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 [NO FEE REQUIRED]

                    For the Fiscal Year Ended March 31, 1998

                                       OR

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         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.)     
                                                        

                            6500 Paseo Padre Parkway
                            Fremont, California 94555
                                 (510) 713-7300
                    (Address of principal executive offices,
              including zip code, area code, and telephone number)

           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|

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant on May 30, 1998 was $336,416,241.

     The number of shares outstanding of the Common Stock, $0.01 par value, on
May 30, 1998 was 21,635,741.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     The  registrant's  Annual Report to Stockholders  for the fiscal year ended
March 31, 1998 is  incorporated  by reference in Parts I, II and IV of this Form
10-K to the extent stated herein.  The  registrant's  definitive Proxy Statement
for  the  Annual  Meeting  of  Stockholders  to be held on  August  11,  1998 is
incorporated  by  reference  in Part III of this Form 10-K to the extent  stated
herein.



<PAGE>

                                     PART 1.

Item 1.  Business

General

     Network  Equipment  Technologies,  Inc.  ("N.E.T."  or "the  Company")  was
incorporated  in  California  in 1983 and  reincorporated  in  Delaware in 1986.
N.E.T.'s  initial  public  offering was in 1987 and its common stock is publicly
traded on the New York Stock Exchange under the symbol NWK. The Company  employs
over 1,400 people  globally  and is now  headquartered  in Fremont,  California,
having relocated in May 1998 to a new,  custom-built campus. N.E.T. is a leading
designer,  developer,  manufacturer and supplier of wide-area  networks ("WANs")
and associated services to carriers and other service providers, enterprises and
governments  around the world.  More than 1,500 N.E.T.  customers have installed
over 20,000 N.E.T. switches in more than 70 countries worldwide.

     The  Company  provides  a  range  of  solutions  for  mission-critical  WAN
applications,  primarily  through  sales of  networking  hardware and  software,
complemented by expertise in systems integration,  network design, installation,
implementation and ongoing service and support. N.E.T.'s products are based on a
range of  technologies  and standards  used  throughout the industry and provide
support such as switching, adaptation and aggregation for packet-, frame-, cell-
and  circuit-based  applications.  They allow  customers  to  integrate  diverse
applications including voice, data, video,  multimedia and imaging across single
network infrastructures.  They provide efficient,  cost effective and manageable
backbones  for WANs,  along  with a range of  access  capabilities.  They  allow
carriers to provide a wide range of competitive service offerings such as native
frame relay and ATM services and  enterprise  customers to access those services
or build their own networks.

Forward-Looking Statements

     All   statements   in  this  Form  10-K   that  are  not   historical   are
forward-looking  statements that involve risks and uncertainties  including, but
not limited to, the risks and  uncertainties  discussed in this Form 10-K and in
the  Company's  other  filings with the  Securities  and Exchange  Commission or
available  at the  Company's  worldwide  Web site  (http://www.net.com).  Actual
results may differ materially from those projected.

Networking Industry

     Despite  recent  setbacks in Asia,  the world is  experiencing  significant
economic growth and prosperity.  This growth is at local and national levels and
in the expansion of global economic trade and business activity.  In response to
these economic  drivers,  and to the related increases in levels of business and
consumer  demands,  governments  and  other  entities  such as the  World  Trade
Organization   are   encouraging   the  rapid   development  of   communications
infrastructure, primarily through deregulation and liberalization of markets.

Deregulation and Liberalization

     In the United  States,  the  telecommunications  industry  has moved from a
monopolistic, primarily voice-oriented environment in the early 1980s to largely
liberalized  and  competitive  networking  markets  defined  by wide  ranges  of
products,  new services and solutions for the communications needs of businesses
and consumers.

     In Europe,  deregulation and resulting liberalization of the communications
markets started  several years ago in the United  Kingdom.  In January 1998, the
voice  segment of the  developed  European  markets was also  deregulated.  This
latter  development  in  particular  is  expected  to be the  catalyst  for  the
emergence  of  similar  competitive  trends to those  experienced  in the United
States.  In other markets around the world,  similar  developments are under way
allowing increased competition and fueling market growth.

     In most markets,  deregulation  and  liberalization  has tended to occur in
waves.  Newer market segments such as mobile  communications  or Internet access
tend to be  liberalized  early  in the  cycle.  Such  segments  are not  already
dominated by an entrenched  monopolistic carrier or they require significant new
infrastructure development and the 


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liberalization   process  attracts  the  necessary  capital   investment.   More
established  or  traditional  market  segments such as basic voice services have
historically  tended to be highly  regulated  and dominated by  monopolistic  or
government-controlled  carriers, usually PTTs. Political factors tend to be very
significant  in  the  deregulation  and  liberalization  process.  Other  trends
encouraging  the  ongoing   liberalization  process  include  the  emergence  of
alternative solutions such as those provided by international  callback carriers
who deliver voice services based on an arbitrage of international calling tariff
differences between many countries.

     The ongoing global deregulation and liberalization  trends have contributed
to  significant  new  market  dynamics,   considerably  greater  competition,  a
proliferation of expanded services, increased customer choices and alternatives,
and a general decline in prices and an improvement in quality.

Voice, the Growth of Data Networking and Convergence with Telephony

     In the United States,  major new networks are being deployed by carriers at
the  national,  state and city level which,  along with  competition  from cable
operators  and  wireless  providers,  is leading to an  explosion  in  bandwidth
supply.  Already inexpensive voice services will likely become even more so, and
new  bandwidth  is also  becoming  available  for the  growth  of data and other
services.   In  the  United  States  and  other  developed  voice  markets,  the
deregulation  trend  mentioned  above  has  resulted  in  significantly  greater
competition, merger activity, carrier diversification, technological and service
innovation,  and more.  However,  in many emerging country markets,  much of the
investment  in voice  communications  is still in the stages of providing  basic
services  to  large  proportions  of the  population  or  alternatives  to basic
fixed-line services via mobile or other technologies.

     International  voice traffic has traditionally been an area of high cost to
consumers versus prices for local or long distance services.  Liberalization has
lead to the  emergence of carriers  specializing  in callback and  international
voice resale and, along with increasingly available bandwidth,  will likely lead
to a market with steadily declining - and, ultimately, leveling - prices.

     In markets such as the United  States,  a major trend is the growth of data
networking and its anticipated convergence with voice networking,  or telephony.
Data   networking   services   have  grown  from  a  fraction   of  the  overall
communications  market  to the  point  where,  in the next few  years,  they are
generally expected to equal and then  substantially  exceed the telephony market
segment. Significant among the drivers of this growth are:

     o    the explosive  global expansion and use of the Internet for commercial
          and consumer purposes;

     o    the development of corporate  intranets - the use of Internet Protocol
          ("IP")-  based  solutions  for internal  communications  (for example,
          employee-to-employee) within a particular business;

     o    the emerging areas of electronic commerce and its close relative,  the
          extranet - IP-based  networks  linking  companies and their  employees
          with partners, vendors, other enterprises, franchisees and customers;

     o    the  development  of  Virtual  Private  Networks  ("VPNs")  - a shared
          network,  with a portion of the network provided on a service basis to
          a specific user or business;

     o    the  emergence  of  new  bandwidth  intensive   applications  such  as
          multimedia, telemedicine and distance learning; and

     o    the further  deployment of business  applications  built on the client
          server and local area computing  infrastructures developed in the last
          decade or more.

     For N.E.T.,  the emergence of VPNs is a logical  extension of the solutions
and applications the Company has always provided. N.E.T.'s networking experience
helps carriers and enterprises  migrate to this next generation of WANs, whether
using Asynchronous Transfer Mode ("ATM"), frame relay or IP technologies.

     Convergence of traditionally separate voice, video and data environments is
another key trend and may occur at different  levels  throughout  a network.  In
WANs, convergence will be driven by emerging customer applications


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such as universal messaging (e-mail and voice mail integration), the development
of new  revenue-generating  services,  business  efficiencies  such as cost  and
management  savings,  and the merging of multiple  traffic types across the same
network infrastructure.

Network Architectures and Characteristics

     The  Company  competes  primarily  in the WAN market  space.  This  segment
provides the infrastructure and capability to link local area networks ("LANs"),
campus networks,  voice traffic,  video and other applications to each other via
public carrier-provided  transmission facilities.  In WANs, the center, or core,
is the  high-capacity  backbone or  transmission  infrastructure  developed  and
maintained by a major carrier or network service  provider.  These are typically
high-speed,  high-capacity links using ATM, SONET, or other technology and built
on  switches  characterized  by  high  capacity,   high  reliability  and  other
considerations.  Beyond and around the core is an edge layer  which  defines the
area at the boundary  between a carrier or service  provider and its  enterprise
customer or other  user.  This is the area where  significant  value is added by
switches   providing   features  to  help  manage   traffic,   service   levels,
concentration,  and with  capabilities  such as support of traffic from multiple
interfaces  such as Frame  Relay and native  ATM.  Products in this space may be
located in carrier facilities or deployed at customer premises.  Around the edge
layer is an access layer  characterized by products with high port densities and
correspondingly low price per port, by devices such as access  concentrators and
by  technology  or service  specific  products  such as ATM access  devices.  In
essence, these products allow the access to and from the WAN for the wide number
of users and traffic types.

Company Strategy

     N.E.T.  focuses its strategy and  expertise on the edge and access  layers,
and on providing  products,  services and  solutions  encompassing  the range of
technologies  used in these spaces.  The Company  targets  three major  vertical
markets  or  industries:   (i)  carriers  or  network  service  providers,  (ii)
enterprises  such  as  financial  institutions,   manufacturers,  utilities  and
retailers, and (iii) governmental agencies.

Carriers

     Carriers  are the  entities  providing  communications  services of various
kinds to the public,  both  consumers  and  enterprises.  They range in size and
scope from major  global and  national  corporations  to small  local  telephone
companies.  They may specialize in certain types of traffic or services, such as
cellular services or Internet service  provisioning,  or they may have developed
an integrated range of services or geographical coverage in an effort to provide
"one stop shopping" for clients.

     N.E.T. provides a range of solutions designed to meet carrier requirements.
These solutions  typically  consist of hardware  platforms and related software,
network  management  tools,  expertise  and  support.  N.E.T.  customers in this
segment include global consortia,  PTTs in markets such as China,  major country
and  regional  carriers,   International  Simple  Resellers  ("ISRs"),  callback
carriers,  Internet Service Providers  ("ISPs"),  cellular and wireless carriers
and more.  Applications that can be enabled by N.E.T.  carrier solutions include
Digital Data Networks ("DDNs") providing basic data services in emerging markets
and the provisioning of voice compression and switching capabilities to ISRs.

Enterprises

     Commercial  enterprises  face many  challenges in networking.  For example,
multinational corporate WANs present multiple problems. Networks are growing and
becoming more complex.  Support and  management of different  platforms  running
different applications is expensive and companies must maximize bandwidth use in
the  infrastructure to operate at peak efficiency.  And in increasingly  complex
global environments,  multinational  enterprises face the continued challenge of
lack of  availability  of certain  services in some  markets,  skilled  employee
availability, and so on.

     N.E.T.'s enterprise strategy is to provide an integrated range of solutions
and alternatives with which to address such challenges. In addition, the Company
offers solutions that allow the development of VPNs, the use of public


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networks  in  conjunction   with  private   infrastructure,   or  the  efficient
outsourcing of networks from an enterprise to a carrier.

Governments

     N.E.T.'s strategy includes addressing the needs of government agencies with
a range of communications  solutions. For example,  military services around the
world require  rapidly  deployable,  secure and reliable  mobile  communications
systems for success in a variety of operations.  Personnel are often deployed at
a moment's notice to a remote location for combat operations,  peacekeeping,  or
humanitarian  missions  and  must be able to  communicate  with  other  remotely
located  resources,  as well  as with  strategic  communications  networks  that
support the command  structure.  For  numerous  emergency  management  agencies,
access to reliable mobile communications is vital.

N.E.T. Products and Solutions

     The Company's products provide a range of solutions addressing the needs of
carriers,  enterprises and governments in the WAN access and edge layers.  These
systems offer superior  applications  availability with sophisticated  bandwidth
and traffic  management  as well as  connectivity,  broadband  transmission  and
unified network management across the WAN.  Historically,  the great majority of
product  revenue  has  been  generated  by the  Company's  IDNX(R)  Multiservice
Bandwidt Managers. While future sales of IDNX products are expected to decrease,
the Company expects revenue growth to come from its Promina(TM) product line and
PanaVue(TM)  network  management  systems.  The  major  product  groups  in  the
Company's range of solutions now include:

     o    multiservice access platforms providing solutions designed to optimize
          use of  ATM,  frame  relay,  leased  lines  and  other  services,  and
          incorporate  a  range  of  integrated  products  for  switching,   LAN
          internetworking, voice compression, ATM access and other options;

     o    broadband switches  providing ATM- and SONET-based  solutions targeted
          at carriers for consolidation  and management of multiservice  traffic
          across high-speed backbone networks;

     o    access and  lower-end  networking  products  providing  cost-effective
          connectivity from smaller locations with lighter traffic requirements;
          and

     o    network management systems enhancing operator  visibility into network
          conditions  and  providing  functions  such as fault  correlation  and
          diagnostics.

     N.E.T.'s  Promina product line is the Company's new  ATM-centric  family of
switches and access  multiplexers in three major groups: the Promina 800 Series,
the Promina 2000 and the Promina 4000.

     Introduced in 1997,  the Promina 800 Series  Multiservice  Access  Platform
provides integrated, single-platform access to ATM, frame relay, and leased line
services.  For ATM services,  it provides integration and support for traffic on
one user-to-network  interface ("UNI").  Support is provided for a wide range of
applications  including voice, video, data, fax, modem, LAN, Internet,  ISDN and
frame  relay  traffic.  It is  also  designed  to be a  very  high  availability
platform,  with distributed  intelligence for mission-critical  availability and
rerouting.  The Promina 800 Series is  complemented  and  enhanced by a range of
products  providing a "mix and match"  range of  capabilities  depending  on the
customers' specific requirements. For example:

     o    The  PrimeVoice(TM)  Plus  Compression  Module  offers  a  significant
          increase  in call  capacity  on  existing  leased  lines and  supports
          automatic detection,  digitization,  and transmission of Group III fax
          and voiceband data ("VBD") modem calls.

     o    N.E.T.'s LAN/WAN  Exchange(TM)  ("LWX") Edge Router routes and bridges
          LAN traffic over the WAN. The LWX  incorporates  Cisco IOS source code
          and offers performance,  availability and serviceability  features for
          remote access bridging and routing.


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     o    The PrimeVoice ISDN Switching Module supports  switched ISDN services,
          not only for  voice  networking,  but also for  videoconferencing  and
          LAN-to-LAN connectivity.

     o    The N.E.T.  FrameXpress(TM)  Switching Module enables  provisioning of
          standards-based  frame relay  services on the network by  transporting
          frames over private trunks or public frame relay services.

     o    The   CellXpress(TM)   ATM  Module  provides  an  efficient   industry
          standards-based  solution  with the  operating  advantag  of ATM.  The
          CellXpress  Module  consolidates  internodal  trunk  connections  to a
          carrier  network  at a single  access  point  with  resulting  traffic
          aggregation,  reducing  line costs by  incorporating  multiple  access
          lines into a single ATM UNI link.

     o    Data Port  Modules  offer  optimum  support  for  packet-,  frame- and
          circuit-based data traffic using industry-standard interfaces.

     The  Promina  2000 ATM Network  Multiplexer  adapts and  aggregates  legacy
traffic such as frame relay and Circuit Emulation Services onto an ATM backbone.
It  provides   statistical   multiplexing   and  switching   that  helps  reduce
transmission facility overhead.

     The  Promina  4000 ATM Switch is a  carrier-edge  switch  designed  for the
consolidation of multiservice traffic for reduced management expenses,  superior
bandwidth  utilization,  support for a wide range of applications and quality of
service ("QoS")  requirements and is engineered for very high availability.  Its
SwiftCell(TM)  Advanced  Traffic  Management  provides  fair  access to  network
resources  while  balancing use of those  resources with service  integrity.  It
employs a  scalable  ATM  network  architecture  through  a  "switch  on a card"
approach.  Configurations can be tailored to application requirements,  avoiding
overprovisioning  and  allowing  solutions  to match  requirements  with a great
degree of precision and flexibility.

     The N.E.T.  PrimeSwitch(TM) 100 Series Multiprotocol Access System provides
low-cost  access  solutions for voice and data traffic,  with the ability to use
ISDN or leased lines for cost-effective connectivity.

     N.E.T.'s SONET Transmission Manager(TM) ("STM") is designed for intelligent
broadband   networking.   The  STM   platform   value  to   bandwidth-intensive,
mission-critical applications in both carrier and enterprise environments.

     The growth and scale of today's  networks,  the convergence trend discussed
above,  and the  presence of equipment  from  multiple  vendors  within the same
network  combine  to  increase  complexity  and  the  requirements  for  network
management.   To  address  these  evolving  needs,  N.E.T.  offers  the  PanaVue
Management  Platform.  Its open design,  based on industry  standards,  provides
scalability.  The platform's user interface lowers the cost of network ownership
by  reducing  training  time,  improving  access  and  streamlining   operations
throughout the network. The platform supports the main family of N.E.T. products
and,  additionally,  the platform's  Advanced Fault  Management  System ("AFMS")
provides unified fault management plus integrated service and network management
for  devices in the  network  including  those from other  vendors.  It delivers
Web-based network  management  enabling access to real-time network  information
from any computer with a Web browser and the proper security clearance.

New Product Introduction

     Given the dynamic  characteristics of its markets,  N.E.T. must continue to
develop and  enhance its product  lines to add value and meet the needs of those
strategic markets as they evolve, through internal development,  the acquisition
of  technology,  or  association  with entities  whose  technologies  or product
offerings  complement  its  own.  The  Company  has  entered  into a  number  of
agreements  relating to the  development,  license or purchase of  technology to
extend the reach and  functionality  of the Company's  product  lines,  and will
continue to do so as deemed appropriate by management.

     Many products  designed and  manufactured by N.E.T.  contain  components or
intellectual  property  obtained from third  parties.  The Company's  ability to
maintain and enhance the value of its  intellectual  property and technology and
third party  licenses and  relationships  will affect future product and service
offerings.  Moreover, the 


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Company  believes that operating  results will depend on successful  development
and  introduction  of new products  and  enhancements  to existing  products and
service  offerings.  There can be no assurance  that the Company will succeed in
such efforts or that customers will accept new,  enhanced and existing  products
and services in quantities  and at prices and margins that are  consistent  with
the Company's expectations.  Changes in the Company's distribution,  product and
technology  relationships with a number of entities could have a material impact
on  competitive  and other  factors  described  herein,  including the Company's
operating results.

     The timely  commercial  availability  of all of the Company's  products and
services and their  acceptance by customers are crucial to the future success of
the Company.  The Company has invested and will  continue to invest in designing
and  delivering  products  that  will  function  effectively  well into the next
century.  The Company expects these  investments to be successful but, given the
nature and  complexity  of the N.E.T.  and third  party  products  and  software
offered by the Company and the  complexity  and mixed vendor nature of equipment
used in WANs, there can be no assurance that these  development  efforts will be
successful or that customer  acceptance of products or services will be achieved
or maintained. Substantial delays in availability or acceptance of the Company's
products  and services  would  materially  and  adversely  affect the  Company's
operating results and financial condition.

Marketing, Distribution and Customers

     As discussed  above,  the Company  focuses  primarily on  information-  and
communications-intensive   organizations   in  the  carrier  and  other  service
provider,  enterprise and governmental vertical markets.  These customers may be
local,  national,  multinational  or  global  in  their  operations,  either  as
suppliers of services or as end-users. Although originally focused on the United
States,  N.E.T.'s  presence in markets in Europe,  Asia, Latin America and other
regions has increased substantially over the years.

     In the  United  States  and the  United  Kingdom,  N.E.T.  employs a highly
skilled sales and support organization which develops close direct relationships
with customers.  These  relationships may include  pre-sales  activities such as
network  design and  consultation,  sale of products and  solutions,  post-sales
support of the installed base and other value-added services.  In addition,  the
Company  has  developed  a   substantial   network  of   distributors,   systems
integrators,  value-added  resellers  and others to  represent  and  support the
N.E.T.   product  line  in  other  vertical  or  geographical   markets.   These
relationships are supported by N.E.T.  subsidiaries and offices around the world
and  staffed  by skilled  N.E.T.  employees  who  provide  expertise,  marketing
support, network design and other assistance.

     N.E.T.'s field sales and support structure is organized into three business
units  handling  North  America (the United  States and Canada),  EMEA  (Europe,
Middle  East  and  Africa)  and  APLA  (Asia  Pacific/Latin  America)  that  are
responsible for all vertical market  customer and partner  relationships  within
those  regions.  These units are in turn  supported  by regional  and  corporate
marketing, sales support, technical training and other resources.

     International  sales  represented 37%, 35% and 27% of the Company's revenue
in fiscal 1998, 1997 and 1996, respectively.  Government ownership or control of
the  telecommunications  industries  and  regulatory  standards  in some foreign
countries  could be a  substantial  barrier  to the  introduction  of  wide-area
communications products for use in private or hybrid networks in such countries.
Financial information regarding foreign operations and export sales is discussed
in Note Ten in the "Notes to Consolidated Financial Statements" in the Company's
1998 Annual Report to Stockholders ("Annual Report") filed as Exhibit 13 to this
report.

     In  December  1989,  the Company  entered  into a systems  integration  and
distribution   agreement   with   Ericsson   Business   Networks  AB  of  Sweden
("Ericsson").  Under this agreement,  as amended, and additional agreements with
certain Ericsson subsidiaries, Ericsson has the non-exclusive right to purchase,
resell,  distribute and license various of the Company's  products.  Ericsson is
responsible  for  providing  service  and  support  for the N.E.T.  products  it
markets.  Starting in 1993, N.E.T. has entered into a number of distribution and
technology  agreements  with  subsidiaries  of  Datacraft  Ltd.,  an  Australian
corporation,  including Datacraft Asia Ltd. and Datacraft Technologies Pty. Ltd.
Datacraft  Asia Ltd.  accounts for a  significant  proportion  of the  Company's
distribution  sales  in  mainland  China.  During  the  Company's  fiscal  1998,
Dimension Data Holdings Limited  ("Dimension Data"), a South African information
technology group,  acquired  Datacraft Ltd. and, with it, control of the various
subsidiaries.  The Company does not anticipate material changes in its operating
results as a result of this  acquisition.  The Company  renewed and extended its
agreement with Datacraft Asia Ltd. during its fiscal 1998 and recently signed an
agreement  with  Dimension Data for  distribution  of the Company's  products in
Africa.  The  Company  did not renew 


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its master agreement with International Business Machines Corporation ("IBM") in
fiscal  1998.  However,  the  Company's  products  continue  to be sold  through
distribution   agreements  with  various  IBM  subsidiaries  and  operations  in
individual countries.

     As discussed  above,  the Company targets the carrier and service  provider
vertical  markets as a key element of its strategy.  A number of these  carriers
also act as distribution  channels for the Company's products to enterprises and
other carriers worldwide.  These relationships include joint marketing,  systems
integration,  resale  and  other  agreements  with  carriers  such  as  Concert,
GlobalOne,  MCI, Bell Atlantic Network Integration,  US West, SouthWestern Bell,
Unisource Business Networks, Tele Danmark and Hanwha Corporation.

Sales to Significant Customers

     N.E.T.'s wholly-owned  subsidiary,  N.E.T. Federal,  Inc., which is part of
the Company's  North America  business unit,  markets the Company's  products to
United  States  government  entities  both  directly  and through  collaborative
government  contracting  and  subcontracting  arrangements.  It has entered into
several  contracts  under which it provides its products and services to various
government  agencies (the  "Government  Contracts").  The  Government  Contracts
encompass  varying  periods,  but  most  may be  terminated  by such  government
agencies  at  their  convenience  or at  annual  intervals.  Sales  to the  U.S.
government  and its agencies  amounted to 33%, 29% and 34% of revenue for fiscal
years 1998,  1997 and 1996,  respectively.  These amounts  include sales,  which
amounted to 29%,  27% and 30% of revenue for fiscal  years 1998,  1997 and 1996,
respectively, under contracts with the Department of Defense ("DoD") under which
various  government  agencies can order products,  installation and service from
the Company.  Discontinuance of orders from, or  disqualification of the Company
by, the DoD or other  significant  federal customers would materially affect the
Company's  operating  results  and  financial  condition.  Apart  from  the U.S.
government and its agencies,  no other single  customer  account was responsible
for ten percent or more of revenue during fiscal 1998, 1997 or 1996.

     Historically,  the Company has experienced  customer ordering patterns that
have resulted in the majority of the Company's  revenues in each quarter  coming
from orders  received and shipped in that quarter,  including a large portion of
orders  received  and  filled  in the last  month of the  quarter.  For  further
information,  please  refer  to  "Business  Environment  and  Risk  Factors"  in
"Management's  Discussion  and Analysis" on pages 20 through 23 of the Company's
1998 Annual Report.

Customer Service and Support

     The markets,  customers and complex  challenges of the networking  industry
described earlier require not only hardware- and software-based  solutions,  but
also  significant  support,  service  and other  value-added  assistance  in the
development,  operation  and  expansion  of  the  related  networks.  Since  its
inception,  N.E.T.  has viewed customer  service and support as a key element of
its overall strategy and competitive differentiator, and a critical component of
its long-term relationships with customers.

     The Company's  SourcePoint(TM)  Services  offerings provide a wide range of
service and support options to end users and  distributors  of N.E.T.  products.
These offerings include product installation, a choice of different hardware and
software  maintenance  programs,  upgrades,  repairs,  technical  assistance and
training.  In  addition  to these  and  other  traditional  support  activities,
including  field service and the Company's  investments in Technical  Assistance
Centers  ("TACs"),  the Company continues to introduce new programs and tools to
enhance its value add and customer  satisfaction in this area. For example,  the
Company has introduced an Electronic Support Center. This is a Web-based service
offering first-line troubleshooting  information for major N.E.T. product lines.
Technical information provided includes  Troubleshooting Guides, Hints and Tips,
Cabling Diagrams, Frequently Asked Questions and other product-specific details.
A Web-based  interface  with N.E.T.'s TAC is also  available  using a new Online
Case Management  tool.  Online Case  Management  enables clients to open trouble
cases,  query case status and add Notes to existing cases.  Clients can also use
OnLine Case  Management  to track case status from  opening to closing,  all via
their local Web browser.

     The Company  continues  to invest in its TAC  operations,  adding tools and
capabilities  to enhance  its  support  role.  TAC  support is  fee-based  under
contracts  or on a time  basis.  The  TACs  are  staffed  24 hours a day and are


                                       7
<PAGE>


available on a year-round  basis.  TAC  engineers  provide  assistance  over the
telephone  to their  clients or  partners  or,  when  authorized,  by  accessing
customers'  networks  directly.  TAC  engineers  have  access to  facilities  to
replicate customer problems and test solutions prior to implementation.

     The Company  provides  educational  services to partners and end-users at a
number of  facilities  in the United  States,  Latin  America,  and Europe,  and
through its partners and via traveling  facilities in other locations.  N.E.T.'s
educational  services can be customized to meet the unique  requirements  of its
customers.

     N.E.T.  has also developed  expertise in systems  integration  and services
provided globally as N.E.T.  SourcePoint Professional Services. These high value
services include helping customers optimize their  investments,  the outsourcing
of selected operations functions to N.E.T., or provision of additional expertise
on a project basis.  N.E.T.'s  Professional  Services can be utilized throughout
the various  phases in the network  life cycle from  planning to design  through
implementation.

     In the case of the Company's  international  and  multinational  customers,
services  are  provided  by  either  N.E.T.  or by  its  integrated  network  of
authorized  partners  trained and  supported by N.E.T.'s  headquarters,  TAC and
field operations.

     A significant amount of the Company's revenues and profits are generated by
its service and  support  offerings.  There can be no  assurance  that  customer
acceptance of such current and future  offerings will be maintained or achieved.
Competition,  product  reliability,  remote diagnostic and repair  capabilities,
sales through  distribution  partners and other  factors may impact  service and
support revenues and profitability.

Research and Development

     The Company believes that product and technology leadership are critical to
long-term   success  in  the  highly  dynamic  markets  in  which  it  competes.
Furthermore, it believes that the Company's future operating results will depend
on its ability to continue to enhance its Promina and PanaVue  product  lines as
well as to  develop  and  bring to market on a timely  basis  new  products  and
services  that  meet  market  and  customer   requirements.   N.E.T.   therefore
continually   monitors  markets,   its  customers'   businesses  and  technology
developments in order to develop  solutions that  proactively  address  customer
needs,  and engages in research and development  ("R&D") to develop new products
and  enhancements  to  existing  products  and  services as  technology  and the
Company's performance permits. The Company's R&D spending totaled $43.4 million,
$41.0 million and $36.0 million for the fiscal years ended 1998,  1997 and 1996,
respectively.

     The  Company's  development  efforts  are focused on its  strategic  market
segments  and the key  technologies  involved in providing  solutions  for these
markets.  Product development priorities include those intended to enable N.E.T.
to occupy a prominent  position in the ATM WAN solutions  market; to enhance the
carrier-compatibility of certain products; and to introduce product enhancements
which meet the  evolving  requirements  of  specific  markets  and  distribution
channels.  While most development activity is undertaken  in-house,  the Company
uses external  development  organizations  to  complement  its own resources and
shorten time to market for resulting products and enhancements. The scalable and
modular  architecture  employed  by the Company  for its main  product  families
allows not only  greater  efficiency  in the  development  and  delivery  of new
products and enhancements,  but also benefits customers who can  "mix-and-match"
modules  according to their  networking  needs and use the same  modules  within
different switch chassis.

     For additional discussion of the Company's R&D expenditures in fiscal 1998,
1997 and 1996, see "Management's Discussion and Analysis" on pages 16 through 23
of the Company's 1998 Annual Report.  The Company plans to continue  funding R&D
efforts at levels necessary to advance product programs and expects R&D spending
to increase in fiscal 1999, while decreasing as a percentage of planned revenue.

Manufacturing

     The N.E.T.  manufacturing  process consists of the production of mechanical
and electrical  subassemblies as well as custom system assembly and test. N.E.T.
uses custom fabricated  printed circuit boards and  subassemblies,  standard and
custom integrated circuits, and power supplies and mechanical hardware purchased
from outside


                                       8
<PAGE>


suppliers.  The  Company's  products  also include  components,  assemblies  and
subassemblies  that are  currently  available  from single  sources and, in some
cases, are in short supply.  Testing and  manufacturing of products  designed by
N.E.T. have generally been outsourced to third parties. Final assembly,  quality
control  and  testing is  generally  performed  at the  Company's  manufacturing
facilities,  now  located  in  Fremont,  California.  Availability  limitations,
performance of outside  vendors,  quality control issues,  price  increases,  or
business   interruptions   could  materially  impact  the  Company's   financial
performance.

     N.E.T. products are manufactured from components and assemblies designed to
meet the  Company's  quality and  reliability  requirements.  The  Company  also
resells certain complementary products that are manufactured by outside vendors.
The Company  relies to a  significant  degree on such third  parties for quality
control and support of their products and for order fulfillment. To date, N.E.T.
has not  experienced  any  significant  delays in the  delivery  of  material or
products from either  subcontractors  or vendors,  but availability  limitations
could  adversely  affect  operating  results.  The  Company's  products  include
components,  assemblies  and  subassemblies  that are currently  available  from
single sources and, in some cases, are in short supply. Although N.E.T. believes
alternative  sources or substitutes  for most of such  single-sourced  items are
available  or, in most cases,  could be  developed, if  necessary,  any delay or
difficulties  in developing  such  alternatives  or substitutes  could result in
shipment delays and could adversely affect operating results.

     The Company has entered into software escrow  arrangements  and has granted
to certain customers  manufacturing  rights that are exercisable by the customer
in limited  circumstances,  such as upon material  default by the Company of its
obligations under its agreement with such customers.

     The Company seeks to maintain  inventory in  quantities  sufficient to ship
product  quickly  (normally  within 15 to 60 days)  after  receipt of order.  It
schedules  some  production  and  supply of  products  based on  internal  sales
forecasts.  Many of N.E.T.'s customer agreements provide that delivery dates may
be rescheduled or orders  canceled,  although in certain  circumstances a charge
may be assessed upon  rescheduling or  cancellation.  Because of these and other
factors, there are risks of excess or inadequate inventory that could materially
impact expenses, revenue and, to a greater degree, net earnings.

Quality

     The  Company  has a Total  Quality  Management  process  and is  focused on
continually  enhancing  the  quality  of  products  and  services  delivered  to
customers worldwide. This includes activities to improve the quality of supplied
components,  subassemblies and internal Company processes. The Company's quality
system,  which  includes its business  processes and  procedures  worldwide,  is
certified to ISO 9000 international  standards.  N.E.T. is also certified to ISO
9001,  which covers quality  standards for design and  development,  production,
installation   and  servicing.   In  addition,   N.E.T.   has  received   TickIT
certification for complying with quality standards for software development.

     The  Company  established  a Year  2000  compliance  team in early  1997 to
identify  and take  reasonable  steps to minimize the effect of Year 2000 issues
that may impact the  Company's  products  and business  operations.  The Company
developed its N.E.T.  Products Year 2000 Compliance Program,  which is posted on
the Company's Web site. This Compliance  Program  provides N.E.T.  customers and
partners with information on the Year 2000 compliance status of N.E.T.  products
and identifies solutions for achieving network system and application compliance
prior to the year 2000. In addition, the Year 2000 compliance team has been, and
is,  evaluating Year 2000 issues relating to the Company's  internal systems and
third-party  capabilities  upon  which  the  Company  relies in  conducting  its
business,  including  financial systems,  manufacturing  applications,  customer
service and support,  desktop  applications and infrastructure such as networks,
telecommunications  products,  banking and financial services, service providers
and security systems. Although the Company has not yet determined whether all of
the foregoing systems and applications are fully Year 2000 compliant, based upon
the  information  currently  available,  the  Company  believes  that the  costs
associated  with the Year 2000 issue,  and the  consequences  of  incomplete  or
untimely  resolution  of the Year 2000 issue,  will not have a material  adverse
effect on its business, operating results or financial condition.


                                       9
<PAGE>


Competition

     The  communications  industry in general,  including the specific  segments
within which N.E.T.  competes,  is intensely competitive and is characterized by
advances  in  technology  that  frequently  result  in the  introduction  of new
products and services with improved performance  characteristics.  Recently, the
industry has experienced  consolidation  resulting in a significant  increase in
the size and  capabilities of many entities that compete with N.E.T. The Company
believes  that the  principal  competitive  factors  in its target  markets  are
experience, product capabilities,  standards compliance,  technical services and
support, quality, technical and other reliability, vendor reputation,  stability
and long-term prospects, distribution capabilities and value propositions.

     The Company believes that it currently  competes  favorably with respect to
many of these  factors.  However,  many of the  Company's  current and potential
competitors have greater name recognition, a larger installed base of networking
products, more extensive engineering, manufacturing, marketing, distribution and
support  capabilities  in  addition  to  greater  financial,  technological  and
personnel resources. Actual or perceived failure to keep pace with technological
advances or other  competitive  factors  would  adversely  affect the  Company's
competitive  position and could adversely  affect N.E.T.'s future revenue levels
and operating results.

     In the Company's selected markets it competes with other WAN communications
equipment  vendors.  These  include  products and services  from vendors such as
Ascend  Communications,  Cisco  Systems,  General  DataComm  Industries,  Lucent
Technologies,  Newbridge Networks  Corporation and Northern Telecom  ("Nortel").
Consolidation  in  the  networking  industry  continues  to  accelerate  through
strategic alliances, mergers and acquisitions and joint technology and marketing
agreements.  Continued  or  successful  consolidation  could  result in stronger
competitors  and may  adversely  affect the Company's  competitive  position and
operations.  In addition,  new vendors  continually emerge as competitors in the
Company's selected markets.  N.E.T.'s enterprise WAN solutions also compete with
certain public carrier  network  services and service  providers.  Many of these
competitors  enjoy  substantially   greater  marketing  resources  and  customer
recognition than the Company.

     The Company's  agreements with Ericsson and the Datacraft Ltd. companies do
not  prohibit  manufacturing,  marketing  or  servicing  products  that  compete
directly with N.E.T.'s  products.  N.E.T.'s operating results could be adversely
affected  if  these  or  other  companies  announced  the  availability  of,  or
successfully introduced, such products or services.

     As discussed below under "Government Regulation", in the United States, the
Telecommunications  Act of 1996 (the "1996  Legislation")  removed  restrictions
that had been imposed on Regional Bell Operating Companies ("RBOCs") by the AT&T
divestiture decree thus allowing them, under certain conditions,  to manufacture
telecommunications  equipment or customer premises  equipment.  Competition from
carriers  that  decide to  manufacture  such  equipment,  with their far greater
resources  and large  customer  bases,  or from other  competitors  as discussed
above,  could  cause a  severe  reduction  in  selling  prices  or  volumes  for
multiservice  platforms  and other  communications  products or services,  which
would have a material  adverse  affect on the  Company's  operating  results and
financial condition.

Government Regulation

     As  discussed  above,  the  telecommunications  industry  is  regulated  by
governments and other agencies around the world.  Government regulatory policies
are likely to continue to have a major impact on N.E.T.'s  business by affecting
the availability of voice and data  communications  services and equipment,  the
prices and terms of carriers' competitive offerings and the ability of companies
directly to  manufacture  and market  equipment  and services  that compete with
N.E.T.'s offerings.

     The 1996 Legislation  enacted in February of that year, was the first major
change in U.S. telecommunications law since the Communications Act of 1934. This
far-reaching legislation will influence the U.S.  telecommunications industry in
many ways. Certain changes could have a direct impact on N.E.T.'s business.  For
example, the 1996 Legislation removed restrictions on RBOC activities such that,
under   certain   conditions,   the  RBOCs  may  be  permitted  to   manufacture
telecommunications  equipment  or  customer  premises  equipment.  If any  RBOCs
manufacture  or  form  alliances  with  other   manufacturers  to  develop  such
equipment,   N.E.T.  could  be  materially  and  adversely  affected  by  direct
competition with the RBOCs.


                                       10
<PAGE>


     In addition,  N.E.T.  customers usually are carriers or use carrier network
services,  the rates and terms of which are subject to varying degrees of public
utility-type  government regulation.  For example, in the U.S., decisions at the
federal and state level have, in some instances,  provided certain carriers with
increased flexibility in structuring and pricing their services.  Similar impact
of  regulation or  deregulation  may occur in other N.E.T.  markets,  such as in
Europe, as mentioned earlier.  Changes in the rates or terms of carrier-provided
service  offerings may  adversely  affect the demand for, or limit the usability
of,  network  products  and  services  including  those  provided  by N.E.T.  to
carriers, enterprises and other customers.

     The Federal Communications  Commission ("FCC") in the U.S. and some foreign
governments  require  that  N.E.T.'s  products  comply  with  certain  rules and
regulations, including technical rules designed to prevent harm to the telephone
network and avoid  interference  with  radio-based  communications.  The Company
believes  it  complies  with,  or is  exempt  from,  all  applicable  rules  and
regulations  with  respect to the sale of its  existing  products  in the United
States and in certain foreign  countries.  Failure to comply with FCC or similar
governmental requirements may result in the disconnection of installed equipment
from  common  carrier-provided  circuits.  Any delays in  complying  with FCC or
foreign  requirements with respect to products could delay their introduction or
affect the Company's  ability to produce and market its  products.  Sales to the
U.S.  government are subject to compliance  with applicable  regulations  (e.g.,
Federal Acquisition Regulations).

Proprietary Rights and Licenses

     N.E.T.  has obtained  patents in the United  States and other  countries on
inventions relating to its products and has applied for others. While possession
of patents,  copyrights  and trade secrets could affect the ability of companies
to introduce products competitive with the Company's products,  N.E.T.  believes
that its success  does not depend  primarily on the  ownership  of  intellectual
property  rights,  but  on  its  innovative  skills,  technical  competence  and
marketing  abilities,  and,  accordingly,  that  patents,  copyrights  and trade
secrets will not constitute an assurance of N.E.T.'s future  success.  N.E.T. is
aware that the laws of some other countries do not protect proprietary rights to
the same extent as the laws of the United States.

     Because of the  existence of a large number of  third-party  patents in the
telecommunications  field and the rapid rate of issuance of new patents, some of
the  Company's  products,  or the use  thereof,  could  infringe on  third-party
patents. If any such infringement  exists, the Company believes that, based upon
historical  industry practice,  it or its customers should be able to obtain any
necessary  licenses  or rights  under such  patents on terms  which would not be
materially  adverse to the  Company.  However,  there can be no assurance in the
future  that  actual or  alleged  infringement  will not  materially  affect the
Company's operating results or financial condition.

     The Company regards elements of its software and engineering as proprietary
and  relies  upon  non-disclosure  obligations,   copyright  laws  and  software
licensing agreements for protection.  Despite these restrictions, it is possible
that competitors may obtain information that N.E.T. regards as proprietary. Some
of the technology  incorporated in certain of the Company's products is licensed
from third  parties.  In the event of termination or expiration of the licensing
agreements for such technology,  the Company's  ability to market those products
could be adversely affected, which in turn could materially affect the Company's
operating results and financial condition.

Employees

     As of  March  31,  1998,  the  Company  had  1,408  employees.  None of the
Company's  domestic  employees  are  represented  by  a  collective   bargaining
agreement.  Certain of the  Company's  employees  outside the United  States are
governed by national collective  bargaining or similar  agreements.  The Company
has never experienced any work stoppage.  The Company believes that its employee
relations are good.


Item 2.  Properties

     N.E.T.  currently leases approximately  290,000 square feet of office, R&D,
and manufacturing space in a modern industrial park in Fremont, California under
a new 12-year lease agreement for three  buildings,  with an exclusive option to
lease another 200,000 square feet of space.  The  custom-built  Fremont facility
includes two buildings configured for office space and R&D, and one designed for
manufacturing and support functions. N.E.T.


                                       11
<PAGE>


and its subsidiaries  also lease sales and service offices at other locations in
the United States, China, France, Germany, Mexico, Norway,  Singapore,  Uruguay,
the United  Kingdom  and other  countries.  The  Company  has  recently  vacated
approximately  287,000 square feet of space in Redwood City,  California under a
lease agreement  expiring in October 1998. The Company believes that its current
and planned facilities are, in all material respects,  suitable and adequate for
its anticipated needs.


Item 3.  Legal Proceedings

     The  Company  is not aware of any  material  legal  proceedings  pending or
threatened against it at this time.


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

     On March 10, 1998, the Company held a Special Meeting of  Stockholders.  At
this meeting,  the stockholders voted to approve and adopt the Network Equipment
Technologies,  Inc. 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan")
and to authorize  issuance of up to 600,000 shares of the Company's Common Stock
under the 1998 Purchase Plan as follows:  14,862,474  votes in favor,  3,956,032
votes against, and 104,926 votes abstaining.

Executive Officers of the Registrant

     The Executive  Officers (or "Corporate  Officers") of the Company and their
ages at June 1, 1998, are as follows:

<TABLE>
<CAPTION>
         Name              Age                    Position
         ----              ---                    --------
<S>                        <C>      <C>                                                      
Roger A. Barney            58       Vice President, Human Resources and Corporate Services

James B. De Golia          48       Vice President, General Counsel and Assistant Corporate Secretary

Samuel H. Ezekiel          54       Senior Vice President, Marketing

Joseph J. Francesconi      55       President, Chief Executive Officer and Director

Craig M. Gentner           51       Senior Vice President, Chief Financial Officer and Corporate Secretary

David P. Owen              57       Vice President, Strategy and Technology

Raymond E. Peverell        50       Senior Vice President, Sales and Support

G. Michael Schumacher      59       Senior Vice President, Product Operations

Charles S. Shiverick       54       Vice President, Information Services and Reengineering
</TABLE>


     Roger A. Barney  joined the Company in October  1987 as Vice  President  of
Human  Resources,  and in 1992,  became Vice  President of Human  Resources  and
Corporate  Services.  Prior to joining the  Company,  Mr.  Barney held  numerous
management  positions,  including  Director  of  Human  Resources  for  Verbatim
Corporation.  He also founded his own management  consulting business,  which he
ran from 1983 to 1987.

     James B. De Golia joined the Company in December 1988 and has served as its
General  Counsel and Assistant  Secretary  since 1991. From 1982 to 1988, Mr. De
Golia served as  Corporate  Counsel to a number of high  technology  and federal
divisions and  subsidiaries  of Xerox  Corporation.  Prior to joining Xerox,  he
practiced  law with the San  Francisco  office  of  Thelen,  Marrin,  Johnson  &
Bridges.

     Samuel H.  Ezekiel  joined the  Company in June 1996 as Vice  President  of
Marketing  and in  April  1997,  he  was  appointed  Senior  Vice  President  of
Marketing. From 1991 until joining N.E.T., Mr. Ezekiel was Vice President of


                                       12
<PAGE>


Acquisitions & Alliances at Amdahl  Corporation and from 1980 to 1991, he served
as Vice President and General Manager of the  Communications  Products Division.
Prior to that,  he held a number of sales  management,  marketing,  and business
development  positions with companies  such as British  Telecom,  Sperry Univac,
Computer Communications, Inc. and IBM/Rolm.

     Joseph J.  Francesconi  has served as a Director and as President and Chief
Executive  Officer since joining the Company in March 1994. He has recently been
elected as a Director of Caere Corporation, a public company. From 1977 until he
joined the Company, Mr. Francesconi served in a number of management  capacities
at Amdahl  Corporation,  a leading  mainframe  manufacturer,  most  recently  as
Executive Vice President.  Prior to joining Amdahl Corporation,  Mr. Francesconi
spent 12 years with IBM Corporation.

     Craig  M.  Gentner  joined  the  Company  in July  1989 as Vice  President,
Finance. In July 1990, Mr. Gentner was appointed Vice President, Chief Financial
Officer and Corporate  Secretary,  and in May of 1992,  he was appointed  Senior
Vice  President.  From 1985 to 1989,  Mr.  Gentner  was  employed  by  Xidex,  a
manufacturer  of  computer  peripheral  products,  most  recently as Senior Vice
President and Chief Financial Officer.

     David P. Owen joined the Company in April 1990 as  Director,  Strategy  and
Marketing.  In 1992,  he became Vice  President of Corporate  Marketing,  and in
1994,  he became Vice  President of Corporate  Development  and  Strategy.  More
recently,  in 1997,  Mr. Owen became Vice  President,  Strategy and  Technology.
Prior to joining the  Company,  Mr. Owen was  Director of Product  Marketing  at
StrataCom.  In 1983,  he founded the fast  packet  development  organization  at
Packet Technologies, StrataCom's predecessor company. Mr. Owen spent 15 years at
Control  Data in a  variety  of  product  strategy,  architecture  and  software
development positions.

     Raymond E. Peverell  joined the Company in 1993 as Senior Vice President of
Worldwide Sales, and in 1996, became Senior Vice President of Sales and Support.
From 1983 to 1992, Mr. Peverell was employed by Tandem  Computers,  Inc. holding
various  positions,  his  last  being  Vice  President,   Strategic  Partnership
Development.  Prior to 1983, Mr. Peverell held several  positions over a 12 year
span with Burroughs Corporation.

     G.  Michael  Schumacher  joined the Company in January  1995 as Senior Vice
President  of  Engineering  and  Operations,  and in 1996,  became  Senior  Vice
President of Product  Operations.  Prior to joining the Company,  Mr. Schumacher
was Vice  President and General  Manager of the UNIX Systems  Division of Unisys
Corporation  from 1993 to 1994.  He also  served at Mentor  Graphics  as General
Manager of front-end CAE Tools from 1991 to 1993, and at Solbourne  Computers as
the Vice President of Engineering from 1989 through 1990.

     Charles  S.   Shiverick,   Vice  President  of  Information   Services  and
Reengineering, joined the Company in 1989. Mr. Shiverick has held various senior
management  positions  including  Senior Director of Corporate  Quality and Vice
President of  Operations.  Prior to 1989,  Mr.  Shiverick  spent 22 years at IBM
Corporation in a variety of management positions.


                                     PART II

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

     The section  captioned  "Common  Stock  Dividends  and Price  Range" of the
Registrant's 1998 Annual Report is incorporated herein by reference and included
in this filing as Exhibit 13. At March 31, 1998,  there were 723 stockholders of
record of the Company.


Item 6.  Selected Financial Data

     The section  captioned  "Five Year Financial  Summary" of the  Registrant's
1998 Annual  Report is  incorporated  herein by  reference  and included in this
filing as Exhibit 13.


                                       13
<PAGE>


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

     The  section  captioned  "Management's  Discussion  and  Analysis"  of  the
Registrant's 1998 Annual Report is incorporated herein by reference and included
in this filing as Exhibit 13.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     The Company is not required to provide disclosures regarding market risk in
this Annual Report on Form 10-K as its market  capitalization  is less than $2.5
billion.  Such  disclosures  will be provided in the Company's  Annual Report on
Form 10-K for the year ending March 31, 1999.


Item 8.  Financial Statements and Supplementary Data

     The  sections  captioned   "Quarterly  Financial  Data"  and  "Consolidated
Financial  Statements"  together  with the Notes  thereto  and the  "Independent
Auditors'   Report"  thereon  of  the   Registrant's   1998  Annual  Report  are
incorporated herein by reference and included in this filing as Exhibit 13.


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  the  Company  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 the Registrant

     The information with respect to Directors is incorporated by reference from
the section  captioned  "Election  of  Directors"  at pages 2 and 3 of the Proxy
Statement.

     The information regarding Executive Officers is set forth in Item 4 of Part
I of this Form 10-K.

     The  information  required by Item 405 of Regulation S-K is incorporated by
reference  from the section  captioned  "Compliance  with  Section  16(a) of the
Securities Exchange Act of 1934" at page 13 of the Proxy Statement.


Item 11. Executive and Director Compensation

     The Proxy  Statement  contains  information  regarding  compensation of the
Company's  Directors and Executive  Officers contained in the sections captioned
"Election of Directors: Board Committees, Meetings, and Remuneration" at pages 5
and  6  of  the  Proxy  Statement  and  "Executive   Compensation   and  Related
Information"  at  pages  7 to  10  of  the  Proxy  Statement,  which  pages  are
incorporated herein by reference.


                                       14
<PAGE>


Item 12. Security Ownership of Certain Beneficial Owners and Management

     Information  regarding  security ownership of certain beneficial owners and
management  from  the  section   captioned  "Stock  Ownership  of  Five  Percent
Stockholders,  Directors,  and Corporate Officers" at pages 4 and 5 of the Proxy
Statement is incorporated herein by reference.


Item 13. Certain Relationships and Related Transactions

     Information  regarding   transactions  with  the  Company's  Directors  and
Executive  Officers from the sections  captioned  "Election of Directors:  Board
Committees,  Meetings, and Remuneration" at pages 5 and 6 of the Proxy Statement
and "Executive  Compensation  and Related  Information"  at pages 7 to 10 of the
Proxy Statement is incorporated herein by reference.


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)  (1)  Financial  Statements  - See "Index to Financial  Statements  and
               Financial Statement Schedule" at page 20 of this Report.

          (2)  Financial   Statement   Schedules  -  See  "Index  to   Financial
               Statements and Financial  Statement  Schedule" at page 20 of this
               Report.

          (3)  Exhibits - See "Exhibit Index" at page 16 of this Report.

     (b)  The Registrant  filed no reports on Form 8-K during the fourth quarter
          of the fiscal year ended March 31, 1998.


                                       15
<PAGE>


                                  EXHIBIT INDEX


Exhibit No.                     Description                                 Note

   3.1         Registrant's Restated Certificate of Incorporation,  as        1 
               amended.                                                         
                                                                              
   3.2         Registrant's Bylaws, as amended.                               1 
                                                                                
   4.1         Indenture  dated as of May 15, 1989 between  Registrant        2 
               and Morgan Guaranty Trust Company of New York.                   
                                                                                
   4.2         Rights  Agreement  dated as of August 15, 1989  between        3 
               Registrant and The First  National Bank of Boston,  as           
               amended.                                                         
                                                                                
   4.3         Certificate   of   Designations   of  Series  A  Junior        4 
               Participating  Preferred 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).               
                                                                                
   10.1        Headquarters   Facilities  Lease   Agreements   between        5 
               Sobrato    Interests   III   and   Network    Equipment          
               Technologies, Inc. dated April 9, 1997.                          
                                                                                
   10.2        Seaport   Centre  Phase  Three   Industrial  Net  Lease        5 
               Agreement dated August 12, 1987 between  Registrant and          
               Lincoln Property N.C., Inc.                                      
                                                                                
   10.7        Officer  Employment and Continuation  Agreement between          
               Registrant and Joseph J. Francesconi.*                           
                                                                                
   10.8        Officer  Employment and Continuation  Agreement between          
               Registrant and Raymond E. Peverell.*                             
                                                                                
   10.9        Officer  Employment and Continuation  Agreement between          
               Registrant and G. Michael Schumacher.*                           
                                                                                
   10.10       Officer  Employment and Continuation  Agreement between          
               Registrant and Craig M. Gentner.*                                
                                                                                
   10.11       Officer  Employment and Continuation  Agreement between          
               Registrant and Samuel H. Ezekiel.*                               
                                                                                
   10.12       Employment  Agreement between  Registrant and Walter J.        6 
               Gill.*                                                           
                                                                                
   10.13       Form of Officer  Employment and Continuation  Agreement        6 
               as  signed  by  all  other   Executive   Officers   and          
               Registrant.*                                                     
                                                                                
   10.14       Form of Director Indemnification Agreement as signed by        6 
               all Directors of the Company.                                    
                                                                                
   10.15       Form of Officer Indemnification  Agreement as signed by        6 
               all Executive Officers of the Company.*                        


                                       16
<PAGE>


               Corporate  Director   Compensation   Deferral  Election        6 
               Program and 1996 Deferral Form.                                  
                                                                                
               Corporate   Officer   Compensation   Deferral  Election        6 
               Program and 1996 Deferral Form.*                                 
                                                                                
               Corporate  Officers  Long-Term  Variable   Compensation        6 
               Program.*                                                        
                                                                             
   13          Portions of 1998 Annual Report to Stockholders.

   21.1        Subsidiaries of Registrant as of June 24, 1998.

   23.1        Independent Auditors' Consent.

   27          Financial Data Schedule.

   99.1        Registrant's 1983 Stock Option Plan, as amended.*              7

   99.2        Registrant's 1988 Restricted Stock Award Plan.*                8

   99.3        Rules of Registrant's 1988 U.K. Stock Option Scheme.*          9

   99.4        Registrant's 1989 U.K. Stock Option Plan.*                     8

   99.5        Registrant's  1990  Employee  Stock  Purchase  Plan, as       10 
               amended.*                                                     

   99.6        Registrant's   1993  Stock  Option  Plan,   as  amended       11
               (Exhibit 99.3).*                                              

   99.7        Registrant's  1997  Stock  Option  Program,  as amended       11
               (Exhibit 99.2).*                                              

   99.8        Registrant's 1998 Employee Stock Purchase Plan (Exhibit       11
               99.1).                                                        


--------
*    A  management  contract  or  compensatory  plan  required to be filed as an
     Exhibit to Form 10-K.


                                       17
<PAGE>


                                      NOTES

(1)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's Form 10-Q (Commission File No. 0-15323) for the fiscal quarter
     ended December 24, 1995,  originally filed with the Securities and Exchange
     Commission on February 7, 1996.

(2)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's  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 with the Securities and Exchange Commission on July 25, 1989.

(3)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's  Annual Report on Form 10-K  (Commission File No. 0-15323) for
     the fiscal  year  ended  March 31,  1990,  filed  with the  Securities  and
     Exchange Commission on June 29, 1990.

(4)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's   Registration  Statement  on  Form  S-8  (Nos.  33-33013  and
     33-33063), filed with the Securities and Exchange Commission on January 19,
     1990.

(5)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's  Registration  Statement  on Form  10-K  (Commission  File No.
     0-15323)  for the fiscal year ended March 31, 1997,  originally  filed with
     the Securities and Exchange Commission on June 23, 1997.

(6)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's  Annual Report on Form 10-K  (Commission File No. 0-15323) for
     the fiscal  year  ended  March 31,  1996,  filed  with the  Securities  and
     Exchange Commission on June 21, 1996.

(7)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's  Annual Report on Form 10-K  (Commission File No. 0-15323) for
     the fiscal  year  ended  March 31,  1993,  filed  with the  Securities  and
     Exchange Commission on June 25, 1993.

(8)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's  Annual Report on Form 10-K  (Commission File No. 0-15323) for
     the fiscal  year  ended  March 31,  1991,  filed  with the  Securities  and
     Exchange Commission on June 28, 1991.

(9)  Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's  Annual Report on Form 10-K  (Commission File No. 0-15323) for
     the fiscal year ended March 31, 1989,  originally filed with the Securities
     and Exchange Commission on May 1, 1989.

(10) Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's Registration Statement on Form S-8 (No. 33-68860),  filed with
     the Securities and Exchange Commission on September 15, 1993.

(11) Incorporated  by reference from the  corresponding  Exhibit (or the Exhibit
     identified  in  parentheses)   previously   filed  as  an  Exhibit  in  the
     Registrant's Registration Statement on Form S-8 (No. 333-49837), filed with
     the Securities and Exchange Commission on April 10, 1998.


                                       18
<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements  of Section 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 24, 1998           By: /s/ JOSEPH J. FRANCESCONI    
                                 -----------------------------------------
                                        Joseph J. Francesconi
                                        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.

Signature                    Title                                     Date
---------                    -----                                     ----
/s/ DIXON R. DOLL
-------------------------    Director                             June 24, 1998
Dixon R. Doll

/s/ JAMES K. DUTTON
-------------------------    Director                             June 24, 1998
James K. Dutton

/s/ JOSEPH J. FRANCESCONI 
-------------------------    President, Chief Executive           June 24, 1998
Joseph J. Francesconi        Officer and Director
                             (Principal Executive Officer)

/s/ CRAIG M. GENTNER
-------------------------    Senior Vice President, Chief         June 24, 1998
Craig M. Gentner             Financial Officer and Corporate
                             Secretary (Principal Financial
                             Officer and Principal Accounting
                             Officer)

/s/ WALTER J. GILL
-------------------------    Director                             June 24, 1998
Walter J. Gill

/s/ GEORGE M. SCALISE
-------------------------    Director                             June 24, 1998
George M. Scalise

/s/ HANS A. WOLF
-------------------------    Chairman of the Board                June 24, 1998
Hans A. Wolf


                                       19
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE


FINANCIAL STATEMENTS
--------------------

                                                    Page in 1998 Annual Report*
                                                    ---------------------------

Consolidated Balance Sheets as of March 31, 1998                24 
  and 1997                                                          
Consolidated Statements of Income for the years                 25 
  ended March 31, 1998, 1997 and 1996                               
Consolidated Statements of Cash Flows for the years             26 
  ended March 31, 1998, 1997 and 1996                               
Consolidated Statements of Stockholders' Equity for             27 
  the years ended March 31, 1998, 1997 and 1996                 28  
Notes to Consolidated Financial Statements                      41  
Independent Auditors' Report                                     


----------
*    Incorporated herein by reference and included in this filing as Exhibit 13.



FINANCIAL STATEMENT SCHEDULE
----------------------------

                                                       Page in 1998 Form 10-K
                                                       ----------------------

Independent Auditors' Report                                     21
Schedule II - Valuation and Qualifying Accounts                  22


     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 31, 1998.


                                       20
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


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

     We have audited the consolidated  financial statements of Network Equipment
Technologies,  Inc. and subsidiaries as of March 31, 1998 and 1997, and for each
of the three  years in the period  ended  March 31,  1998,  and have  issued our
report thereon dated April 15, 1998;  such  financial  statements and report are
included in your 1998 Annual Report to Stockholders and are incorporated  herein
by  reference.  Our audits also  included the  financial  statement  schedule of
Network  Equipment  Technologies,  Inc.  listed  in the  accompanying  index  to
financial  statements and financial statement schedule.  The financial statement
schedule is the responsibility of the Company's  management.  Our responsibility
is to express an opinion  based on our audits.  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.



DELOITTE & TOUCHE LLP

San Jose, California
April 15, 1998



                                       21
<PAGE>


                      NETWORK EQUIPMENT TECHNOLOGIES, INC.

                                   SCHEDULE II

                        Valuation and Qualifying Accounts
                                 (in thousands)


<TABLE>
<CAPTION>
                                      Balance at        Charged to        Charged                           Balance
                                      beginning         costs and         to other        Deduction/        at end
Description                           of period          expenses         accounts         write off       of period
-----------                           ----------        ----------        --------        ----------       ---------
<S>                                      <C>               <C>            <C>              <C>              <C>   
For the year ended March 31, 1996:    
                                      
          Accounts receivable         
                   allowances            $2,514            --             $4,615 (1)       $(2,596)         $4,533
                                      
                                      
                                      
For the year ended March 31, 1997:    
                                      
          Accounts receivable         
                   allowances            $4,533            --             $1,237 (1)       $(1,860)         $3,910
                                      
                                      
                                      
For the year ended March 31, 1998:    
                                      
          Accounts receivable         
                   allowances            $3,910            --             $2,082 (1)       $(2,066)         $3,926
</TABLE>


----------
(1)  Amount represents  additions to accounts  receivable  allowances which were
     charged primarily to revenue.