of accounts receivable.
Further, our international markets are served primarily by non-exclusive
resellers who themselves may be severely affected by economic or market changes
within a particular country or region. Our future results could be materially
adversely affected by a variety of uncontrollable and changing factors that
could affect these activities, including, among others, the outbreak of
infectious diseases such as severe acute respiratory syndrome (SARS). Unforeseen
or unpredictable changes in international markets could have a material adverse
effect on our business, results of operations and financial condition.

THE DIVESTITURE OF OUR FEDERAL SERVICES BUSINESS HAS REDUCED OUR ABILITY TO
CONTROL THE QUALITY OF SERVICE PROVIDED TO OUR FEDERAL GOVERNMENT CUSTOMERS.

On December 1, 2000, we closed the sale of our federal service business to CACI,
who subsequently provides maintenance and other services to our Federal
Government customers. We continue to sell net.com products directly to the
Federal Government and we rely on CACI to perform staging and integration
services for them. Additionally, we have a strategic alliance with CACI to
jointly market each other's products and services. As a result of these
arrangements, we are dependent on CACI to provide the level of service to which
our customers have become accustomed. If CACI experiences difficulties in
providing those services, or for any other reason leaves our mutual customers
unsatisfied, it could adversely affect purchasing decisions for our products and
cause our Federal Government customers to seek products from other vendors.

THE MARKET FOR OUR PRODUCTS IS HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS
HAVE GREATER RESOURCES THAN US.

The market for telecommunication equipment is highly competitive, dynamic and
characterized by rapid changes to and the convergence of technologies, and a
worldwide migration from existing circuit technology to the new packet-based
technologies. We compete directly internationally and domestically with many
different companies, some of which are large, established suppliers of
end-to-end solutions, such as Alcatel, Cisco, Lucent, Nortel, Juniper and
Siemens. In addition, there are a number of other smaller companies that are
targeting the same market, including CoSine, Nuera, Copper Mountain, Advanced
Fiber Communications, Redback, and others. Some of our larger competitors have
significantly greater financial, marketing and technical resources than we have
and offer a wider range of networking products than we offer. They are often
able to devote greater resources to the development, marketing and sale of their
products and to use their equity or significant cash reserves to acquire other
companies with technology and/or products that compete directly with ours. They
often can compete favorably on price because their large product selection
allows them to bundle multiple solutions together without significantly
impacting their overall product margins. The smaller companies have more ability
than net.com to focus their resources on a particular product development
unencumbered by the requirements to support an existing product line. As a
result of the flexibility of their market strategies, our competitors may be
able to obtain strategic advantages that may adversely affect our business,
financial condition or results of operations.

In addition, the networking equipment market has seen the constant introduction
of new technologies that has reduced the value of older technology solutions.
This has created pricing pressure on older products while increasing the
performance expectations of newer networking equipment. Moreover, broadband
technology standards are constantly evolving and alternative technologies or
technologies with greater capability are constantly introduced and sought by our
customers. It is possible that the introduction of other technologies will
either supplant our current technologies and technologies we have in development
or will require us to significantly lower our prices in order to remain
competitive. To remain competitive, we must continue to evolve our SCREAM and
SHOUTIP product lines to meet the ever-changing technology needs of the
networking market while ensuring that they can be sold at a competitive price.
We also must enhance our Promina product line to provide needed features that
increase their overall value for the customer while keeping the price
competitive. Due to the competitive nature of the market and the relative age of
our Promina product offerings as well as the competitive pressure being exerted
on our SCREAM and SHOUTIP technologies, we may not be able to maintain prices
for them at levels that will sustain profitability.

IF WE ARE UNABLE TO SIGN COMPETITIVE RESALE PARTNERS, OUR FUTURE PRODUCT AND
SERVICE REVENUE WILL BE ADVERSELY AFFECTED.

Our international sales are made almost entirely through indirect channels that
include distributors and resellers worldwide, and our business strategy includes
leveraging resale partners in the United States as well. Our reseller agreements
do not have minimum purchase requirements that they must meet. While we require
them to use their best efforts to resell our products, because our product line
is small, our distributors and resellers often also resell product lines from
other companies, including our competitors. Because of the size of some of these
competitors and their strong market position relative to net.com, it is often
difficult for us to find a distributor or reseller who is willing and
contractually able to resell our products. If we cannot develop relationships
with distributors and

                                       21
<PAGE>

resellers that can effectively market and sell our products and services, we may
not be able to meet our forecasted revenue in future quarters.

OUR PRODUCTS HAVE LONG SALES CYCLES, MAKING IT DIFFICULT TO PREDICT WHEN A
CUSTOMER WILL PLACE AN ORDER AND WHEN TO FORECAST REVENUE FROM THE RELATED SALE.

Our products are very complex and represent a significant capital expenditure to
our customers. The purchase of our products can have a significant impact on how
a customer designs its network and provides services either within its own
organization or to an external customer. Consequently, our customers often
engage in extensive testing and evaluation of products before purchase. There
are also numerous financial and budget considerations and approvals that the
customer often must obtain before it will issue a purchase order. As a result,
the length of our sales cycle can be quite long, extending beyond twelve months
in some cases. In addition, our customers, including resellers, often have the
contractual right to delay scheduled order delivery dates with minimal penalties
and to cancel orders within specified time frames without penalty, which makes
it difficult to predict whether or not an order may actually ship. We often must
incur substantial sales and marketing expense to ensure a purchase order is
placed. If the order is not placed in the quarter forecasted, our sales may not
meet forecast and revenue may be insufficient to meet expenses.

BECAUSE IT IS DIFFICULT FOR US TO ACCURATELY FORECAST SALES, PARTICULARLY WITHIN
A GIVEN TIME FRAME, WE FACE A RISK OF CARRYING TOO MUCH OR TOO LITTLE INVENTORY.

Typically, the majority of our revenue in each quarter has resulted from orders
received and shipped in that quarter. While we do not believe that backlog is
necessarily indicative of future revenue levels, our customers' ordering
patterns and the possible absence of backlogged orders create a significant risk
that we could carry too much or too little inventory if orders do not match
forecasts. Rather than base forecasts on orders received, we have been forced to
schedule production and commit to certain expenses based more upon forecasts of
future sales, which are difficult to predict in the telecommunications industry.
Furthermore, if large orders do not close when forecasted or if near-term demand
weakens for the products we have available to ship, our operating results for
that quarter or subsequent quarters would be materially adversely affected.

IF WE ARE UNABLE TO RETAIN EXISTING EMPLOYEES AND ATTRACT, RECRUIT AND RETAIN
KEY PERSONNEL, THEN WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS.

Our success continues to be dependent on our being able to attract and retain
highly skilled engineers, managers and other key employees. Despite the economic
slowdown, we must continue to compete for the most qualified personnel for new
positions and to replace departing employees. Any restrictions on our ability to
use stock options as a key component of employee compensation, such as changes
in accounting treatment, stockholder actions, or changes in corporate
regulations, could severely impair our ability to recruit and retain personnel.
If we are not able to continue to attract, recruit and retain key personnel,
particularly in engineering, sales and marketing positions, we may be unable to
meet important company objectives such as product delivery deadlines and sales
targets.

WE RELY ON A NUMBER OF SOLE SOURCE SUPPLIERS FOR OUR COMPONENT PARTS AND THIRD
PARTY PRODUCTS WHICH COULD AFFECT OUR ABILITY TO SHIP OUR PRODUCTS IN A TIMELY
MANNER.

We purchase key components from single source suppliers, in particular, our back
planes, integrated circuits, and power supplies. If we or our sole source
suppliers fail to obtain components in sufficient quantities when required,
delivery of our products could be delayed resulting in decreased revenues. In
addition, if one of these suppliers were no longer able to supply a required
component, we may have to significantly reengineer the affected product.
Further, variability in demand and cyclical shortages of capacity in the
semiconductor industry have caused lead times for ordering parts to increase
from time to time. If we encounter shortages or delays in receiving ordered
components or if we are not able to accurately forecast our ordering
requirements, we may be unable to ship ordered products in a timely manner.

WE SINGLE SOURCE OUR MANUFACTURING PROCESS; A FAILURE OR DELAY BY THAT VENDOR
COULD AFFECT OUR ABILITY TO SHIP OUR PRODUCTS TIMELY.

We currently subcontract some testing and all product manufacturing to
Solectron. Final test and assembly is generally performed at our Fremont,
California facility. While subcontracting creates substantial cost efficiencies
in the manufacturing process, it also exposes us to delays in product shipments
should Solectron be unable to perform under our contract. Pursuant to our
contract with Solectron, we have agreed to compensate Solectron in the event of
a termination or a cancellation of orders, discontinuance of product or excess
material created by an engineering change. Also, should Solectron in some future
period decide not to renew our contract with them, it would be difficult for us
to quickly transfer our manufacturing requirements from Solectron to another
vendor, likely causing substantial delays in customer product shipments and
impacting revenue and our results of operations. We plan in

                                       22
<PAGE>

the near term to transition some of our product manufacturing to another vendor,
with contract terms that will likely involve some of the same provisions for
compensation of the vendor as we have with Solectron. Although this transition
will diversify some of the outsourcing risk, the transition itself, and the lack
of experience with the new vendor, could cause delays in customer product
shipments or otherwise negatively affect our results of operations.

OUR INTELLECTUAL PROPERTY RIGHTS MAY NOT BE ADEQUATE TO PROTECT OUR BUSINESS.

Our future success depends in part upon our proprietary technology. Although we
attempt to establish and maintain rights in proprietary technology and products
through patents, copyrights, and trade secrets laws, we cannot predict whether
such protection will be adequate, or whether our competitors can develop similar
technology independently without violating our proprietary rights. As
competition in the communications equipment industry increases and the
functionality of the products in this industry further overlap, we believe that
companies in the communications equipment industry may become increasingly
subject to infringement claims. We have received and may continue to receive
notice from third parties, including some of our competitors, claiming that we
are infringing their patents or their other proprietary rights. We cannot
predict whether we will prevail in any litigation over third-party claims, or
that we will be able to license any valid and infringed patents on commercially
reasonable terms. Any of these claims, whether with or without merit, could
result in costly litigation, divert our management's time, attention and
resources, delay our product shipments or require us to enter into royalty or
licensing agreements. In addition, a third-party may not be willing to enter
into a royalty or licensing agreement on acceptable terms, if at all. If a claim
of product infringement against us is successful and we fail to obtain a license
or develop or license non-infringing technology, we may be unable to market the
affected product.

WE NEED TO CONTINUE TO LICENSE PRODUCTS FROM THIRD PARTIES.

For our Promina, SCREAM and SHOUTIP products, we license some of our technology
from third parties. These licenses are generally limited in duration or by the
volume of shipments of the licensed technology. In addition, some of these
licenses contain limitations on distribution of the licensed technology or
provide for expiration upon certain events, such as a change in control of the
company. If the relevant licensing agreement expires or is terminated without
our being able to renew that license on commercially reasonable terms, or if we
cannot obtain a license for our products or enhancements on our existing
products we may be unable to market the affected product.

WE FACE RISKS ASSOCIATED WITH CHANGES IN TELECOMMUNICATIONS REGULATIONS AND
TARIFFS, INCLUDING REGULATION OF THE INTERNET.

Changes in domestic and international telecommunications requirements could
affect the sales of our products. In the United States, our products must comply
with various Federal Communication Commission (FCC) requirements and
regulations. In countries outside of the United States, our products must meet
various requirements of local telecommunications authorities. Changes in tariffs
or failure by us to obtain timely approval of products could impact our ability
to market the affected product.

The demand for our broadband products could also be affected by rulings of the
FCC regarding services offered by service providers to their customers, such as
differentiated broadband services. If rulings or regulations of the FCC diminish
the attractiveness of offering such services, then service providers would
likely have less need for our products.

In addition, there are currently few laws or regulations that govern access or
commerce on the Internet. If individual countries, or groups of countries,
acting in concert, began to impose regulations or standards on Internet access
or commerce including IP telephony, our ability to sell our new SCREAM and
SHOUTIP products or other new products would be adversely impacted if the
regulations or standards resulted in decreased demand or increased costs for our
products.

In North America, the former Regional Bell Operating Companies (RBOCs) recommend
that Telcordia Technologies, Inc. certify telecommunications equipment under
their Operations Systems Modifications for the Integration of Network Elements
(OSMINE) program in order to ensure interoperability with other network elements
and operational support systems. We have initiated the process for our product
lines to become OSMINE certified, but this is a very expensive and lengthy
process. Any delays or problems with attaining this certification could have a
material adverse impact on our business, operating results, and financial
condition.

WE ARE EXPOSED TO FLUCTUATIONS IN THE EXCHANGE RATES OF FOREIGN CURRENCY.

As a global concern, we face exposure to adverse movements in foreign currency
exchange rates. These exposures may change over time as business practices
evolve and could have a material adverse impact on our financial results. In
fiscal 2003, we commenced using foreign exchange contracts to hedge significant
accounts receivable and intercompany account balances denominated in foreign
currencies. Although we have established foreign exchange contracts for
non-dollar denominated sales and operating expenses in the United Kingdom,
France, Germany and

                                       23
<PAGE>

Japan, exposures remain for non-dollar denominated operating expenses in Latin
America, Canada, and Asia. We will continue to monitor our exposure and may
hedge against these or any other emerging market currencies as necessary. Market
value gains and losses on hedge contracts are substantially offset by
fluctuations in the underlying balances being hedged.

THE LOCATION OF OUR FACILITIES SUBJECTS US TO THE RISK OF EARTHQUAKE AND FLOODS.

Our corporate headquarters, including most of our research and development
operations and our manufacturing facilities, are located in the Silicon Valley
area of Northern California, a region known for seismic activity. These
facilities are located near the San Francisco Bay where the water table is quite
close to the surface and where tenants have experienced water intrusion problems
in the facilities nearby. In particular, unknown defects in the construction of
our new facilities combined with the proximity to water may result in future
water infiltration problems for net.com. A significant natural disaster, such as
an earthquake or flood, could have a material adverse impact on our business,
operating results, and financial condition.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about our market risk disclosure involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates.

In the first quarter of fiscal 2003, we began using foreign exchange contracts
to hedge significant accounts receivable and intercompany account balances
denominated in foreign currencies. Market value gains and losses on these hedged
contracts are substantially offset by fluctuations in the underlying balances
being hedged. The net financial impact of foreign exchange gains and losses has
not been material. As a result, a 10% increase or decrease in the foreign
currency rates would not have a significant effect on our business, operating
results and financial condition. Our policy is to not use hedges or other
derivative financial instruments for speculative purposes.

A portion of our investment portfolio is composed of income securities. These
securities are subject to interest rate risk and will fall in value if market
interest rates increase. A sensitivity analysis assuming a hypothetical increase
or decrease of 10% from levels at March 28, 2003 and March 29, 2002 indicated
the fair value of the portfolio would change by an immaterial amount. At March
28, 2003, the fair value of the short-term investments was $72.6 million
compared to $75.8 million at March 29, 2002.

The fair market value of our convertible subordinated debentures is sensitive to
changes in interest rates and to the prices of our common stock into which it
can be converted as well as our financial stability. The yield to maturity on
the debentures is fixed, therefore the interest expense on the debt does not
fluctuate with interest rates. At March 28, 2003, the fair value of the trading
debt securities was approximately $14.8 million.







                                       24
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>

FINANCIAL HIGHLIGHTS:

(Dollars in thousands, except per share amounts)

                                                                                    MAR. 28,       MAR 29,
HIGHLIGHTS FOR FISCAL YEARS ENDED                                                     2003          2002
------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>           <C>
Total revenue                                                                       $122,100      $101,546
Loss from operations                                                                 (20,136)      (52,112)
Net loss                                                                             (18,448)      (37,398)
Basic and diluted loss per share                                                       (0.82)        (1.69)
Working capital                                                                      104,313       107,071
Total assets                                                                         164,818       187,422
7 1/4% convertible subordinated debentures                                            24,706        24,706
Total stockholders' equity                                                           114,834       131,307
Number of employees                                                                      428           498
------------------------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA (UNAUDITED):

(Dollars in thousands, except per share amounts)
<CAPTION>

                                                         FIRST        SECOND         THIRD        FOURTH
------------------------------------------------------------------------------------------------------------
FISCAL QUARTER 2003
<S>                                                    <C>           <C>           <C>           <C>
Total revenue                                          $  27,228     $  28,066     $  33,005     $  33,801
Gross margin                                              11,271         9,191        14,228        16,609
Income (loss) before cumulative change in accounting
  principle relating to goodwill                             698        (6,887)       (3,204)          537
Cumulative change in accounting principle
  relating to goodwill                                    (9,592)            -             -             -
Net income (loss)                                         (8,894)       (6,887)       (3,204)          537
Basic and diluted per share amounts:
  Income (loss) before cumulative change in
    accounting principle relating to goodwill               0.03         (0.31)        (0.14)         0.02
  Cumulative change in accounting principle
    relating to goodwill                                   (0.43)            -             -             -
    Net income (loss)                                  $   (0.40)    $   (0.31)    $   (0.14)    $    0.02
------------------------------------------------------------------------------------------------------------
Fiscal quarter 2002

Total revenue                                          $  23,869     $  24,851     $  26,110     $  26,716
Gross margin                                               6,796         6,755         6,388        10,799
Net loss                                                 (13,772)      (13,355)       (8,177)       (2,094)
Basic and diluted loss per share                       $   (0.63)    $  (0.61)     $   (0.37)    $   (0.09)

------------------------------------------------------------------------------------------------------------
</TABLE>

Results for the fourth quarter of fiscal 2003 include a $1.5 million tax
benefit, or $0.07 per share. The results of the second quarter of fiscal 2003
include a $2.3 million tax benefit, or $0.10 per share. Additionally, the first
quarter results of fiscal 2003 include a $5.0 million gain, or $0.22 per share,
from payments made to net.com by CACI, related to the fiscal 2001 sale of
net.com's FSB, a $2.2 million gain, or $.10 per share, related to an insurance
settlement for net.com's previous headquarter facilities, and a $9.6 million
loss related to the write down of goodwill.

                                       25
<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Stockholders and Board of Directors of Network Equipment Technologies,
Inc.:


We have audited the accompanying consolidated balance sheets of Network
Equipment Technologies, Inc. and subsidiaries as of March 28, 2003 and March 29,
2002, and the related consolidated statements of operations and comprehensive
loss, stockholders' equity and cash flows for each of the three years in the
period ended March 28, 2003. Our audits also included the consolidated financial
statement schedule listed in item 16.(a)2. These financial statements and the
financial statement schedule are the responsibility of Network Equipment
Technologies' management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Network Equipment Technologies,
Inc. and subsidiaries at March 28, 2003 and March 29, 2002, and the results of
their operations and their cash flows for each of the three years in the period
ended March 28, 2003 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 3 to the financial statements, in 2003 the Company changed
its method of accounting for goodwill and other intangible assets to conform to
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets".



/s/ DELOITTE & TOUCHE LLP


San Jose, California

April 11, 2003



                                       26
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)
                                                                                 MAR. 28,       MAR. 29,
                                                                                   2003           2002
-----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C>
ASSETS
  Current assets:
     Cash and cash equivalents                                                  $  20,593      $  15,879
     Restricted cash                                                                1,361          3,255
     Short-term investments                                                        72,614         75,763
     Accounts receivable, net of allowance of $846 (2003) and $1,896 (2002)        14,574         19,501
     Inventories                                                                   14,569         14,804
     Prepaid expenses and other assets                                              4,110          7,262
-----------------------------------------------------------------------------------------------------------
        Total current assets                                                      127,821        136,464
-----------------------------------------------------------------------------------------------------------

  Property and equipment:
     Machinery and equipment                                                       56,859         58,082
     Furniture and fixtures                                                         7,690          6,823
     Leasehold improvements                                                        22,947         20,786
-----------------------------------------------------------------------------------------------------------
                                                                                   87,496         85,691
-----------------------------------------------------------------------------------------------------------
     Less accumulated depreciation and amortization                               (53,010)       (47,719)
        Property and equipment, net                                                34,486         37,972

  Software production costs, net                                                        5            563
  Goodwill, net                                                                         -          9,535
  Other intangible assets, net                                                          -             57
  Other assets                                                                       2,506          2,831
-----------------------------------------------------------------------------------------------------------
        Total assets                                                            $ 164,818      $ 187,422
===========================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
     Accounts payable                                                           $   5,427      $   7,870
     Accrued liabilities                                                           18,081         21,470
     Current portion of capital lease obligation                                        -             53
-----------------------------------------------------------------------------------------------------------
        Total current liabilities                                                  23,508         29,393
-----------------------------------------------------------------------------------------------------------

  Long-term liabilities:
     71/4% redeemable convertible subordinated debentures                          24,706         24,706
     Other long term liabilities                                                    1,770          2,016
-----------------------------------------------------------------------------------------------------------
        Total long term liabilities                                               26,476         26,722
-----------------------------------------------------------------------------------------------------------

  Commitments (Note 8)                                                                  -              -

  Stockholders' equity:
     Preferred stock, $.01 par value
        Authorized: 5,000 shares
        Outstanding: none                                                               -              -
     Common stock, $.01 par value
        Authorized: 50,000 shares
        Outstanding: 22,663 shares (2003) and 22,215 shares (2002)                    226            222
     Additional paid in capital                                                   184,122        184,401
     Treasury stock                                                                (3,408)        (5,581)
     Accumulated other comprehensive loss                                            (198)          (611)
     Accumulated deficit                                                          (65,908)       (47,124)
-----------------------------------------------------------------------------------------------------------
        Total stockholders' equity                                                114,834        131,307
-----------------------------------------------------------------------------------------------------------
        Total liabilities and stockholders' equity                              $ 164,818      $ 187,422
===========================================================================================================
</TABLE>

See accompanying notes to the consolidated financial statements

                                       27
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

                                                                        MAR. 28,         MAR. 29,         MAR. 30,
FISCAL YEARS ENDED                                                        2003             2002             2001
---------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>               <C>
Revenue:
  Product revenue                                                      $  101,919      $   74,783        $   76,994
  Service and other revenue                                                20,181          26,763            67,292
---------------------------------------------------------------------------------------------------------------------
     Total revenue                                                        122,100         101,546           144,286
---------------------------------------------------------------------------------------------------------------------
Cost of sales:
  Cost of product revenue                                                  52,480          46,722            44,003
  Cost of service and other revenue                                        18,321          24,086            44,601
---------------------------------------------------------------------------------------------------------------------
     Total cost of sales                                                   70,801          70,808            88,604
---------------------------------------------------------------------------------------------------------------------
Gross margin                                                              51,299           30,738            55,682
Operating expenses:
  Sales and marketing                                                     32,132           32,999            44,732
  Research and development                                                26,027           33,014            40,420
  General and administrative                                              11,197           12,205            12,677
  Restructure costs (benefits)                                             2,079            1,188            (1,411)
  Amortization of goodwill and other intangible assets                         -            3,444             3,384
---------------------------------------------------------------------------------------------------------------------
     Total operating expenses                                             71,435           82,850            99,802
---------------------------------------------------------------------------------------------------------------------
        Loss from operations                                             (20,136)         (52,112)          (44,120)
Interest income                                                            2,508            5,726             7,985
Interest expense                                                          (2,031)          (1,910)           (1,894)
Gain on sale of Federal Services Business                                  5,000            5,000            14,920
---------------------------------------------------------------------------------------------------------------------
Gain on insurance settlement                                               2,380            3,713                 -
Other                                                                       (401)             193               119
---------------------------------------------------------------------------------------------------------------------
        Loss before income taxes                                         (12,680)         (39,390)          (22,990)
Income tax benefit                                                        (3,824)          (1,992)           (2,200)
---------------------------------------------------------------------------------------------------------------------
Loss before cumulative change in accounting principle
  relating to goodwill                                                    (8,856)         (37,398)          (20,790)
---------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting principle
  relating to goodwill                                                    (9,592)               -                 -
---------------------------------------------------------------------------------------------------------------------
        Net loss                                                      $  (18,448)      $  (37,398)       $  (20,790)
=====================================================================================================================

Basic and diluted loss per share before cumulative
  change in accounting principle relating to goodwill:                $    (0.39)      $    (1.69)       $    (0.96)
Basic and diluted loss per share before cumulative
  change in accounting principle relating to goodwill:                $    (0.43)      $        -        $        -
Basic and diluted net loss per share:                                 $    (0.82)      $    (1.69)       $    (0.96)
Shares used in per share computation:
  Basic and diluted                                                       22,444           22,069            21,666

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Net loss                                                              $  (18,448)      $  (37,398)       $  (20,790)
Other comprehensive loss, net of tax:
  Cumulative translation adjustments                                          76              105                95
  Net unrealized gains (losses) on securities, net of taxes of
     $0 in 2002, 2001 and 2000                                               337             (890)            1,428
---------------------------------------------------------------------------------------------------------------------

        Comprehensive loss                                            $  (18,035)      $  (38,183)       $  (19,267)
=====================================================================================================================
</TABLE>

See accompanying notes to the consolidated financial statements

                                       28
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
                                                                        MAR. 28,         MAR. 29,         MAR. 30,
FISCAL YEARS ENDED                                                        2003             2002             2001
----------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>               <C>
Cash and cash equivalents at beginning of year                        $   15,879       $   20,471        $   14,880

Cash flows from operating activities:
    Net loss                                                             (18,448)         (37,398)          (20,790)
    Adjustments required to reconcile net loss to net
        cash used in operations:
           Depreciation and amortization                                   9,479           16,665            21,482
           Gain on sale of Federal Services Business                      (5,000)          (5,000)          (14,920)
           Proceeds from insurance settlement                              3,451            5,293            15,000
           Gain on insurance settlement                                   (2,380)          (3,713)                -
            Cumulative change in accounting principle
               relating to goodwill                                        9,592                -                 -
           Stock compensation                                                  -               15                33
           Loss on disposition of property and equipment                     444              785               180
           Changes in assets and liabilities:
               Accounts receivable                                         4,927           10,324                 9
               Inventories                                                   235            5,318            (2,437)
               Prepaid expenses and other assets                           2,221            1,281              (949)
               Accounts payable                                           (2,497)            (602)              367
               Accrued liabilities                                        (3,810)         (11,803)           (7,383)
----------------------------------------------------------------------------------------------------------------------
        Net cash used in operations                                       (1,786)         (18,835)           (9,408)
----------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
    Purchases of short-term investments                                  (70,535)         (91,320)          (99,071)
    Proceeds from maturities of short-term investments                    74,021          127,433            84,635
    Purchases of property and equipment                                   (6,432)         (24,884)          (12,082)
    Proceeds from sale of property and equipment                              97                -                 -
    Retirement of property and equipment                                     564                -                 -
    Acquisition of company, net of cash acquired                               -                -            (1,500)
    Proceeds from sale of Federal Services Business                        5,000            5,000            24,900
    (Increase) decrease in restricted cash                                 1,894           (2,715)           12,604
    Other                                                                    341             (466)            3,836
----------------------------------------------------------------------------------------------------------------------
        Net cash provided by investing activities                          4,950           13,048            13,322
----------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
    Issuance of common stock                                               1,562            1,288             2,909
    Repurchase of common stock                                                 -                -            (1,413)
    Payment on capital lease                                                 (53)            (154)            (154)

----------------------------------------------------------------------------------------------------------------------
        Net cash provided by financing activities                          1,509            1,134             1,342
----------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                       41               61               335
        Net increase (decrease) in cash and cash equivalents               4,714           (4,592)            5,591
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                              $   20,593       $   15,879        $   20,471
======================================================================================================================

Other cash flow information: Cash paid (refunded) during the year:
        Interest                                                      $    1,977       $    1,910        $    1,841
        Income taxes                                                  $   (1,609)      $   (2,714)       $       22
    Non-cash investing and financing activities:
        Unrealized gain (loss) on available-for-sale securities       $      337       $     (890)       $    1,428
        Deferred stock compensation                                   $        -       $        -        $       48
</TABLE>

See accompanying notes to the consolidated financial statements

                                       29
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                      Common Stock     Additional                  Cumulative     Retained           Total
                                      ------------        Paid in     Treasury   Comprehensive    Earnings    Stockholders'
(In thousands)                      Shares    Amount      Capital        Stock   (Income) Loss    (Deficit)         Equity
-----------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>        <C>       <C>           <C>             <C>       <C>              <C>
Balances, March 31, 2000            21,602     $ 216     $181,683      $(5,640)        $(1,349)  $  11,064        $185,974
-----------------------------------------------------------------------------------------------------------------------------

Sale of common stock under
   employee stock benefit plans        248         2        2,058            -               -           -           2,060

Purchase of shares of
   common stock                       (170)       (2)           -       (1,411)              -           -          (1,413)

Reissuance of  treasury stock
   under ESPP                          160         2         (626)       1,470               -           -             846

Deferred stock compensation                        -           33            -               -           -              33

Net unrealized gain on securities                                                        1,428           -           1,428

Cumulative translation adjustment                  -            -            -              95           -              95

Net loss                                           -            -            -               -     (20,790)        (20,790)
-----------------------------------------------------------------------------------------------------------------------------

Balances, March 30, 2001            21,840       218      183,148       (5,581)            174      (9,726)        168,233
-----------------------------------------------------------------------------------------------------------------------------

Sale of common stock under
   employee stock benefit plans        375         4        1,284            -               -           -           1,288

Deferred stock compensation                        -          (31)           -               -           -             (31)

Net unrealized loss on securities                                                         (890)          -            (890)

Cumulative translation adjustment                  -            -            -             105           -             105

Net loss                                           -            -            -               -     (37,398)        (37,398)
-----------------------------------------------------------------------------------------------------------------------------

Balances, March 29, 2002            22,215       222      184,401       (5,581)           (611)    (47,124)        131,307
-----------------------------------------------------------------------------------------------------------------------------

Sale of common stock under
   employee stock benefit plans        101         1          366            -               -           -             367

Reissuance of  treasury stock
   under ESPP                          347         3         (645)       2,173               -        (336)          1,195

Net unrealized gain on securities                                                          337           -             337

Cumulative translation adjustment                  -            -            -              76           -              76

Net loss                                           -            -            -               -     (18,448)        (18,448)
-----------------------------------------------------------------------------------------------------------------------------

Balances, March 28, 2003            22,663     $ 226     $184,122      $(3,408)        $  (198)  $ (65,908)       $114,834
=============================================================================================================================
</TABLE>




See accompanying notes to the consolidated financial statements

                                       30
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:  Network Equipment Technologies, Inc., doing business as
net.com, (net.com or the Company) is a global provider of networking technology
platforms that are used for mission-critical communications solutions. The
Company's multiservice wide area networking (WAN) products, comprising the
Promina product line, use circuit-switched technology to provide an effective
platform for developing reliable and secure networks. In response to the growth
of next-generation networks using packet-switching technologies and the Internet
protocol (IP), the Company developed its service creation platforms for
broadband, IP telephony, and multiservice networks. These platforms allow
network service providers to rapidly create and deliver new service offerings
that the Company believes can help them to accelerate the return on their
network investment, reduce capital and operating expenditures, and achieve
greater profits. Network Equipment Technologies, Inc. was founded in 1983 and
has been doing business as net.com since 2000.

PRINCIPLES OF CONSOLIDATION:  The consolidated financial statements include the
accounts of net.com and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.

BASIS OF PRESENTATION:  In fiscal 2001, net.com began using a 52-week fiscal
year ending on the last Friday in March. In all previous years a fiscal year
ending March 31 was used. The new fiscal year period being used is intended to
better reflect quarter over quarter performance.

REVENUE RECOGNITION:  net.com recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, risk of loss has passed, the price is
fixed or determinable and collectibility is reasonably assured. Service and
other revenue includes revenue from service contracts, which is recognized
ratably over the contract period, and revenue from other services, such as
systems integration, installation and training, which is recognized when the
service is performed. Product warranty costs are accrued when revenue is
recognized.

CASH AND CASH EQUIVALENTS:  Cash and cash equivalents include highly liquid
investments with original maturities of three months or less at the time of
acquisition.

SHORT-TERM INVESTMENTS:  Short-term investments are primarily composed of highly
liquid investments with original maturities of greater than three months at the
time of acquisition. net.com classifies its temporary cash investments as
available-for-sale securities. The carrying value of such securities is adjusted
to fair market value, with unrealized gains and losses being excluded from
earnings and reported as a separate component of stockholders' equity.

INVENTORIES:  Inventories are stated at lower of cost (first-in, first-out) or
market and include material, labor and manufacturing overhead costs. Inventories
at March 28, 2003 and March 29, 2002 consisted of the following:

     (In thousands)                           2003           2002
     --------------------------------------------------------------

     Purchased components                   $  5,084       $  5,388
     Work-in-process                           6,153          8,345
     Finished goods                            3,332          1,071
     --------------------------------------------------------------
                                            $ 14,569       $ 14,804
     ==============================================================

PROPERTY AND EQUIPMENT:  Property and equipment are stated at cost. Depreciation
is computed using the straight-line method over estimated useful lives of
generally three to ten years. Leasehold improvements are amortized over the
shorter of the respective lease terms or estimated useful lives.

SOFTWARE PRODUCTION COSTS:  Capitalization of software production costs begins
upon the establishment of technological feasibility for the products, and
amortization begins when the products are available for release to customers.
net.com assesses the recoverability of capitalized software production costs in
light of many factors, including anticipated future revenues, estimated economic
useful lives and changes in software and hardware technologies. The Company did
not capitalize software production cost in fiscal years 2003, 2002 or 2001.
Software production costs are amortized over the lives of the products,
generally three years. Amortization amounted to $600,000, $1.5 million and $2.7
million in fiscal 2003, 2002 and 2001, respectively. Accumulated amortization
was $12.8 million, $12.2 million, and $10.7 million at March 28, 2003, March 29,
2002, March 30, 2001, respectively.

                                       31
<PAGE>

LONG-LIVED ASSETS:  The carrying value of long-lived assets, including goodwill,
is evaluated whenever events or changes in circumstances indicate that the
carrying value of the asset may be impaired. An impairment loss is recognized
when estimated undiscounted future cash flows expected to result from the use of
the asset including disposition are less than the carrying value of the asset.
An impairment is measured as the amount by which the carrying value exceeds the
fair value.

FOREIGN CURRENCY TRANSLATION:  The functional currency for net.com's foreign
subsidiaries is the local currency. Assets and liabilities of foreign
subsidiaries are translated into dollars at the rates of exchange in effect at
the end of the period. Revenues and expenses are translated into dollars at the
average exchange rate during the period. Gains and losses from foreign currency
translation are included in a separate account in stockholders' equity in the
consolidated balance sheets or included in the consolidated statements of
operations and have not been significant.

STOCK BASED COMPENSATION:  net.com accounts for its stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and its related interpretations. Pro forma disclosures required under Statement
of Financial Accounting Standard (SFAS) 123, Accounting for Stock-Based
Compensation, as if the Company had adopted the fair value based method of
accounting for stock options are as follows (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                                           FISCAL YEARS ENDED
                                                             -----------------------------------------------
                                                                   2003            2002             2001
                                                             --------------- --------------- ---------------
<S>                                                            <C>              <C>            <C>
Net loss-- as reported                                         $   (18,448)     $  (37,398)    $   (20,790)

    Add: Stock based employee compensation included in
        reported net loss, net of related tax effects                    -              15              33

    Less: Stock-based compensation expense determined
        by the fair value method, net of tax                        (4,580)         (6,176)         (6,176)
                                                                -----------      ----------     -----------
Net loss-- pro forma                                           $   (23,028)     $  (43,559)    $   (26,933)
                                                                ===========      ==========     ===========
Basic and diluted loss per common share-- as reported          $     (0.82)     $    (1.69)    $     (0.96)
                                                                -----------      ----------     -----------
Basic and diluted loss per common share-- pro forma            $     (1.03)     $    (1.97)    $     (1.24)
                                                                ===========      ==========     ===========
</TABLE>

net.com's calculations for option grants were made using the Black-Scholes
option pricing model with the following weighted average assumptions for fiscal
2003, 2002, and 2001, respectively: risk free rates of 3.05%, 4.2%, and 5.7%;
stock price volatility factors of 72%, 73% and 64%; expected option lives of
fifty one months, fifty months, and fifty one months, and no dividends during
the expected term. net.com's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur. The fair value
of the employee purchase rights under the Employee Stock Purchase Plan was
estimated using the same model, but with the following weighted average
assumptions for fiscal 2003, 2002 and 2001, respectively: risk free rate of
3.5%, 2.8% and 4.9%; stock price volatility factor of 69%, 64% and 63%; and
expected option life of four months for each year. The weighted average fair
value of purchase rights granted in fiscal 2003, 2002 and 2001 was approximately
$3.45, $3.44 and $3.06, respectively.

COMPREHENSIVE LOSS:  Comprehensive loss at March 28, 2003, March 29, 2002 and
March 30, 2001 is comprised of cumulative foreign translation adjustments of
($527,000), ($602,000), and ($707,000), respectively, and cumulative net
unrealized gains (losses) on available-for-sale securities of $328,000, ($9,000)
and $881,000, respectively.

FINANCIAL STATEMENT ESTIMATES:  The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Such management estimates include, but are not
limited to, the allowances for potentially uncollectible accounts receivable,
the valuation of inventory, warranty costs, the valuation allowance on deferred
tax assets, lease recourse obligation and certain reserves and accruals. Actual
results could differ from those estimates.

CREDIT RISKS:  net.com's credit evaluation process and the reasonably short
collection terms help to mitigate credit risk. net.com typically does not
require collateral or other security to support accounts receivable. net.com

                                       32
<PAGE>

performs ongoing credit evaluations of its customers' financial condition and
limits the amount of credit extended when deemed necessary. net.com maintains
reserves for estimated recourse obligations and bad debts.

RECENTLY ISSUED ACCOUNTING STANDARDS:  In May 2003, the Financial Accounting
Standards Board (FASB) issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. SFAS 150 requires that those
instruments be classified as liabilities in statements of financial position.
SFAS 150 is effective for interim periods beginning after June 15, 2003. The
Company is currently evaluating the effect of SFAS 150 on its balance sheet,
results of operations and cash flows.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends SFAS 133 for certain
decisions made by the FASB Derivatives Implementation Group. In particular, SFAS
149 (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative, (2) clarifies when a
derivative contains a financing component, (3) amends the definition of an
underlying to conform it to language used in FASB interpretation number (FIN)
45, and (4) amends certain other existing pronouncements. SFAS 149 is effective
for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. In addition, most provisions of
SFAS 149 are to be applied prospectively. The Company is currently evaluating
the effect of this statement on its balance sheet, results of operations and
cash flows.

In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which amends SFAS 123, Accounting for
Stock-Based Compensation. SFAS 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require more prominent and more frequent disclosures
in financial statements about the effects of stock-based compensation. SFAS 148
is effective for fiscal years ending after December 15, 2002. The Company
adopted the disclosure provisions of SFAS No. 148 at March 28, 2003. The Company
has not yet determined the effect that the transition provisions of SFAS No. 148
would have on its operating results or financial position, if any.

In November 2002, the FASB issued FIN 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. The Company adopted the disclosure requirements
of FIN 45. The Company is currently determining what effect if any, other
provisions of FIN 45 will have on its operating results or financial condition.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF 94-3, a liability for an exit cost was
recognized at the date of an entity's commitment to an exit plan. SFAS 146 also
establishes that the liability should initially be measured and recorded at fair
value. net.com adopted the provisions of SFAS 146 for exit or disposal
activities initiated after December 31, 2002. The adoption of SFAS 146 did not
have an impact on net.com's historical consolidated financial statements.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS 144
supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, it retains many of the fundamental
provisions of SFAS 121. SFAS 144 also supersedes the accounting and reporting
provisions of APB 30, Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business. However, it retains the requirement in APB 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. The Company adopted SFAS 144 on March
30, 2002. The adoption of SFAS 144 did not have a material impact on net.com's
consolidated financial statements.

RECLASSIFICATIONS:  Certain prior year amounts have been reclassified to conform
to the current year presentation. Such reclassifications had no impact on net
loss or stockholders' equity for any year presented.

                                       33
<PAGE>

NOTE 2:  SHORT-TERM INVESTMENTS

Short-term investments at March 28, 2003 and March 29, 2002 consisted of the
following:

<TABLE>
<CAPTION>
                                                                     2003
                                        ------------------------------------------------------
                                                          Gross         Gross       Estimated
                                           Amortized    Unrealized    Unrealized      Market
     (In thousands)                           Cost         Gains        Losses        Value
    ------------------------------------------------------------------------------------------
<S>                                      <C>            <C>           <C>          <C>
     United States government and        $     32,510   $       91    $       (4)  $    32,561
     municipalities
     Corporate notes and bonds                 18,974           32            (3)       19,004
     Other debt securities                     20,288          252            (4)       20,536
     Foreign debt issues                          513            -             -           513
    ------------------------------------------------------------------------------------------
                                         $     72,285   $      375    $       (4)  $    72,614
    ==========================================================================================

<CAPTION>
                                                                  2002
                                        ------------------------------------------------------
                                                          Gross         Gross       Estimated
                                           Amortized    Unrealized    Unrealized      Market
     (In thousands)                           Cost         Gains        Losses        Value
    ------------------------------------------------------------------------------------------
<S>                                      <C>            <C>           <C>          <C>
     United States government and        $     26,588   $        -    $     (119)  $    26,469
     municipalities
     Corporate notes and bonds                 20,005           31           (48)       19,988
     Other debt securities                     25,358          211           (76)       25,493
     Foreign debt issues                        3,821            3           (11)        3,813
    ------------------------------------------------------------------------------------------
                                         $     75,772   $      245    $     (254)  $    75,763
    ==========================================================================================
</TABLE>

The maturities of short-term investments at March 28, 2003 are shown below (in
thousands):

                                                   Amortized      Estimated
                                                     Cost        Market Value
                                                -------------------------------
         Due within one year                       $  33,540       $  33,622

         Due within one to five years                 35,558          35,771

         Due within five to ten years                  2,798           2,824

         Due after ten years                             389             397
                                                -------------------------------
                    Total                         $   72,285       $  72,614
                                                ===============================

NOTE 3:  GOODWILL  AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill are as follows (in thousands):

                                                          Year Ended March
                                                              28, 2003
                                                         ------------------
         Balance as of March 29, 2002                            $   9,535

         Acquired workforce reclassification                            57

         Impairment                                                 (9,592)
                                                         ------------------
         Balance as of March 28, 2003                            $       -
                                                         ==================

In July 2001, the FASB issued SFAS No. 142 Goodwill and Other Intangible Assets,
which establishes financial accounting and reporting for acquired goodwill and
other intangible assets and supersedes APB Opinion 17,

                                       34
<PAGE>

Intangible Assets. net.com adopted SFAS 142 on March 30, 2002, the beginning of
its fiscal year. SFAS 142 requires that goodwill and intangible assets that have
indefinite useful lives not be amortized but, instead, tested at least annually
for impairment. Accordingly, net.com ceased amortization of all goodwill on
March 30, 2002. Intangible assets that have finite useful lives, consisting
primarily of patents, continue to be amortized over their estimated useful
lives. Any impairment loss was measured as of the date of adoption and
recognized as a cumulative effect of a change in accounting principle.

The standard requires that goodwill be tested for impairment annually. In the
year of adoption, the standard required a transitional goodwill impairment
evaluation, which was a two-step process. The first step of the goodwill
impairment test, used to identify potential impairment, compares the fair value
of a reporting unit with its carrying amount, including goodwill. If the fair
value of a reporting unit exceeds its carrying amount, goodwill of the reporting
unit is considered not impaired, thus the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds its fair value,
the second step of the goodwill impairment test shall be performed to measure
the amount of impairment loss. During the quarter ended June 28, 2002, net.com
completed this first step, which indicated that the goodwill could be impaired.

The second step of the goodwill impairment test used to measure the amount of
impairment loss compares the implied fair value of goodwill with the carrying
amount of the goodwill. If the carrying amount of the goodwill exceeds the
implied fair value of the goodwill, an impairment loss shall be recognized in an
amount equal to that excess. As of June 28, 2002, net.com completed this second
step and measured and recognized a transitional impairment loss of $9.6 million
as a cumulative change in accounting principle in its consolidated statement of
operations.

The following table represents the impact on net loss and basic and diluted loss
per share from the reduction of amortization of goodwill as if SFAS 142 was
adopted in the first quarter of fiscal 2002:

<TABLE>
<CAPTION>
                                                                              FISCAL YEARS ENDED
                                                                              ------------------
                                                                   MAR. 28,        MAR. 29,       MAR. 29,
(Dollars in thousands, except for per share amounts)                 2003            2002           2001
--------------------------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>            <C>
Reported net loss                                                 $  (18,448)     $ (37,398)     $  (20,790)
Workforce amortization                                                   -               96              96
Goodwill amortization                                                    -            3,348           3,288
--------------------------------------------------------------------------------------------------------------
Adjusted net loss                                                 $  (18,448)     $ (33,954)     $  (17,406)
==============================================================================================================

Basic and diluted loss per share:
    Reported basic and diluted loss per share                     $    (0.82)     $   (1.69)     $    (0.96)
    Workforce amortization per share                                       -              -               -
    Goodwill amortization per share                                        -           0.15            0.15
--------------------------------------------------------------------------------------------------------------
Adjusted basic and diluted loss per share                         $    (0.82)     $   (1.54)     $    (0.81)
==============================================================================================================
Common and common equivalent shares used in calculation:
         Basic and diluted                                            22,444         22,069          21,666
</TABLE>

NOTE 4:  ACCRUED LIABILITIES

Accrued liabilities at March 28, 2003 and March 29, 2002 were as follows:

<TABLE>
<CAPTION>
         (In thousands)                                                   2003           2002
         ----------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>
         Accrued compensation                                         $  3,756      $   4,832
         Income taxes payable                                            3,347          5,677
         Unearned income                                                 2,212          1,291
         Restructure costs                                                 904            584
         Lease program reserve                                               7          3,297
         Customer deposits                                               2,805              -
         Other                                                           5,050          5,789
         ----------------------------------------------------------------------------------------
                                                                      $ 18,081      $  21,470
         ========================================================================================
</TABLE>

                                       35
<PAGE>

NOTE 5:  WARRANTY ACCRUALS

net.com generally warrants hardware product sales for twelve months and
software for a period of three months. The methodology is to accrue warranty
expense based on historical expense trends calculated as a percentage of new
product sales. Actual expenses are charged against the accrual in the period
they are incurred. On a quarterly basis, the warranty accrual is analyzed for
adequacy based on actual trends and subsequent adjustments are made to the
liability balance.

Components of the warranty accrual, which are included in accrued liabilities in
the accompanying balance sheet, during fiscal 2003 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                ---------------------------------------------------------------------
                                                                                            BALANCE
                                   BALANCE AT     CHARGES TO    CHARGES TO      OTHER        END OF
                                  BEGINNING OF      COST OF      WARRANTY    ADJUSTMENTS       THE
                                     PERIOD       GOODS SOLD      ACCRUAL        (1)         PERIOD
                                ---------------------------------------------------------------------
<S>    <C>                           <C>             <C>          <C>          <C>           <C>
   Year ended March
   28, 2003                          $ 639           $ 210        $ (338)      $ (307)       $ 204
   --------------------------------------------------------------------------------------------------
   (1) Adjustment resulted from a change in warranty cost estimates
   primarily from lower hourly costs of labor to repair products and
   frequency of warranty claims.
</TABLE>

NOTE 6:  RESTRUCTURE COSTS

During fiscal 2003, net.com recorded a restructuring charge of $2.1 million.
This charge included $730,000 for employee separation costs, $818,000 for lease
termination costs, $286,000 for office closure costs, and $245,000 for other
charges. The remaining liability for restructuring charges is $904,000 at March
28, 2003.

The restructuring charge of $1.2 million recorded during fiscal 2002 consisted
of $1.0 million for employee separation costs, and $153,000 for other charges.
The remaining liability for restructuring charges was $584,000 at March 29,
2002.

Components of accrued restructuring charges, which are included in accrued
liabilities in the accompanying balance sheet, and changes in accrued amounts
related to this restructuring program during fiscal years ended March 28, 2003,
March 29, 2002, and March 30, 2001 were as follows (in thousands):

<TABLE>
<CAPTION>
                                        ----------------------------------------------------------------------
                                          EMPLOYEE                     OFFICE          OTHER
                                         SEPARATION       LEASE        CLOSURE     RESTRUCTURING
                                            COSTS       WRITE-OFF       COSTS          COSTS         TOTAL
                                        ----------------------------------------------------------------------
<S>                                      <C>            <C>          <C>            <C>            <C>
   Balance at March 31, 2000             $     3,606    $       -    $    3,907     $         -    $   7,513
   Provision                                       -            -        (1,411)              -       (1,411)
   Payments                                   (2,759)           -        (2,025)              -       (4,784)
                                        ----------------------------------------------------------------------
   Balance at March 30, 2001                     847            -           471               -        1,318
                                        ----------------------------------------------------------------------
   Provision                                   1,034            -             -             153        1,187
   Payments                                   (1,707)           -          (214)              -       (1,921)
                                        ----------------------------------------------------------------------
   Balance at March 29, 2002             $       174    $       -    $      257     $       153    $     584
                                        ----------------------------------------------------------------------
   Provision                                     730          818           286             245        2,079
   Payments                                     (744)        (204)         (507)           (304)      (1,759)
                                        ----------------------------------------------------------------------
   Balance at March 28, 2003             $       160    $     614    $       36    $         94    $     904
                                        ======================================================================
</TABLE>

net.com believes that all costs associated with its plan of business
reorganization will be paid no later than the end of fiscal 2005.

NOTE 7:  FINANCING ARRANGEMENTS

The financing agreement between net.com and BancBoston Leasing to provide lease
financing to net.com's customers was terminated in fiscal 2001, partly as a
result of BancBoston Leasing being purchased by Fleet Bank Capital Leasing. The
agreement contained a limited recourse arrangement with a minimum of $5.0
million or 20%
<PAGE>

of the outstanding lease balances whichever is greater. In fiscal 2003, net.com
recognized $100,000 as revenue related to sales to customers who obtained
financing from BancBoston Leasing. There was no activity under this agreement in
fiscal 2002 and 2001. There were no outstanding lease payments due to Fleet Bank
Capital Leasing by net.com's customers at March 28, 2003, and therefore net.com
no longer has any recourse obligation to Fleet Bank Capital Leasing.

The financing agreement with Marcap Vendor Financing Corporation (Marcap) to
provide lease financing to net.com customers was terminated in fiscal 2002. This
agreement had a limited recourse provision of $5.0 million, or 20% of the
outstanding lease balance, whichever is greater. In fiscal 2003, net.com
recognized $669,000 as revenue related to sales to customers who obtained
financing from Marcap. In fiscal 2001, net.com recognized $1.7 million in
revenue from one customer who obtained financing from Marcap. The outstanding
lease payments due to Marcap by net.com's customers as of March 28, 2003 were
$7,000 for which net.com has full recourse.

NOTE 8:  COMMITMENTS

net.com leases its facilities under operating leases. The minimum future lease
commitments under these leases as of March 28, 2003, were as follows (in
thousands):

                                                 Operating Leases
              -------------------------------------------------------

              2004                                  $   5,621

              2005                                      4,108

              2006                                      3,338

              2007                                      3,306

              2008                                      3,262

              After 2008                               15,495
              -------------------------------------------------------

              Total                                 $  35,130
              =======================================================

Rental expense under operating leases was $6.4 million, $6.0 million and $5.1
million for fiscal 2003, 2002 and 2001, respectively.

In March 2000, net.com reached a settlement with its landlord and insurance
carrier that allowed net.com to move out of damaged facilities and into a new
build-to-suit facility adjacent to the old facilities. For the year ended March
28, 2003 and March 29, 2002, net.com recorded gains of $2.4 million and $3.7
million, respectively, related to the insurance settlement that was reached.
These gains represent the difference between the cash received, moving costs and
abandoned leasehold improvements. For the years ended March 28, 2003, March 29,
2002 and March 30, 2001, net.com received proceeds of $3.5 million, $5.3 million
and $15.0 million, respectively, from its insurance carrier.

In January 2002, the Company issued a $2.0 million note payable to its landlord
for building repairs related to the Company's former Fremont, California campus.
The note bears interest at 10% and is payable in monthly installments over 10
years. At March 28, 2003, $1.7 million related to this note was included in
other long term liabilities.

NOTE 9:  REDEEMABLE CONVERTIBLE SUBORDINATED DEBENTURES

In May 1989, net.com issued $75.0 million of 7 1/4% convertible subordinated
debentures due May 15, 2014, in an underwritten public offering, with net
proceeds of $72.8 million. Each debenture is convertible at the option of the
holder into common stock at $31.50 per share and is redeemable at the option of
net.com. The debentures are entitled to a sinking fund beginning May 15, 2000,
of $3.8 million annually, calculated to retire 70% of the debentures prior to
maturity. Any redemption or conversion of the debentures prior to the date of
the sinking fund payment will reduce those payments. Previous redemptions have
satisfied the sinking fund requirement through May 15, 2012.

                                       37
<PAGE>

In fiscal 1991, net.com repurchased debentures in the face amount of $6.4
million. During fiscal 1996, net.com completed a partial call of its outstanding
debentures, reducing the debenture principal by $35.1 million, of which $9.8
million was redeemed and an additional $25.3 million was converted into shares
of common stock at a conversion price of $31.50 per share. In fiscal 1997,
net.com repurchased debentures in the face amount of $7.7 million. In fiscal
1999, net.com repurchased debentures in the face amount of $1.1 million at a
cost of $983,000 plus accrued taxes.

net.com did not repurchase any of its debentures in fiscal 2003, 2002 or 2001.

NOTE 10:  CAPITAL STOCK

STOCKHOLDERS' RIGHTS AGREEMENT:  On July 12, 1999, the Board of Directors of
net.com voted to extend net.com's existing Stockholders' Rights Agreement for an
additional 10 years. In addition, the Board voted to amend the Rights Agreement:
1) to adjust the exercise price to $80.00 per one-one hundredth (1/100) of a
share of Series A Preferred Stock; and 2) to adopt a Three Year Independent
Director Evaluation Provision or "TIDE provision" whereby a committee of
independent directors of net.com will review and evaluate the Rights Agreement
at least once every three years to determine if it continues to be in the best
interests of net.com and its stockholders to maintain the Rights Agreement in
effect. In fiscal 2003, a committee of independent directors reviewed the Rights
Agreement and unanimously agreed that the maintenance of the agreement continues
to be in the best interest of the Company and its shareholders, but that the
committee should continue to monitor all relevant facts with regard to the
exercise price. Further, the committee unanimously agreed that the Rights
Agreement should be amended to delete certain "dead-hand" provisions, which the
Delaware courts have ruled to be invalid. Accordingly, the Company adopted an
amendment of the Rights Agreement substantially as set forth in the immediately
preceding sentence.

Under the plan, as amended, a preferred share purchase right, or "Right", is
attached to each share of common stock. The Rights are exercisable only after a
person or group acquires beneficial ownership of 15% or more of net.com's common
stock or commences a tender or exchange offer that would result in 20% or more
of common stock ownership. Each Right initially entitles stockholders to buy one
one-hundredth (1/100) of a share of a new series of participating preferred
stock at an exercise price of $80.00. If net.com is acquired in a merger or
other transaction with a person or group, or sells 50% or more of its assets or
earning power to such a person or group, each Right not owned by such acquiring
person will entitle its holder to obtain, on exercise of the Right, a number of
the acquiring company's common shares having a market value at the time of twice
the Right's then-current exercise price. If a person or group acquires 15% or
more of net.com's outstanding common stock, each Right will entitle its holder
to obtain, on exercise of the Right, a number of shares of common stock (or
equivalent) having a market value of twice the Right's then-current exercise
price. After a person or group has acquired 15% of the outstanding shares of
common stock but before their acquisition of 50% or more of the common stock,
the Board of Directors may exchange one share of common stock or equivalent
fractions of preferred stock for each Right. net.com can redeem the Rights at
$.01 per Right at any time until the tenth day following the acquisition by a
person or group of 15% of net.com common stock. The Rights are also redeemable
thereafter in certain circumstances. The Rights expire on August 24, 2009,
unless earlier redeemed or exchanged.

PREFERRED STOCK:  net.com has authorized 5,000,000 shares of $.01 par value
preferred stock. This stock, if issued, will carry liquidation preferences and
other rights, as determined by the Board of Directors. As of March 28, 2003, no
preferred shares were outstanding.

RESERVED STOCK:   As of March 28, 2003, net.com had reserved shares of its
common stock for the following purposes:

                                                            Reserved Shares
      ------------------------------------------------------------------------

       Stock option plans:

             Outstanding (at $2.79 to $30.00 per share)        7,675,085

             Available for grant                               4,011,580

       Convertible subordinated debentures                       784,317

       Employee stock purchase plan                            1,124,874
      ------------------------------------------------------------------------

                                       38
<PAGE>

EMPLOYEE STOCK PURCHASE PLAN:  Under the employee stock purchase plan, net.com's
employees, subject to certain restrictions, may purchase shares of common stock
at a price equal to at least 85% of the lower of the fair market value of the
common stock at the beginning of the offering period or the end of each four
month period. During fiscal 2003, 2002, and 2001, 347,097, 374,846, and 257,301
shares, respectively, were issued under this Plan, at weighted average prices of
$3.45, $3.44, and $6.45 per share, respectively.

STOCK OPTION AND RESTRICTED STOCK:  net.com grants options to purchase shares of
its common stock and is authorized to award restricted shares of common stock
pursuant to the terms of its 1993 Stock Option Plan and 1997 Stock Option
Program (collectively "option plans"). Stock options generally become
exercisable ratably over a four-year period and expire after seven to ten years.
Options may be granted to officers, employees, directors and independent
contractors to purchase common stock at a price not less than 100% of the fair
market value at the date of grant. No restricted stock was awarded in fiscal
2003, 2002, or 2001. Previously issued restricted stock carries certain
restrictions on transferability, which lapse over the vesting period (generally
two to four years). As of March 28, 2003, 239,500 restricted shares at $.01 per
share have been awarded and issued. There was no related compensation expense
for fiscal years 2003, 2002 and 2001.

Activity in net.com's option plans is summarized below:

<TABLE>
<CAPTION>
                                                                     Weighted                    Weighted
                                                                      Average        Number       Average
                                                        Shares    Exercise Price  Exercisable  Exercise Price
--------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>           <C>              <C>
Options outstanding at March 31, 2000                  6,280,357     $ 10.51       2,697,106        $11.49
--------------------------------------------------------------------------------------------------------------

Granted (weighted avg fair value of $3.81 per share)   2,219,003        8.68
Exercised                                               (151,114)       8.24
Cancelled                                             (2,369,948)      10.39
--------------------------------------------------------------------------------------------------------------
Options outstanding at March 30, 2001                  5,978,298     $  9.94       2,775,761       $ 10.91
--------------------------------------------------------------------------------------------------------------

Granted (weighted avg fair value of $2.84 per share)   2,039,391        3.77
Exercised                                                      -           -
Cancelled                                             (1,258,234)       9.11
--------------------------------------------------------------------------------------------------------------
Options outstanding at March 29, 2002                  6,759,455     $  8.15       3,317,330       $ 10.14
--------------------------------------------------------------------------------------------------------------

Granted (weighted avg fair value of $3.35 per share)   1,875,450        4.72
Exercised                                               (101,505)       3.64
Cancelled                                               (858,315)       7.99
--------------------------------------------------------------------------------------------------------------
Options outstanding at March 28, 2003                  7,675,085     $  7.39       4,330,804       $  8.95
--------------------------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes information concerning options outstanding and
exercisable as of March 28, 2003:

<TABLE>
<CAPTION>
                                Options Outstanding                         Options Exercisable
                  ---------------------------------------------------   --------------------------------
                                          Weighted
                                        Avg Remaining       Weighted                      Weighted
       Range of          Number       Contractual Life       Average       Number          Average
    Exercise Prices    Outstanding         (Years)       Exercise Price  Exercisable   Exercise Price
--------------------------------------------------------------------------------------------------------
<S>           <C>       <C>                  <C>            <C>            <C>             <C>
   $ 2.79  -  $ 3.40      437,451            8.91           $ 3.17          95,634         $  3.04
     3.48  -    3.52      871,846            8.14             3.52         456,699            3.52
     3.57  -    4.10      872,207            9.09             3.88          86,983            3.93
     4.12  -    5.79    1,192,858            9.38             5.40         132,839            5.13
     5.97  -    8.50      825,742            5.51             7.50         598,714            7.67
     8.60  -    8.81      825,197            6.87             8.76         635,454            8.77
     8.94  -    9.94      893,269            6.53             9.59         777,683            9.60
    10.00  -   10.25    1,011,087            6.52            10.18         831,937           10.18
    10.31  -   29.75      744,578            4.12            13.46         714,011           13.58
    30.00  -   30.00          850            1.46            30.00             850           30.00

--------------------------------------------------------------------------------------------------------
   $ 2.79  -  $30.00    7,675,085            7.27           $ 7.39       4,330,804         $  8.95
========================================================================================================
</TABLE>

                                       39
<PAGE>

STOCK BASED COMPENSATION:  As discussed in Note 1, net.com accounts for its
stock-based compensation using the intrinsic value method in accordance with APB
25 and, accordingly, does not recognize compensation expense for employee stock
plans as they are granted at fair market value. However, SFAS 123, Accounting
for Stock Based Compensation requires disclosure of pro forma net income (loss)
and earnings per share had net.com adopted the fair value method as prescribed
by SFAS 123. Under SFAS 123, the fair value of stock-based awards is calculated
through the use of option pricing models. These models require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. As net.com's employee
stock-based compensation plans have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, net.com believes that the
existing option valuation models do not necessarily provide a reliable measure
of the fair value of awards from those plans.

NOTE 11:  INCOME TAXES

Income before income taxes and the provision (benefit) for income taxes consist
of the following for fiscal 2003, 2002 and 2001 (In thousands):

<TABLE>
<CAPTION>
                                                    Mar 28,          Mar. 29,         Mar. 30,
                                                     2003              2002             2001
--------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>               <C>
Loss before income taxes:
      Domestic                                    $ (15,461)       $ (38,513)        $ (21,946)
      Foreign                                         2,781             (877)           (1,044)
--------------------------------------------------------------------------------------------------
                                                  $ (12,680)       $ (39,390)        $ (22,990)
==================================================================================================


Benefit for income taxes:

Current:
      Federal                                     $  (3,760)       $  (2,013)        $  (2,315)
      State                                               -                -                 -
      Foreign                                           (64)              21               115
--------------------------------------------------------------------------------------------------
                                                     (3,824)          (1,992)           (2,200)
--------------------------------------------------------------------------------------------------

Deferred:
      Federal                                             -                -                 -
      State                                               -                -                 -
      Foreign                                             -                -                 -
--------------------------------------------------------------------------------------------------
                                                          -                -                 -
--------------------------------------------------------------------------------------------------
                                                  $  (3,824)       $  (1,992)        $  (2,200)
==================================================================================================
</TABLE>

The benefit for income taxes reconciles to the amount computed by applying the
statutory United States federal rate of 35% to income before income taxes as
follows (In thousands):

<TABLE>
<CAPTION>
                                                     2003              2002             2001
--------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>               <C>
Statutory federal tax provision                   $  (4,438)       $ (13,787)        $  (8,047)
State taxes net of federal income tax benefit             -                -                 -
Goodwill                                                  -            1,205             1,184
Research and development credit                      (1,160)          (1,103)           (1,093)
Change in valuation allowance                         5,558           13,750             7,895
Other                                                (3,784)          (2,057)           (2,139)
--------------------------------------------------------------------------------------------------
Benefit for income taxes                          $  (3,824)       $  (1,992)        $  (2,200)
==================================================================================================
</TABLE>

                                       40
<PAGE>

Deferred tax assets (liabilities) are comprised of the following at March 28,
2003 and March 29, 2002 (In thousands):

<TABLE>
<CAPTION>
                                                                           2003              2002
-------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Gross deferred tax assets:
      Allowances not currently deductible for tax purposes               $   5,240         $   7,218
      Loss carryforwards                                                    34,693            26,577
      Credit carryforwards                                                  17,553            16,124
-------------------------------------------------------------------------------------------------------
Gross deferred tax assets                                                   57,486            49,919

Gross deferred tax liabilities:
      Depreciation                                                          (6,133)           (3,911)
      Capitalized software production costs                                     (2)             (210)
-------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities                                              (6,135)           (4,121)
Valuation allowance                                                        (51,351)          (45,798)
-------------------------------------------------------------------------------------------------------
Net deferred tax assets                                                  $       -         $       -
=======================================================================================================
</TABLE>

The valuation allowance increased $5.6 million and $13.8 million in fiscal 2003
and 2002 respectively. These changes resulted from management's evaluation of
the positive and negative evidence bearing upon the realization of its deferred
tax assets. Under the applicable accounting standards, management considered the
history of losses and concluded that it was appropriate to fully provide for the
net deferred tax assets.

As of March 28, 2003, net.com has available federal research and development tax
credit carryforwards of $7.4 million expiring in years 2006 through 2024, and
alternative minimum tax credit carryforwards of $2.5 million available
indefinitely. At March 28, 2003, state research and development tax credit
carryforwards of $10.0 million are also available indefinitely.

As of March 28, 2003, net.com has available net operating loss carryforwards of
$108.2 million expiring in the years 2020 through 2023.

NOTE 12: LOSS PER SHARE

Basic loss per share excludes dilution and is computed based upon the weighted
average number of common shares outstanding for the periods presented. Diluted
loss per share reflects the potential dilution that could occur if common stock
options were exercised. Potentially dilutive common shares in the diluted
computation are excluded in net loss periods as their effect would be
antidilutive. Such outstanding securities totaled 712,638 at March 28, 2003.
Additionally, there were 784,317 shares of common stock issuable upon conversion
of debentures. These shares, and the related effect of accrued interest expense
on the debentures, were not included in the calculation of diluted loss per
share for any of the years presented, as their inclusion would have been
antidilutive (In thousands except per share data):

<TABLE>
<CAPTION>
                                                                 2003          2002         2001
------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>           <C>
Numerator:
Net loss                                                      $ (18,448)   $ (37,398)    $ (20,790)

Denominator:
Weighted average shares outstanding - basic                      22,444       22,069        21,666
Dilutive effect of options                                            -            -             -
------------------------------------------------------------------------------------------------------
Total diluted                                                    22,444       22,069        21,666
======================================================================================================

Basic and diluted loss per share                              $  (0.82)    $   (1.69)    $   (0.96)
======================================================================================================
</TABLE>

NOTE 13:  SIGNIFICANT CUSTOMERS

Sales to the Federal Government and its agencies amounted to 65%, 50% and 54% of
total revenue for fiscal 2003, 2002 and 2001, respectively, of which 76%, 60%
and 54% of that revenue for fiscal 2003, 2002 and 2001, respectively, was earned
under contracts with the Department of Defense, or "DoD". Under these DoD
contracts

                                       41
<PAGE>

various government agencies both inside and outside the DoD can order
products, installation and service from net.com. net.com had no other customers
that accounted for more than 10% of revenue during these same periods.

NOTE 14:  SEGMENT INFORMATION

net.com operates in one segment: the design, development, manufacture and sale
of multiservice wide area networking equipment and associated services used by
enterprises, government organizations and carriers worldwide. net.com follows
the requirements of SFAS 131, Disclosures about Segments of an Enterprise and
Related Information. Following is operating information by geographic territory
for fiscal 2003, 2002 and 2001 (In thousands):

<TABLE>
<CAPTION>
                                                   United                    Other
2003                                               States       Europe   International Eliminations     Totals
---------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>           <C>           <C>           <C>
     Product revenue                           $  78,788    $  17,218     $  5,913      $       -     $ 101,919
     Service and other revenue                    12,968        4,820        2,448           (55)        20,181
---------------------------------------------------------------------------------------------------------------
         Total revenue                         $  91,756    $  22,038     $  8,361      $    (55)     $ 122,100
---------------------------------------------------------------------------------------------------------------
     Long-lived assets                         $  49,359    $     425     $    335      $(13,122)     $  36,997
===============================================================================================================

<CAPTION>
                                                  United                    Other
2002                                              States       Europe   International Eliminations     Totals
---------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>           <C>           <C>           <C>
     Product revenue                           $  52,683    $  15,385     $  8,244      $ (1,529)     $  74,783
     Service and other revenue                    19,179        6,733        1,033          (182)        26,763
---------------------------------------------------------------------------------------------------------------
         Total revenue                         $  71,862    $  22,118     $  9,277      $ (1,711)     $ 101,546
---------------------------------------------------------------------------------------------------------------
     Long-lived assets                         $  63,104    $     633     $    280      $(13,058)     $  50,959
===============================================================================================================

<CAPTION>
                                                  United                    Other
2001                                              States       Europe   International Eliminations     Totals
---------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>           <C>           <C>           <C>
     Product revenue                           $  52,067    $  16,848     $  9,568      $ (1,489)     $  76,994
     Service and other revenue                    54,219        9,778        3,467          (172)        67,292
---------------------------------------------------------------------------------------------------------------
         Total revenue                         $ 106,286    $  26,626     $ 13,035      $ (1,661)     $ 144,286
---------------------------------------------------------------------------------------------------------------
     Long-lived assets                         $  53,591    $   1,040     $    250      $(11,813)     $  43,068
===============================================================================================================
</TABLE>

NOTE 15:  EMPLOYEE BENEFIT PLAN

net.com has established a 401(k) tax-deferred savings plan, whereby eligible
employees may contribute a percentage of their eligible compensation (presently
from 1% to 17% to a maximum of $11,500 per year). Company contributions are
discretionary and were $450,000, $505,000 and $741,000 for fiscal 2003, 2002 and
2001 respectively.

NOTE 16:  FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE

The estimated fair values of net.com's financial instruments at March 28, 2003
and March 29, 2002 were as follows (In thousands):

<TABLE>
<CAPTION>
                                                          2003                         2002
--------------------------------------------------------------------------------------------------------
                                                Carrying       Estimated      Carrying       Estimated
                                                 Amount        Fair Value      Amount       Fair Value
--------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>          <C>             <C>
Assets:
    Short-term investments                     $   72,614      $   72,614   $   75,763      $  75,763
--------------------------------------------------------------------------------------------------------
Liabilities:
--------------------------------------------------------------------------------------------------------
    Convertible subordinated debentures        $   24,706      $   14,824   $   24,706      $  13,588
--------------------------------------------------------------------------------------------------------
</TABLE>

The following methods and assumptions were used in estimating the fair values of
financial instruments:

                                       42
<PAGE>

Cash and cash equivalents--the carrying amounts reported in the balance sheets
for cash and cash equivalents approximate their estimated fair values due to
their short maturities.

Short-term investments and convertible subordinated debentures--fair values are
based on quoted market prices.

FOREIGN EXCHANGE CONTRACTS:  net.com does not use derivative financial
instruments for speculative or trading purposes. Where available, net.com enters
into foreign exchange forward contracts to hedge certain balance sheet exposures
and intercompany balances against future movement in foreign exchange rates.
Gains and losses on the foreign exchange contracts are included in interest and
other income, net, which offset foreign exchange gains or losses from
revaluation of foreign currency-denominated balance sheet items and intercompany
balances.

The Foreign exchange forward contracts require net.com to exchange foreign
currencies to U.S. Dollars or vice versa, and generally mature in one month or
less. As of March 28, 2003, net.com had outstanding foreign exchange forward
contracts with aggregate notional amounts of $4.8 million and $0 as of March 29,
2002 that had remaining maturities of one month or less. As of March 28, 2003
the carrying amount, which was also the estimated fair values of foreign
exchange forward contracts is based on prevailing financial market information.

NOTE 17:  ACQUISITIONS

In December 1999, net.com completed the acquisition of FlowWise. The acquisition
was accounted for as a purchase. net.com paid approximately $15.4 million in
cash for all FlowWise common and preferred shares outstanding plus investment
banking, accounting and legal fees of approximately $800,000. net.com also
placed $6.6 million in an escrow account for payments to FlowWise employees who
agreed to remain as net.com employees for a period of two years beginning
January 2000. net.com paid out $3.7 million ratably to the employees that
remained for the two-year period. These amounts were paid out over the two-year
term and recorded as compensation expense. The remaining $2.9 million of this
escrow was forfeited and reclassified from restricted cash. net.com recorded a
one-time charge of $879,000 in the third quarter of fiscal 2000 for purchased
in-process technology that had not reached technological feasibility and had no
alternative future use. The remaining portion of the purchase price that
exceeded the net assets of FlowWise, a total of $16.0 million, was recorded as
goodwill and other intangible assets. As discussed in Note 3, goodwill and other
intangible assets were written off in June 2002 in accordance with SFAS 142.

The operating results of FlowWise have been included in the consolidated
statements of operations since the date of acquisition. Had the acquisition
taken place at the beginning of fiscal 2000, the unaudited pro forma results of
operations would have been as follows for the fiscal year ended March 31, 2000
(in thousands except for per share data):

--------------------------------------------------------------------------------
                                                                         2000
--------------------------------------------------------------------------------
    Net revenues                                                  $   226,086
    Net  loss                                                     $   (51,929)
    Basic loss per share                                          $     (2.42)
--------------------------------------------------------------------------------

The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangible assets, interest associated with
funding the acquisition and amortization of the amount placed in escrow for
payment to FlowWise employees. The $879,000 charge for purchased in-process
technology has been excluded from the pro forma results, as it is a
non-recurring charge.

In the first quarter of fiscal 2001, net.com acquired the assets of privately
held Convergence Equipment Company, or "Convergence", from Global Communication
Technologies, Inc. for $1.5 million in cash. Convergence designs and
manufactures next generation IP telephony platforms. The acquisition was
accounted for as a purchase. Included in the transaction was property, plant and
equipment valued at $300,000, the Convergence engineering team, intellectual
property, and a full-featured IP voice switch valued at $1.2 million. The $1.2
million is classified as an intangible asset. The effect of Convergence's
operations is considered immaterial and therefore no pro forma information is
provided. The operating results for Convergence have been included in the
consolidated statements of operations for net.com effective May 4, 2000, the
date of the acquisition. As discussed in Note 3, goodwill and other intangible
assets were written off in June 2002 in accordance with SFAS 142.

                                       43
<PAGE>

NOTE 18:  SALE OF N.E.T. FEDERAL, INC.'S SERVICE BUSINESS

On December 1, 2000, net.com sold the assets of its federal services business
(FSB) to CACI International Inc (CACI) for cash consideration of $40.0 million.
The assets sold were comprised mainly of Federal Government service contracts,
accounts receivable, spares inventory and fixed assets. The cash received from
CACI to date is $37.0 million. The remaining $3.0 million is payable in two $1.5
million installments during the first quarters of fiscal 2004 and 2005. During
the fiscal year ended March 28, 2003 net.com earned and recorded a gain of $5.0
million as a result of meeting certain milestones. The total net gain on the
sale to date is $24.9 million. In addition, under an ongoing agreement with
CACI, net.com will continue to receive royalties on maintenance revenue.

The operating results of the FSB have been excluded from the consolidated
statements of operations since the date of sale. Had the sale taken place at the
beginning of fiscal 2000, the unaudited pro forma results of operations would
have been as follows for fiscal 2001 (in thousands except for per share data):

                                                       2001        2000
     -------------------------------------------------------------------------

      Net revenues                                  $   111,296  $ 175,999

      Net loss                                      $   (48,197)   (59,688)

      Basic and diluted loss per share              $     (2.22)     (2.78)
     -------------------------------------------------------------------------

     The pro forma results of operations give effect to certain adjustments,
     including adding back the effect of fixed corporate allocations.

NOTE 19: LITIGATION

net.com may be involved, from time to time, in litigation relating to claims
arising out of its operations in the normal course of business. net.com is not
currently a party to any legal proceedings, the adverse outcome of which, in
management's opinion, individually or in aggregate would have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flow.






                                       44
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

                                    PART III

Certain information required by Part III is omitted from this Form 10-K because
net.com will file its definitive proxy statement (the "Proxy Statement")
pursuant to Regulation 14A within 120 days after the end of its fiscal year
covered by this Report, and certain information included in the Proxy Statement
is incorporated by reference into this Part III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Information regarding net.com's directors is contained in the sections captioned
"Election of Directors: Directors" in the proxy statement and is incorporated
herein by reference.

EXECUTIVE OFFICERS

The executive officers of net.com and their ages at June 1, 2003 are as follows:

Name                   Age    Position
----                   ---    --------

Hubert A.J. Whyte      52     President, Chief Executive Officer and Director

John C. Batty          48     Senior Vice President and Chief Operating Officer

Gary L. Lau            54     Senior Vice President, Worldwide Sales and Service

Craig W. Forbes        41     Vice President, Strategic Initiatives

Stephen T. Gleave      38     Vice President, Marketing

Hans Kramer            41     Vice President, Engineering

John F. McGrath, Jr.   38     Vice President and Chief Financial Officer

Jeffrey M. Range       43     Vice President, Operations

HUBERT A.J. WHYTE joined net.com as its President and Chief Executive Officer in
June 1999, and has served as a Director of net.com since then. From 1994 until
he joined net.com, Mr. Whyte was President and CEO of Advanced Computer
Communications (ACC), a manufacturer of wide area internetworking products.
Prior to joining ACC, Mr. Whyte was Vice President and General Manager of the
Access Products unit of Newbridge Networks Corporation. Earlier in his career,
Mr. Whyte gained industry experience with British Telecom, Ericsson, Shell Oil,
Business Intelligence Services, Mitel and Siemens.

JOHN C. BATTY joined net.com in December 1999 as Senior Vice President and Chief
Financial Officer, and was appointed Chief Operating Officer in April 2001. He
has a 20-year background in high technology, including strong experience in
telecommunications, specifically in wide area networks, net.com's core business.
From 1997 until joining net.com, Mr. Batty was Vice President of Finance and
Chief Financial Officer of Verilink, a provider of intelligent wide-area-network
access solutions. Prior to Verilink, Mr. Batty spent eleven years at VLSI as
Controller, Director of Corporate Financial Planning and finally as Vice
President and Treasurer prior to its acquisition by Phillips Semiconductor. Mr.
Batty began his career with Intel. He earned his B.A. in Economics at the
University of New Hampshire and his M.B.A. at the University of Chicago School
of Business.

GARY L. LAU joined N.E.T. Federal, Inc., a wholly owned subsidiary of net.com,
in 1987, and was appointed Sr. Vice President, Worldwide Sales and Service in
March 2003. Before his recent appointment, Mr. Lau served as Sr. Vice President
of Federal and Enterprise Sales. Mr. Lau served in the U.S. Air Force for over
20 years, including service at Strategic Air Command (SAC), Military Airlift
Command (MAC) and Headquarters Air Force at the Pentagon. His last tour of duty
was at the White House Communication Agency (WHCA), where he served as the Chief
of Network Plans and Engineering responsible for the architecture and
implementation of their fixed ground and

                                       45
<PAGE>

deployed communications network in support of the President of the United
States, Vice President of the United States, and Senior White House Staff.

CRAIG W. FORBES joined N.E.T. Federal in 1988, was appointed Vice President of
Marketing in July 1999, and was appointed Vice President of Strategic
Initiatives in 2002. In this position, he evaluates and manages new business
opportunities, mergers, acquisitions, partnerships, alliances and/or joint
ventures consistent with the company's strategic direction. Mr. Forbes also
leads the company in driving initiatives of the Service Creation Community, an
organization co-founded by net.com, Microsoft, Accenture, ADC, Siemens ICN, HP,
Oracle, and Paradyne. Prior to his role as Vice President of Marketing, he
served as general manager of net.com's narrowband business unit, helping net.com
customers transition from narrowband networks to next-generation broadband
networks. From 1984 until he joined net.com, Mr. Forbes was an officer in the
United States Air Force. He has a B.S. in Electrical Engineering from Bucknell
University.

STEPHEN GLEAVE joined net.com in July 2002 as Vice President of Marketing. Mr.
Gleave brings over 18 years of experience in the telecommunications industry to
net.com. Prior to joining net.com, he was Chief Marketing Officer at Ubiquity, a
developer of communications software, for one year. Prior to that, he was VP of
Marketing at a number of telecommunications equipment companies, most recently
for one and a half years at Jetstream Communications, and before that for one
year at Premisys Communications (where he had also served previously). He also
held sales and marketing roles at ACC, Newbridge, and Marconi (GDC). Mr. Gleave
graduated with first class honors from Bristol University in the U.K. with a
degree in Electrical Engineering.

HANS KRAMER joined net.com in 1988 and became Vice President of Engineering in
1999. During the latter half of fiscal 2001 Mr. Kramer transitioned from his
position in charge of the Broadband Business Unit to focus on product
development for all of net.com's product lines. During the same period, he also
assumed responsibility for the development of business partnerships, which
continued until 2002. Mr. Kramer joined net.com after working for a series of
start-up companies in the communications industry, including Macom LinkABit, now
a part of the Hughes Network, where he was the project leader for a VSAT
product. Mr. Kramer received his B.A. in Computer Science from the University of
California at San Diego, with dual minors in Economics and Queuing Systems.

JOHN F. MCGRATH, JR. joined net.com in November 2001 as Vice President and Chief
Financial Officer. Prior to joining net.com, Mr. McGrath served in various
financial capacities at Aspect Communications, a developer of hardware and
software solutions for customer contact centers, beginning in 1997. His
positions with Aspect Communications included Vice President of Finance and
Director of Finance for Europe, Middle East, and Africa. Prior to that, he was
Director of Finance for TCSI Corporation (a former Teknekron Company). From 1986
to 1991, Mr. McGrath worked as a Manager in the High Technology/Manufacturing
Group at Ernst & Young. Mr. McGrath holds an MBA from the Stanford Graduate
School of Business and a B.S. in accounting from the University of Wyoming. He
is a registered CPA in the state of California.

JEFFREY M. RANGE joined net.com as Vice President of Operations in February
2002. Mr. Range joined net.com from Advanced Switching Communication (ASC), a
telecommunications equipment provider, where he was Vice President of Worldwide
Operations for two years. Prior to ASC, Mr. Range held several senior management
positions at Newbridge Networks Corporation, including Vice President of
Operations for North & South America from 1996 to 1999, Vice President Corporate
Logistics & Planning from 1993 to 1996, and Vice President Operations Europe,
Middle East & Africa from 1987 to 1993.

ITEM 11.  EXECUTIVE COMPENSATION

Information regarding compensation of net.com's Directors and Executive Officers
is contained in the sections captioned "Election of Directors: Board Committees,
Meetings, and Remuneration" and "Executive Compensation and Related Information"
in the Proxy Statement, which sections are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information regarding security ownership of certain beneficial owners and
management from the section captioned "Stock Ownership of Five Percent
Stockholders, Directors, and Corporate Officers" in the Proxy Statement is
incorporated herein by reference.

                                       46
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding transactions with net.com's Directors and Executive
Officers from the sections captioned "Election of Directors: Board Committees,
Meetings, and Remuneration" in the Proxy Statement and "Executive Compensation
and Related Information" in the Proxy Statement is incorporated herein by
reference.

ITEM 14.  DISCLOSURE CONTROL AND PROCEDURES

In accordance with Section 302 of the Sarbanes-Oxley Act of 2002 and the
Securities Exchange Act of 1934 Section 13(a) or Section 15(d), we implemented
disclosure controls and procedures pursuant to which management under the
supervision and with the participation of the chief executive officer ("CEO")
and chief financial officer ("CFO") carried out, within 90 days prior to the
filing of this annual report, a review and evaluation of the effectiveness of
these controls and procedures. Based on this review, our CEO and CFO have
concluded that our disclosure controls and procedures are effective in timely
alerting them to material changes in information required to be included in our
periodic Securities and Exchange Commission filings.

We intend to review and evaluate the design and effectiveness of our disclosure
controls and procedures on an ongoing basis and to improve our controls and
procedures over time and to correct any deficiencies that we may discover in the
future. Our goal is to ensure that our senior management has timely access to
all material financial and non-financial information concerning our business.
While we believe the present design of our disclosure controls and procedures is
effective to achieve our goal, future events affecting our business may cause us
to significantly modify our disclosure controls and procedures.

ITEM 15.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services is contained in the
section captioned "Relationship With Independent Accountants" in the Proxy
Statement is incorporated herein by reference.


                                     PART IV

ITEM 16.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Independent Auditors' Report                                                 26

Consolidated Balance Sheets as of March 28, 2003 and March 29, 2002          27

Consolidated Statements of Operations for the years ended

     March 28, 2003, March 29, 2002 and  March 30, 2001                      28

Consolidated Statements of Comprehensive Loss for the years

     ended March 28, 2003, March 29, 2002 and  March 30, 2001                28

Consolidated Statements of Cash Flows for the years ended

     March 28, 2003, March 29, 2002 and  March 30, 2001                      29

Consolidated Statements of Stockholders' Equity for the years ended

     March 28, 2003, March 29, 2002 and  March 30, 2001                      30

Notes to Consolidated Financial Statements                                   31

                                       47
<PAGE>

     2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

                                                                           Page
                                                                           ----

Schedule II - Valuation and Qualifying Accounts                             53


     All other schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.

     Separate financial statements of the Registrant are omitted because the
Registrant is primarily an operating company and all subsidiaries included in
the consolidated financial statements filed, in the aggregate, do not have a
minority equity interest and/or long-term indebtedness to any person outside the
consolidated group in an amount which together exceeds 5% of total consolidated
assets at March 28, 2003.

     3. EXHIBITS

<TABLE>
<CAPTION>

Exhibit No.                                 Description                                        Reference
-----------                                 -----------                                        ---------

<S>              <C>                                                                              <C>
   3.1           Registrant's Restated Certificate of Incorporation, as amended.                  (1)

   3.2           Registrant's Bylaws, as amended.                                                 (1)

   4.1           Indenture dated as of May 15, 1989 between Registrant and Morgan                 (2)
                 Guaranty Trust Company of New York.

   4.2           Rights Agreement dated as of August 15, 1989 between Registrant and              (3)
                 Equiserv, formerly The First National Bank of Boston, as amended.

   4.2A          Amendment 3 to the Rights Agreement filed as Exhibit 4.2, above.

   4.3           Certificate of Designations of Series A Junior Participating Preferred           (4)
                 Stock filed with the Secretary of State of Delaware on August 24,
                 1989 (Exhibit 4.1 in the Registrant's Form S-8 Registration Statement).

   10.6*         Officer Employment and Continuation Agreement between Registrant and             (5)
                 Hubert A. Whyte.

   10.15         Form of Director Indemnification Agreement as signed by all Directors            (6)
                 of the Company.

   10.16         Form of Officer Indemnification Agreement as signed by all Executive             (6)
                 Officers of the Company.

   10.17*        Corporate Director Compensation Deferral Election Program and 1996               (6)
                 Deferral Form.

   10.23         Headquarters Facilities - Lease between Ardenwood Corporate Park                 (7)
                 Associates and Network Equipment Technologies, Inc. dated December
                 21, 2000.

   10.24         Asset Acquisition Agreement dated October 18, 2000, by and among                 (8)
                 CACI, Inc.-Federal, CACI International Inc, N.E.T. Federal, Inc., and
                 Network Equipment Technologies, Inc.

   10.28*        Change of Control Agreement between the Registrant and Jeffrey M.                (9)
                 Range. All of the following persons, which includes all of the
                 Registrant's other Executive Officers and certain former Executive
                 Officers, have entered into agreements with the Registrant containing
                 these same terms:  John C. Batty, Craig W. Forbes, Stephen T. Gleave,
                 Hans Kramer, Gary L. Lau, John F. McGrath, Jr., Jeffrey M. Range, Andrew G.
                 Sceats, and  Hubert A.J. Whyte.
</TABLE>

                                       48
<PAGE>

<TABLE>
<CAPTION>

<S>              <C>                                                                                 <C>
   10.31*        Registrant's Amended and Restated 1993 Stock Option Plan, as amended May 16,
                 2003.
   10.32         Registrant's Amended and Restated 1997 Stock Option Program, as amended April       (9)
                 16, 2002 (as Exhibit 99.9).
   10.33*        Registrant's 1998 Employee Stock Purchase Plan, as amended May 16, 2003.           (10)
   10.34*        2002 N.E.T. Europe Ltd. Employee Stock Purchase Plan (as Exhibit 99.3)
   21.1          Subsidiaries of Registrant as of June 1, 2003.
   23.1          Independent Auditors' Consent.
   99.1          Certification of Hubert A. J. Whyte, President and Chief Executive Officer
                 and John F. McGrath, Jr., Vice President and Chief Financial Officer,
                 Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                 Sarbanes-Oxley Act of 2002.
</TABLE>

*    Compensation plans or arrangements in which directors and executive
     officers are eligible to participate.

REFERENCES:  Where indicated, the listed exhibit is incorporated by reference to
a previous filing with the Securities and Exchange Commission as identified by
the reference number corresponding to the applicable filing listed below.

(1)  Form 10-Q (Commission File No. 0-15323) for the fiscal quarter ended
     December 24, 1995, originally filed on February 7, 1996.

(2)  Form 8 Amendment No. 1 to Annual Report on Form 10-K (Commission File No.
     0-15323) for the fiscal year ended March 31, 1989, filed on July 25, 1989.

(3)  Annual Report on Form 10-K (Commission File No. 0-15323) for the fiscal
     year ended March 31, 1990, filed on June 29, 1990.

(4)  Registration Statement on Form S-8 (Nos. 33-33013 and 33-33063), filed on
     January 19, 1990..

(5)  Annual Report on Form 10-K (Commission File No. 0-15323) for the fiscal
     year ended March 31, 1999, filed on June 29, 1999.

(6)  Annual Report on Form 10-K (Commission File No. 0-15323) for the fiscal
     year ended March 31, 1996, filed on June 21, 1996.

(7)  Annual Report on Form 10-K (Commission File No. 0-15323) for the fiscal
     year ended March 30, 2001, filed on June 28, 2001.

(8)  Form 10-Q (Commission File No. 0-15323) for the fiscal quarter ended
     September 30, 2000, originally filed on November 13, 2000.

(9)  Annual Report on form 10-K (Commission File No. 0-15323) for the fiscal
     year ended March 29, 2002, filed on June 14, 2002.

(10) Registration Statement on Form S-8 (No. 333-101962), filed on December 18,
     2002.

(b) REPORTS ON FORM 8-K

The Company filed one report on Form 8-K during the quarter ended March 28,
2003. Information regarding the item reported is as follows.

     On January 15, 2003, the Company issued a press release announcing its
financial results for the fiscal quarter ended December 27, 2002.

                                       49
<PAGE>

                          SIGNATURES AND CERTIFICATIONS


     Pursuant to the requirements of Section 13 or 15(d) 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.


                                           NETWORK EQUIPMENT TECHNOLOGIES, INC.
                                                                   (Registrant)


Date: June 19, 2003                        By:     /s/ Hubert A.J. Whyte
                                               ---------------------------------
                                                   Hubert A.J. Whyte
                                                   President, Chief Executive
                                                   Officer and Director

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

         Signature                                Title                        Date

<S>                                   <C>                                   <C>
   /s/ John F. McGrath, Jr.           Vice President and                    June 19, 2003
------------------------------        Chief Financial Officer
   John F. McGrath, Jr.               (Principal Financial Officer and
                                      Principal Accounting Officer)


   /s/ Dixon R. Doll                  Chairman of the Board                 June 19, 2003
------------------------------
   Dixon R. Doll


   /s/ C. Nicholas Keating, Jr.       Director                              June 19, 2003
-------------------------------
   C. Nicholas Keating, Jr.


   /s/ David R. Laube                 Director                              June 19, 2003
------------------------------
   David R. Laube


   /s/ Thomas Rambold                 Director                              June 19, 2003
------------------------------
   Thomas Rambold


   /s/ Peter Sommerer                 Director                              June 19, 2003
------------------------------
   Peter Sommerer


   /s/ Hubert A.J. Whyte              President, Chief Executive            June 19, 2003
------------------------------        Officer and Director
   Hubert A.J. Whyte                  (Principal Executive Officer)


   /s/ Hans A. Wolf                   Director                              June 19, 2003
------------------------------
   Hans A. Wolf
</TABLE>

                                       50
<PAGE>

                                  CERTIFICATION

     I, Hubert A. J. Whyte, President and Chief Executive Officer of Network
Equipment Technologies, Inc., certify that:


 1. I have reviewed this annual report on Form 10-K of Network Equipment
Technologies, Inc.;


2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;


3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;


4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared; and

     b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

     a) Significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

     b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;


6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


     June 19, 2003

                                          /s/ Hubert A. J. Whyte
                                          -----------------------------------
                                          Hubert A. J. Whyte
                                          President and Chief Executive Officer

                                       51
<PAGE>

                                  CERTIFICATION


     I, John F. McGrath, Jr., Vice President and Chief Financial Officer of
Network Equipment Technologies, Inc., certify that:


 1. I have reviewed this annual report on Form 10-K of Network Equipment
Technologies, Inc.;


2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;


3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;


4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared; and

     b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

     a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

     b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;


6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



     June 19, 2003

                                      /s/ John F. McGrath, Jr.
                                      ----------------------------------------
                                      John F. McGrath, Jr.
                                      Vice President and Chief Financial Officer

                                       52

<PAGE>

<TABLE>
<CAPTION>
                                       NETWORK EQUIPMENT TECHNOLOGIES, INC.

                                                    SCHEDULE II


                                         VALUATION AND QUALIFYING ACCOUNTS

                                                  (IN THOUSANDS)


                                       Balance at     Charged to     Charged                    Balance
                                        beginning      costs and    to other      Deduction/    at end
Description                             of period      expenses     accounts1      write-off   of period
-----------------------------------------------------------------------------------------------------------
<S>                                     <C>                         <C>           <C>          <C>
For the year ended March 30, 2001:
   Accounts receivable
      allowances                        $  3,667             --     $   1,515     $  (3,055)   $   2,127

For the year ended March 29, 2002:
   Accounts receivable
      allowances                        $  2,127             --     $   2,825     $  (3,056)   $   1,896
For the year ended March 28, 2003:
   Accounts receivable
      allowances                        $  1,896             --     $     169     $  (1,219)   $     846













                                                           53

</TABLE>

<PAGE>

                                 EXHIBIT INDEX

EXHIBIT
NUMBER                              DESCRIPTION
------                              -----------
   4.2A     Amendment 3 to the Rights Agreement filed as Exhibit 4.2.
  10.31     Registrant's Amended and Restated 1993 Stock Option Plan, as amended
            May 16, 2003.
  10.33     Registrant's 1998 Employee Stock  Purchase Plan, as amended May 16,
            2003.
   21.1     Subsidiaries of Registrant as of June 1, 2003.
   23.1     Independent Auditors' Consent.
   99.1     Certification of Hubert A. J. Whyte, President and Chief Executive
            Officer and John F. McGrath, Jr., Vice President and Chief Financial
            Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
            Section 906 of the Sarbanes-Oxley Act of 2002.