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                                  UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------


                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 2000

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


                             ----------------------
                         Commission File Number 0-24707


                             INET TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)


                   DELAWARE                              75-2269056
         (State or other jurisdiction                 (I.R.S. employer
       of incorporation or organization)             identification no.)

          1500 NORTH GREENVILLE AVENUE                      75081
               RICHARDSON, TEXAS                          (Zip code)
    (Address of principal executive offices)


       Registrant's telephone number, including area code: (469) 330-4000

                              --------------------
           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE



           Securities registered pursuant to Section 12(g) of the Act:
                         COMMON STOCK, $0.001 PAR VALUE

                              --------------------


     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 THE 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 FEBRUARY 28, 2001 WAS $150,858,475.58.

     THE NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING ON MARCH
15, 2001 WAS 46,576,505.

                       DOCUMENTS INCORPORATED BY REFERENCE

     CERTAIN INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT IS
INCORPORATED BY REFERENCE FROM THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO
BE DELIVERED TO STOCKHOLDERS IN CONNECTION WITH THE REGISTRANT'S ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 16, 2001.

<PAGE>

                             INET TECHNOLOGIES, INC.
                                    FORM 10-K
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

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<S>            <C>                                                                           <C>
                                            PART I

Item 1.        Business .................................................................      1
Item 2.        Properties ...............................................................     19
Item 3.        Legal Proceedings ........................................................     19
Item 4.        Submission of Matters to a Vote of Security Holders ......................     19

                                           PART II

Item 5.        Market for Registrant's Common Equity and Related Stockholder Matters ....     19
Item 6.        Selected Financial Data ..................................................     20
Item 7.        Management's Discussion and Analysis of Financial Condition
                 and Results of Operations ..............................................     20
Item 7A.       Quantitative and Qualitative Disclosures About Market Risk ...............     36
Item 8.        Financial Statements and Supplementary Data ..............................     37
Item 9.        Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure ...............................................     37

                                           PART III
Item 10.       Directors and Executive Officers of the Registrant .......................     37
Item 11.       Executive Compensation ...................................................     38
Item 12.       Security Ownership of Certain Beneficial Owners and Management ...........     38
Item 13.       Certain Relationships and Related Transactions ...........................     38


                                           PART IV
Item 14.       Exhibits, Financial Statement Schedule and Reports on Form 8-K ...........     38

Signatures ..............................................................................     41

</TABLE>

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                                     PART I

ITEM 1.  BUSINESS.

     THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS
OTHER THAN HISTORICAL OR CURRENT FACTS, INCLUDING, WITHOUT LIMITATION,
STATEMENTS ABOUT OUR BUSINESS STRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT AND
OUR FUTURE PROSPECTS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH WE BELIEVE THAT
THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE,
SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE EXPECTATIONS. SUCH
RISKS AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE FOLLOWING:

     -   OUR OPERATING RESULTS ARE DIFFICULT TO PREDICT AND ARE LIKELY TO VARY
         SIGNIFICANTLY FROM QUARTER TO QUARTER IN THE FUTURE;

     -   WE COULD BE MATERIALLY HARMED IN THE EVENT OF A GENERAL ECONOMIC
         SLOWDOWN, A REVERSAL OR SLOWDOWN IN THE PACE OF THE PRIVATIZATION,
         RESTRUCTURING OR DEREGULATION OF THE TELECOMMUNICATIONS INDUSTRY, A
         SIGNIFICANT SLOWDOWN IN THE GROWTH OF THAT INDUSTRY OR CONSOLIDATIONS
         INVOLVING OUR CURRENT OR PROSPECTIVE CUSTOMERS;

     -   ANY REDUCTION IN DEMAND FOR OUR NETWORK INTELLIGENCE, BUSINESS
         INTELLIGENCE AND DIAGNOSTIC SOLUTIONS COULD HAVE A MATERIAL ADVERSE
         EFFECT ON US;

     -   WE COULD BE MATERIALLY HARMED IF THE MARKET FOR CONVERGING AND
         NEXT-GENERATION NETWORK SOLUTIONS FAILS TO GROW AS WE CURRENTLY
         ANTICIPATE;

     -   EXPECTED INCREASED COMPETITION IS LIKELY TO RESULT IN PRICE REDUCTIONS,
         REDUCED MARGINS AND LOSS OF MARKET SHARE; AND

     - OTHER RISKS INDICATED BELOW UNDER THE CAPTION "RISK FACTORS".

THESE RISKS AND UNCERTAINTIES ARE BEYOND OUR CONTROL AND, IN MANY CASES, WE
CANNOT PREDICT THE RISKS AND UNCERTAINTIES THAT COULD CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING
STATEMENTS. WHEN USED IN THIS DOCUMENT, THE WORDS "BELIEVES," "PLANS,"
"EXPECTS," "ANTICIPATES," "INTENDS," "CONTINUE," "MAY," "WILL," "COULD,"
"SHOULD," "FUTURE," "POTENTIAL," "ESTIMATE," OR THE NEGATIVE OF SUCH TERMS
AND SIMILAR EXPRESSIONS AS THEY RELATE TO US OR OUR MANAGEMENT ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS.

OVERVIEW

     Inet Technologies, Inc. is a global provider of communications software
solutions that enable carriers to more effectively design, deploy, diagnose,
monitor and manage communications networks that carry signaling information used
to control and deliver communications sessions and services. These
communications sessions include phone calls, dial-up Internet access and other
service transactions or sessions. Our solutions also address the fundamental
business needs of communications carriers, such as improved billing, targeted
sales and marketing, fraud prevention and enhanced routing. We provide these
comprehensive offerings through our network intelligence, business intelligence,
diagnostics and network infrastructure solutions.


                                       1
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     - NETWORK INTELLIGENCE SOLUTIONS - Our flagship product in the network
intelligence area is the GeoProbe. The GeoProbe provides real-time,
network-wide monitoring of a carrier's Common Channel Signaling System #7, or
SS7, or next-generation networks. GeoProbe's monitoring applications enable
early warning of network faults, collection of network performance statistics
for evaluations, real-time call or session tracing and troubleshooting. These
applications are used by carriers to optimize the performance of and monitor
the health of their networks. The GeoProbe also serves as a data-forwarding
engine for our IT:seven business intelligence solutions. Our network
intelligence solution for wireless networks, GeoProbe Mobile, gives carriers
a comprehensive, end-to-end view of their networks whether they employ Global
System for Mobile Communications, or GSM, IS-41 or General Packet Radio
Service, or GPRS, technologies to direct traffic. GeoProbe Mobile's
non-intrusive monitoring capabilities enable the carrier to improve service
quality; minimize time-to-market of new services; enhance roaming
profitability; introduce revenue-generating, location-based services; and
help protect the network against fraud and cyber terrorism. GeoProbe Mobile
also supports GPRS and Mobile Application Part.

     - BUSINESS INTELLIGENCE SOLUTIONS - Our IT:seven suite of business
intelligence solutions addresses the areas of revenue assurance, customer
care and Quality of Service, or QoS. These solutions create business
intelligence information by leveraging data collected from a carrier's
signaling network. We currently offer four IT:seven applications - GeoBill,
GeoCare, GeoConnect and GeoRoam. The IT:seven suite of applications provides
reconciliation of billing between carriers, service quality reports and
marketing data.

     - DIAGNOSTICS SOLUTIONS - There are currently two product offerings in the
diagnostics area - Spectra and Spectra Trunk Tester. Our Spectra multi-protocol
analyzer has been used by more than 500 companies worldwide for commissioning,
interoperability testing and on-going maintenance of telecommunications
networks, as well as the development of revenue-generating services. The Spectra
product can be integrated within the GeoProbe platform or used on a stand-alone
basis to provide diagnostic, emulation and load generation capabilities for use
by service providers or equipment manufacturers in the design, deployment,
commissioning and diagnosis of signaling networks and related elements. The
product can simultaneously monitor, test, emulate and generate basic and
advanced SS7, ISDN and X.25 signaling traffic with over 100 national and
international variants. The Spectra Trunk Tester measures the quality of
packetized and circuit-switched voice networks under extreme pressure, stressing
networks with up to 1.8 million calls per hour, while simultaneously generating
test calls that inject and detect tones on digital voice channels.

     - NETWORK INFRASTRUCTURE SOLUTIONS - In 2001, we will introduce our
first network infrastructure offering, the VIA softswitch. VIA will provide
the intelligence to route and control calls between traditional
circuit-switched and next-generation packet networks. The softswitch can also
be used by carriers with interoperable media gateway equipment as part of a
total solution to transport Internet-bound calls and voice calls over
lower-cost packet networks rather than the more expensive, traditional
circuit-switched networks. Our strategy is to interoperate with leading
switch fabric vendors to provide a total solution for carriers. VIA is
differentiated from most other softswitch solutions in the market today by
its high performance, scalability and small footprint. These key factors are
a result of VIA residing on the same Inet-designed hardware platform that is
used for GeoProbe. This architecture also results in a much lower cost of
goods for users than is the case with competing products whose solutions are
often dependent on expensive third-party hardware that is less scalable and
cost effective.

                                       2
<PAGE>


     Founded in 1989, our mission is to be a leading provider of network
intelligence solutions for converging and new world networks worldwide. Key
elements of our strategy to achieve this objective include:

     -    expanding our global market share,

     -    continued penetration of our existing customer base,

     -    continued investment in strategic areas to facilitate growth,

     -    introduction of new products and enhancements to existing product
          offerings, and

     -    building relationships with strategic partners.

     As of December 31, 2000, we had sold our solutions to over 500 customers
in more than 50 countries. Our target customers include traditional wireline,
wireless and next-generation communications carriers, as well as equipment
manufacturers, throughout Europe, the Middle East, and Africa, or EMEA, North
America, Latin America and the Asia/Pacific region. A partial list of our
carrier customers includes Bell South, British Telecom, Czech Telecom,
Deutsche Telekom, Global Crossing, Era GSM, KPN Telecom, Nextel, Sprint,
Swisscom, Telia, Telenor, Telkom South Africa, Williams Communications and
Worldcom. A partial list of our equipment manufacturer customers include
Alcatel, Cisco, Lucent, Motorola and Nortel. These customers collectively
accounted for approximately 63% of our revenues in 2000.

INDUSTRY BACKGROUND

THE TELECOMMUNICATIONS INDUSTRY

     Historically, telecommunications carriers operated in a highly regulated
environment with little or no competition. During the past two decades,
governments worldwide have begun to deregulate the telecommunications industry.
Deregulation has increased the competitive landscape by allowing the emergence
of a new breed of communications carriers that are focused on serving a specific
market segment. New entrants to the global communications landscape include
competitive long distance and local exchange carriers; Internet Protocol, or IP,
next-generation network providers; Internet Service Providers, or ISPs; Internet
telephony service providers; competitors to government post, telephone and
telegraph companies, or PTTs and other licensed operators outside the U.S.;
wireless carriers; and communications service resellers such as prepaid calling
card providers. The combination of deregulation, the growth of the Internet and
the emergence of next-generation carriers is putting pressure on the traditional
telecommunications carriers to reduce costs, improve service performance levels
and offer new and enhanced services.

     Increased competition is forcing communications carriers to
differentiate themselves by providing advanced, value-added services and
features while delivering a high level of quality of service to their
customers. Examples of these value-added services include toll-free "800"
numbers, prepaid calling cards, caller ID, three-way calling, customized
routing and billing, voice messaging, Local Number Portability, or LNP, and
Internet access.

     Today, for the more than 300 million Internet users, the predominant form
of Internet access is through dial-up modem over the Public Switched Telephone
Network, or PSTN. We believe this will continue for the foreseeable future.
According to DIAL ACCESS MARKET ANALYSIS, AUGUST 2000 by


                                       3
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Cahners In-Stat Group, over 15.7 million ports of remote access equipment to
support dialed Internet access were shipped by vendors in 1999 with a
projected annual growth rate of 16%. The dial-up method of access causes
congestion in traditional carrier networks because they are engineered and
optimized for voice calls, which historically average approximately three
minutes in duration. As a result of an increase in Internet calls - which
average approximately 30 minutes -carriers increasingly need to direct
Internet calls from their voice trunk lines and reroute them to the IP
network. This enhanced routing will result in network optimization for the
carrier by relieving the congestion in their networks caused by the
Internet-bound calls, freeing up the trunks for higher revenue generating
voice calls, which traditionally have represented approximately 80 percent of
a carrier's total revenues. Also, by addressing the problem of network
congestion caused by the increase in Internet-bound traffic, carriers are
able to minimize the network buildout that might otherwise be required to
accommodate the higher traffic levels in an effort to maintain service levels
for their customers.

     Competition is also forcing carriers to better manage and control their
network cost structures. Carriers must efficiently provision, monitor and bill
for multiple services, including voice-over-packet service, to both manage costs
and enhance services to their customers. Although many newer packet-based,
next-generation networks may promise a lower life-cycle cost structure, they may
pose problems not generally encountered by traditional networks, such as
security risks and voice quality issues. Traditional carriers must be able to
secure their networks against potential intrusion through the newer, more
hacker-prone, IP networks. As a result, as traditional and new networks are
being integrated, carriers need end-to-end management and interoperability
solutions to prevent compromised service quality or network security.

     The growth in number and size of networks, coupled with a significant
worldwide increase in demand for communications and Internet-related data
services, has resulted in demand for communications infrastructure and advanced
networking technologies, including network management, interoperability and
diagnostic solutions. Communications networks operate in real time and are
mission-critical to their end users, which means that communications carriers
must provide the highest quality and reliability of services to remain
competitive. This competition is forcing carriers to more closely examine the
performance of their service levels. The ability to provide high performance
services to customers is a key to minimizing customer turnover, or churn, in a
carrier's customer base.

SS7 AND MODERN COMMUNICATIONS NETWORK ARCHITECTURES

     A communications network must not only convey information between points,
it must also determine the best routes for connections, control the allocation
of resources used to transfer the information and keep transaction records for
billing and measurement purposes. A simple communications session, or other
multi-service session, involves two types of information: the session content
(voice, computer data or video) and information about the session (such as the
identity of the party initiating the session and the destination party) that is
required to connect, manage and bill for the session. This intelligence about a
communications session or other services is generally referred to as signaling.

     The first generation of telephone networks was designed to pass both call
content and signaling over a single internal network path, called a trunk, from
the source of the call to the called destination. Signaling information was
passed in a single path through audio tones or voltage changes on the telephone
line or trunk connection. However, over time this single path method of
transferring both call content and signaling became inefficient and unreliable
as network traffic grew, leading to network congestion and reduced service
quality. Single path signaling also inhibits or prevents many


                                       4
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advanced service offerings because the control information cannot be separated
easily from the call content flowing over a trunk.

     These problems were first recognized during the 1960s and subsequently were
resolved through the development and deployment of common channel signaling. In
common channel signaling, the call content is separated from the signaling
information. The signaling information is then passed over an entirely separate
physical path through the carrier's network, while the call content is passed
over a trunk. Signaling paths in the network are connected to a set of systems
that control and monitor the progress of calls and other transactions and route
the signaling information as required. The signaling paths, or links, and
signaling network control systems comprise a separate network infrastructure,
called a signaling network, that operates in parallel with the network of trunks
used to convey call content. The technique is called common channel signaling
because signaling information for multiple calls passes over a shared, or
common, set of signaling channels. This method of combining signaling
information for multiple calls results in much higher overall network
efficiency.

     Traditional signaling networks are based on a globally standardized
architecture and set of protocols called SS7, or sometimes referred to
internationally as C7. Since the mid-1980s, SS7 has been implemented by
telecommunications carriers worldwide, including incumbent carriers, emerging
competitive service providers, Internet service providers and wireless carriers.
SS7 utilizes digital packet-switching technology and is designed to be robust,
flexible and scalable, enabling telecommunications carriers to provide new
services quickly and to optimize the network bandwidth used for trunk
connections. When a call is placed, the originating location's call switching
equipment uses the SS7 network to look ahead and determine whether the
destination is busy or otherwise unavailable before allocating a trunk to the
call and connecting both parties. This look ahead operation also enables
information such as caller ID to be passed before the call is actually
connected. The SS7 network's speed and power allow these operations to occur
almost instantly, which significantly reduces the time required to process each
call and improves service to the end user.

     The movement of carriers towards next-generation networks is driven
primarily by the potential to dramatically reduce the cost of switching and
control infrastructure. This opportunity has not previously been available to
carriers, but recent advances in packet technology and semiconductors have
enabled the emergence of a new breed of packet switching, which provides very
attractive cost savings to carriers. The challenge to carriers is how to
effectively merge this new and dissimilar technology with their existing and
substantial investment in traditional circuit switches. This technology will
initially interoperate with and eventually may replace the traditional
network over an extended period of time.

     The network intelligence that SS7 provides in traditional networks is the
keystone to the adoption of these next-generation packet networks. For
traditional and next-generation networks to interoperate successfully, SS7 must
interact with its signaling peer in the IP environment and enable calls to be
exchanged between these two different types of networks. This interaction occurs
through network infrastructure, such as our VIA softswitch, and may be managed
and maintained with solutions such as our GeoProbe and Spectra. Natively within
the next-generation packet network, the intelligence for control is carried in
virtual channels, which are comparable to SS7 signaling links in the traditional
network. The protocol or language of this intelligence may take many forms, such
as Media Gateway Control Protocol, or MGCP, or Session Initiation Protocol, or
SIP. Collectively, SS7, MGCP, SIP and other languages formulate the intelligence
of converging and next-generation networks. These languages route and connect
calls among similar, as well as between dissimilar, networks.


                                       5
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     The increase in Internet usage has further complicated communications
networks. The widespread acceptance of the Internet is making possible a new
breed of services that combine voice, data and video. These service applications
integrate the use of existing voice or voice-over-packet networks and data
networks in a seamless manner. The use of SS7, along with other signaling
protocols, is making the implementation of these new services possible.

     The principal components of integrated communications networks are:

     -    SIGNALING SERVICE POINT, OR SSP. A subsystem of a telephone switch
          that connects to the signaling network and processes signaling
          information associated with that particular switch. SSPs are the
          origination and termination points for signaling messages in the
          network. SSPs exchange messages with other SSPs, STPs and SCPs
          throughout the network.

     -    SIGNAL TRANSFER POINT, OR STP. A router that controls the flow of
          messages among the other elements in the signaling network. An STP may
          include additional functionality that allows it to access external
          databases in addition to performing simple routing based on the source
          and destination address information included in network messages.

     -    SERVICE CONTROL POINT, OR SCP. A database server that provides
          additional information for call routing, billing and other advanced
          network services.

     -    LINKS. A set of dedicated digital channels through which the signaling
          messages flow among SSPs, STPs, SCPs and other devices throughout the
          signaling network. These are typically 56 or 64 kilobits-per-second
          standard digital connections.

     -    NEXT-GENERATION SWITCH. A hardware element that allows the bearer
          traffic (voice, data and/or video) to be routed and transported
          between dissimilar networks. For example, a voice call from the
          circuit-switched network may enter a next-generation switch and exit
          as a voice-over-Internet protocol signal to interface with an IP
          transport network. Typically, media gateway denotes a form of this
          functionality that simply converts and compresses the bearer traffic
          between different networks while next-generation switch describes an
          element providing the additional capability to route calls.

     -    MEDIA GATEWAY CONTROLLER. A software element within next-generation
          networks, ideally separate from the switching elements, that provides
          the intelligence for the call processing and control functions that
          are issued to the next-generation switches. This intelligence is
          typically communicated through a proprietary language or a
          standard/open protocol, such as MGCP.

     -    SIGNALING GATEWAY. Typically a hardware and software element at the
          edge of next-generation networks that serves as the portal between
          traditional PSTN signaling and signaling in next-generation networks.

     -    GATEKEEPER. A software element within next-generation networks,
          usually based on older signaling technology (such as H.323), that sets
          up the communications path between originating and terminating media
          gateways based on the destination IP address or telephone number.

     -    SOFTSWITCH. A software element, residing on a standard computing
          platform and/or a high-capacity/high-availability special-purpose
          platform, that provides the intelligence for


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          traditional and next-generation networks to interwork. The softswitch
          communicates with traditional networks via SS7 signaling and with
          next-generation networks via new signaling protocols, such as MGCP,
          SIP or other proprietary languages. The softswitch delivers the
          intelligence that controls the routing and connection of calls by
          commanding next-generation switches and may also deliver services and
          applications into the network. A softswitch may have both signaling
          gateway and media gateway controller functionality.

NETWORK INTEROPERABILITY: AN EXAMPLE

     To better illustrate the critical role that signaling and softswitching
can play in the convergence of communications networks, and to demonstrate
the complexity of inter-networking, consider the theoretical example of a
person in New York City that is placing a call from an IP terminal/phone to a
telephone number in Dallas that is within the traditional PSTN. Also, assume
that the dialed number belongs to a business that has moved within the Dallas
area but opted to keep the old phone number, taking advantage of LNP service.

     The dialed digits are first transported from the IP terminal/phone through
IP packets to an originating softswitch within the IP telephony network. The
originating softswitch examines the dialed digits (469-330-4000) and determines
that the exchange (469) has some numbers that have been ported to another
circuit switch within the PSTN. To determine this with certainty regarding the
exact number that is being dialed, the originating softswitch must launch a
query from the IP telephony network to the signaling network of the PSTN. The
first step in accomplishing this is for the originating softswitch to send a LNP
query to the SS7/IP signaling gateway within the IP telephony network. The
SS7/IP signaling gateway correctly reformats and routes the originating
softswitch's query to the PSTN's SS7 network. The PSTN SCP, which receives the
query, responds with the appropriate LNP information. This response is routed
back through the SS7 network through STPs, to the SS7/IP signaling gateway. The
signaling gateway then correctly reformats and routes the response to the
originating softswitch in the IP network.

     With the LNP information, the originating softswitch now is able to
determine the destination softswitch in the IP telephony network that is able
to route the call to the true geographical location of the dialed number
within the PSTN. The original softswitch then signals the destination
softswitch via the SIP protocol and asks if there is availability on the
destination media gateway to handle the call. The destination softswitch
signals back with availability status and the IP address should be for the
call to reach the desired media gateway in the IP telephony network. The
original softswitch now sends this information back to the originating IP
terminal/phone.

     The originating IP terminal/phone then establishes a virtual circuit via
the IP network with the desired media gateway. The virtual circuit is
identified by certain references that will then be used by both the IP
terminal/phone and the media gateway to identify all IP packets flowing
between the two for the duration of the call. Concurrently with this, the
media gateway controller orchestrates the connectivity of the media gateway
with the PSTN circuit switch. This is done (via the signaling gateway) by
sending a call setup message to the appropriate circuit switch through the
PSTN's SS7 STP routers. The media gateway is then connected to a trunk
circuit of the PSTN's switch, and the PSTN signals back to the SS7/IP
signaling gateway that the call has been successfully established.
Subsequently, the signaling gateway sends the same indication of call
establishment back to the originating softswitch. The exchange of IP packets
proceeds until either party terminates the call.

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THE NEED FOR SIGNALING NETWORK MANAGEMENT AND OPTIMIZATION SOLUTIONS FOR
CONVERGING NETWORKS

     As the example above illustrates, even a relatively simple transaction
like an LNP call requires a sophisticated series of signaling network
operations. Long-distance authorization codes, prepaid calling cards,
wireless phones, "800" and other advanced services increase the number of
signaling messages required for each network session, which in turn tends to
increase the number of elements, the complexity of the elements and the links
required in the network. As carriers roll out new services within their
networks, the complexity of the networks increase, which makes network
management more of a challenge. Network complexity is especially an issue for
wireless carriers as their networks generate more than double the signaling
of a wireline network due to wireless network architecture and customer
roaming.

     Each signaling network typically contains equipment and software
manufactured by multiple vendors. Moreover, multiple signaling networks are
connected among multiple carriers, often spanning international boundaries. The
entire network of networks must operate as a seamless whole, in real time, with
a minimal number of errors. Any indication of trouble in the network must be
detected and diagnosed as quickly as possible. If network problems are not
detected on a timely basis, they can result in network and service downtime.
Network capacity utilization must be monitored continuously for bottlenecks and
other detrimental conditions. To maintain reliability, each new connection
between two carriers' networks must be certified and approved by the engineering
staffs at both carriers before traffic is allowed to flow through the
connection.

     In the past, when signaling was used exclusively on wireline networks to
complete standard telephone calls, it was sufficient for carriers to employ
localized diagnostic equipment and a large number of technicians who could be
dispatched in a reasonable timeframe to any point where trouble was suspected or
where new connections were being installed. However, this approach is not
readily scalable. It requires a significant number of people with specialized
domain expertise and does not adequately provide for diagnosis of network-wide,
interrelated conditions that tend to arise in complex environments. The
combination of new and different types of interconnected signaling networks
(such as satellite, cellular and packetized networks), increased traffic levels
and complexity within each signaling network and strict performance requirements
has led to an increased need for systems and software that enable carriers to
get a complete picture of all signaling network facilities and monitor any or
all signaling message traffic in real time. Comprehensive solutions are required
to enable advanced intelligent networks to maintain existing service levels and
to reach their full potential.

     There also is a growing need for signaling network management solutions
to be fully integrated into the overall collection of systems that manage all
aspects of a carrier's operations, such as billing, service order entry,
provisioning, repair and service definition. Seamless integration of
signaling management with applications that enable a carrier to use and
leverage the information gathered in its signaling network allows a carrier
to improve its customer service, reduce costs, minimize capital costs related
to network expansion, increase operational efficiency and realize revenues
when otherwise not possible. To provide a carrier with these advantages,
signaling network management solutions must offer a suite of software
applications more robust than the basic monitoring and diagnostic functions
of traditional network solutions.

THE INET STRATEGY

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     Our mission is to be a leading provider of network intelligence solutions
for converging and new world networks worldwide. Key elements of our strategy to
achieve this objective include the following:

     EXPAND GLOBAL MARKET SHARE. We are pursuing business in markets
throughout the world that are in the process of being deregulated or
privatized. The percentage of our revenues attributable to international
markets was 55.8% in 2000 and is expected to remain a substantial portion of
our revenues going forward. We believe that our future growth and
profitability require continued expansion in international markets. We also
selectively pursue incumbent carriers in newly emerging markets and in
advanced but monopolistic markets in order to establish our presence in these
areas prior to the time when these markets are deregulated or privatized. We
intend to expand our international presence by adding offices and/or
distributors in key global markets as business conditions allow.

     CONTINUED PENETRATION OF EXISTING CUSTOMER BASE. We intend to seek
additional revenue opportunities by working closely with our installed customer
base to identify opportunities for the sale of expansion systems, additional
business applications and other new offerings. Based on experience with our
existing customers, we believe that achieving early widespread deployment of our
network intelligence solutions in a particular carrier's network provides
significant ongoing opportunities for sales of new and expansion systems,
additional applications and other new offerings.

     CONTINUED INVESTMENT IN STRATEGIC AREAS TO FACILITATE GROWTH. We intend to
continue to invest in the strategic areas of research and development, or R&D,
sales and marketing and customer service. We believe that continued R&D
investments - for both new product development and enhancements to our current
offerings - will help maintain our position as a technological leader in our
chosen markets. As business conditions allow, we also plan to continue the
buildout of our global sales infrastructure and expansion of our worldwide sales
force to take advantage of opportunities in key regions and market segments.
Finally, investments in customer service are required to support a growing
customer base as well as new product introductions, such as the VIA softswitch.

     INTRODUCTION OF NEW PRODUCTS AND ENHANCEMENTS TO EXISTING PRODUCT
OFFERINGS. We believe that we have gained significant expertise in signaling, IP
and broadband communications technologies in the course of the design,
development and implementation of our current product offerings and through our
work with our existing customer base. We intend to leverage our core competency
in signaling technologies to expand our current product offerings and to develop
new product offerings for complementary signaling environments such as IP,
Asynchronous Transfer Mode, or ATM, and Internet telephony.

     BUILD RELATIONSHIPS WITH STRATEGIC PARTNERS. We are building strategic
relationships with complementary software vendors and telecommunications
equipment manufacturers worldwide in order to integrate our product offerings
with others' products and/or to create joint-marketing opportunities. In
addition, we intend to augment our sales efforts by establishing and expanding
relationships with other communications equipment vendors, systems consulting
and integration firms and network management providers. We also intend to team
with telecommunications equipment manufacturers that are either market share
leaders or technologically promising in order to go to market with a joint
product offering that markets the VIA softswitch to the largest carriers in the
world.

THE INET SOLUTION

                                       9
<PAGE>

     We provide network intelligence, business intelligence, diagnostics and
network infrastructure solutions that enable carriers to more effectively
design, deploy, diagnose, monitor and manage communications networks that carry
signaling information used to control and deliver communications sessions and
services.

     NETWORK INTELLIGENCE SOLUTIONS

     Our flagship product in the network intelligence area is the GeoProbe.
The GeoProbe's network-wide monitoring applications enable early warning of
network faults, collection of statistics for service performance evaluations,
real-time session tracing and troubleshooting. The GeoProbe Mobile is our
network intelligence solution targeted to wireless carriers worldwide. The
GeoProbe system contains the following key elements:

     -   An open, proprietary core hardware platform designed by us as a
         scalable, distributed, RISC-based multi-processing data input/output
         platform, which captures network data traffic and processes that data
         in real time through multiple software applications.

     -   Advanced signaling network monitoring software applications.

     -   Our OpenSeven application programming interface, or API, which enables
         us, our customers or third-party developers to customize and extend the
         features of the system.

     The GeoProbe can provide a network-wide view regardless of topology,
number of protocols or number of different vendor elements in use. The
GeoProbe passively, or non-intrusively, monitors all messages that flow over
each signaling link and can automatically correlate these messages in real
time to reconstruct every session in a carrier's network. This capability
provides session analysis for troubleshooting, problem detection and network
integrity assurance. In addition, the information collected by the GeoProbe
improves a carrier's ability to optimize its network and provide enhanced
services to its customers.

     The GeoProbe provides session data and network status information to
users through a graphical user interface, and through Web-based reporting
applications. The GeoProbe displays maps that represent network elements
(E.G., SSPs, STPs, SCPs and Gateways). When failures or user-specified events
occur, an icon representing the affected network element changes colors to
alert the user to potential trouble or the occurrence of the failure or
event. The GeoProbe also provides users with the flexibility to configure
their system to set up triggers to detect events, filters, alarms and
statistics based on their specific needs.

     The platform's modular design accommodates growth in a carrier's network
and facilitates the implementation of enhanced features simply by adding
processor cards to the system or deploying additional system components in
conjunction with adding software capabilities.

     We have developed a number of software applications for use with the
GeoProbe, which incorporate Oracle's relational database and the X-Windows
OSF/Motif toolkit. In addition, our OpenSeven API enables us, the carrier's
personnel or a third-party software developer to expand or customize existing
applications or develop new applications to meet the carrier's needs. Some of
the applications include:

     -    NETWORK SURVEILLANCE. Enables detection of faults, alarming, mass call
          onset detection and other network related performance measurements.


                                      10

<PAGE>


     -    NETWORK MONITORING AND TROUBLESHOOTING. Provides network-wide protocol
          analysis and session trace functions for use in troubleshooting
          session and transaction-related failures.

     -    SERVICE PERFORMANCE MONITORING. Provides performance measurement of a
          number of services such as toll-free 800, freephone, LNP, roaming and
          other Intelligent Network applications.

     -    FRAUD MANAGEMENT. Collects data in real-time and feeds it to
          third-party fraud detection systems.

The GeoProbe and GeoProbe Mobile provide many advantages, including:

     -    GLOBAL NETWORK VIEW. These solutions are designed to provide a
          comprehensive end-to-end view of a carrier's signaling network. This
          design ensures that relevant events, regardless of the point of
          origin, path and termination point, are properly correlated and
          processed for presentation to network management systems or network
          operations personnel. In the absence of such a global approach,
          carriers must rely on a patchwork of systems scattered throughout
          their networks in order to diagnose problems. This approach typically
          results in optimization at the network element level, which is less
          effective than an end-to-end network approach. Our proprietary
          tracking technology enables a carrier to reconstruct an entire session
          and its related transactions at any time during or after the session.
          By contrast, traditional sampling techniques tend to produce erroneous
          and inaccurate results because collected data is usually incomplete
          and only local in scope.

     -    REAL-TIME FUNCTIONALITY. The GeoProbe solutions are designed to
          collect, process and present data in real time, even under extreme
          network load conditions. This key attribute makes real-time management
          and operation of signaling networks possible. Without a real-time
          monitoring system, carrier networks are more vulnerable to overloads,
          fraud and delayed problem resolution, which can lead to network
          failure, customer dissatisfaction and compromised network integrity.

     -    ADVANCED ENGINEERING AND PLANNING CAPABILITIES. GeoProbe provides an
          accurate and detailed view of real-time and historical statistics on a
          carrier's signaling network usage and the service applications
          delivered through the network. This allows carriers to implement
          network architectures optimized for cost and performance, and to
          refine network configuration over time based on changes in demand and
          traffic patterns. For example, a carrier can use data collected by
          GeoProbe to identify a point in the network that is constricting
          traffic flow. The carrier can then either reroute traffic or install
          additional capacity at that point, which increases the throughput of
          its entire network.

     -    FAST, COST-EFFECTIVE DIAGNOSTICS. GeoProbe's software applications
          rapidly isolate problems between interconnected signaling elements and
          networks, enabling communications carriers to reduce downtime,
          maintenance and costs.

     -    REDUNDANCY AND RELIABILITY. The GeoProbe is available with various
          levels of redundancy in order to guard against data loss and help
          ensure that critical applications remain operational. Available
          redundancy features include power, interfaces, processors, storage
          devices and transport network access, and certain business
          applications such as billing.

     -    VENDOR INDEPENDENCE. All applications are based on data captured
          directly from the signaling network, as opposed to information
          provided in vendor-specific format by individual network elements such
          as STPs, SCPs or next-generation network elements. As a result,
          carriers can


                                      11
<PAGE>


          use GeoProbe to gain an independent view regardless of which vendors'
          equipment is deployed in their signaling network.

     Pricing for a GeoProbe system or individual applications varies based on a
number of factors, such as the volume of network traffic, network size, network
configuration, number of protocols present, number of links monitored and number
and type of applications desired. Prices for GeoProbe systems have ranged from
less than $500,000 to more than $20 million. Since 1995, we have sold GeoProbe
systems to over 80 customers worldwide.

     BUSINESS INTELLIGENCE SOLUTIONS

     Our business intelligence solutions, called IT:seven, enable carriers to
leverage the data collected by the GeoProbe to achieve minutes-of-use
interconnect billing, usage measurement billing, customer quality assurance and
service level performance monitoring. The applications that were introduced
beginning in late 1999 and through early 2001 include GeoBill, GeoConnect,
GeoCare and GeoRoam. These applications utilize the raw signaling data gathered
from a carrier's network to provide support for revenue generating or cost
savings opportunities in areas that include interconnect billing, customer care
and quality of service monitoring.

     -    IT:SEVEN GEOBILL. An interconnect billing application that presents
          data in the form of Call Detail Records, or CDRs, and usage
          measurement data, and feeds the data in industry-standard billing
          records to the carrier's accounting system for rating and invoicing.
          GeoBill enables carriers to streamline their interconnection billing
          process while reducing their reliance on switch vendors and mediation
          devices for billing data. GeoBill also provides the capability for
          special studies by the carrier, such as monitoring the results of
          marketing campaigns, traffic analysis and proactive capacity planning.

     -    IT:SEVEN GEOCONNECT. An interconnect billing application for auditing
          and invoicing. GeoConnect collects and correlates all of the signaling
          traffic at the gateways connected to other carriers' networks. The
          application generates CDRs from the signaling data and creates
          user-friendly reports based on this data. The reports can be used to
          generate bills to interconnect partners or to support the auditing and
          verification of invoices received from other carriers. GeoConnect can
          also be used to document the quality of service by interconnect
          carriers and compare their performance and quality reviews against
          other carriers.

     -    IT:SEVEN GEOCARE. A marketing and customer care application for
          dynamic service and customer management. GeoCare collects and displays
          real-time and historical performance information so that a carrier can
          efficiently maximize the revenue potential from its highest-value
          customers and revenue generating dialed services. With GeoCare,
          carriers can more cost-effectively monitor, optimize, deliver and
          demonstrate superior service quality for their targeted key customers.
          GeoCare also provides data and service level metrics regarding
          interconnect partner performance and traffic management that can be
          used to proactively manage interconnect relationships and quality of
          services.

     -    IT:SEVEN GEOROAM. A Quality of Service, or QoS, application announced
          in February 2001 that is targeted to wireless service providers to aid
          them in attracting and retaining high-margin subscribers and roaming
          visitors by ensuring high quality roaming services. GeoRoam will help
          carriers protect and maximize their revenue streams by measuring the
          QoS of roamer traffic as well as inter-carrier validation of short
          message service for roamers. GeoRoam utilizes existing signaling data
          to monitor service performance for both visiting roamers and a


                                      12
<PAGE>


          carrier's own subscribers roaming into other carrier networks. We
          expect the GeoRoam application to be generally available in the third
          quarter of 2001.

     DIAGNOSTIC SOLUTIONS

     Our diagnostic solutions provide communications carriers with the
ability to quickly and cost-effectively design, deploy and maintain their
networks and network elements. We provide vendor-independent tools that
provide diagnostic, emulation and load generation capabilities for use in the
design, deployment, commissioning and diagnosis of signaling networks as well
as quality of service measurement in voice-over-packet networks. Currently,
our diagnostic solutions include Spectra and Spectra Trunk Tester. These can
be integrated within the GeoProbe platform or used on a stand-alone basis
with a carrier's own equipment. These products are also used by equipment
manufacturers in the design of new products through the extensive emulation
and conformance packages and their ability to simulate network conditions.

     These multi-protocol diagnostic tools are targeted to the needs of advanced
SS7/C7, GSM, IS-41, X.25 and ISDN networks and development environments. They
are designed for ease-of-use, with an intuitive user interface featuring pop-up
menus and single-keystroke commands. These tools can be configured by the user
to change message text and monitoring scenarios and to save commonly used
configurations, filters, tests and other settings for quick setup. They
translate complex signaling messages into plain language, and the display format
shows network statistics and test results in an easy-to-understand format.

     Key benefits of our diagnostic solutions are:

     -  EASE OF USE. These products provide a multitude of easy-to-access
        emulation and diagnostic functions. These capabilities allow testing and
        troubleshooting personnel to quickly and effectively perform tasks that
        would otherwise require lengthy set-up times and programming efforts.
        The products are also known for being very user friendly and easy to
        learn to operate.

     -  COMPREHENSIVE CAPABILITIES. Our diagnostic solutions provide customers
        with the ability to monitor, emulate and generate signaling data for use
        in troubleshooting, validation, conformance and regression testing of
        switches and other network equipment. The load generation capabilities
        and multiple emulation functions can test the various layers of the
        signaling protocol, up to and including the signaling information
        involved with complex applications, such as LNP.

     - MULTIPLE PROTOCOL SUPPORT. These solutions enable network equipment
       manufacturers and communications carriers to perform end-to-end testing
       of applications utilizing multiple signaling protocols, including
       country-specific variations of signaling. They alleviate the need to use
       multiple diagnostic tools and provide easy and consolidated access to
       test results.

     - VERSATILE CONFIGURATION AND COMPATIBILITY WITH GEOPROBE. We offer these
       products in a rack-mounted configuration that can monitor up to 16
       full-duplex links and a portable version capable of monitoring up to
       eight full-duplex links. The versatility is enhanced by the product's
       portability as well as the ability to integrate with the GeoProbe system.

     Depending on configuration and enhancements, prices for a unit generally
have ranged from approximately $15,000 to $150,000. Since the first diagnostic
sale in 1990, over 3,900 units have been sold to over 500 customers worldwide.


                                      13
<PAGE>


     NETWORK INFRASTRUCTURE SOLUTIONS

     Our VIA softswitch offers customers a carrier-class, cost-effective
alternative for connecting voice over IP, or VoIP, and dialed access data
solutions to the PSTN.

     VIA provides SS7 interface support for both VoIP and Internet call redirect
applications in the form of our VIA-Virtual Voice and VIA-Internet Access
offerings. Carriers in a number of markets are taking advantage of intelligent
SS7 interfaces to lower their costs and improve their competitiveness in
services such as toll bypass, VoIP wholesale, prepaid calling services,
wholesale dial access and Internet offload.

     At maximum capacity configuration, the VIA system can accommodate up to
1,600 calls per second (peak), control one million ports and handle three
million busy hour call completions. Because the platform's density reduces the
number of total network elements and their associated costs by providing more
capacity per system, carriers can rapidly and efficiently deploy VIA's
distributed network architecture.

     The VIA softswitch separates the call control functions of a phone call
from the transport layer, or media gateway, that carries the phone call. By
separating the call control functionality from the switching fabric, network
traffic can be optimally routed, and the control functions do not need to be
duplicated as media gateway capacity is added. This division allows voice and
data traffic to be handled by networks specifically designated for each,
facilitating enhanced service quality and new revenue opportunities. This
architectural separation also allows for customized infrastructure and enhanced
services to be deployed within circuit, packet or mixed circuit/packet
environments. The softswitch's new architectural model opens previously
proprietary boundaries and allows carriers to utilize their highest performing
and most cost-efficient network components.

     VIA's unique characteristics include:

     - SMALL FOOTPRINT AND LOWER COST. VIA's purpose-specific platform provides
       a footprint and modular configuration that enables carriers to reduce
       capital expenditures, installation time and life-cycle costs related to
       next-generation networks.

     - CARRIER-CLASS PERFORMANCE. VIA was designed with a primary objective in
       mind - to be a high performance, scalable and reliable softswitch
       platform. VIA is unique because it is one of the very few
       purpose-specific softswitch offerings that resides on its own dedicated
       multi-processor, high-performance hardware platform.

     - VENDOR INDEPENDENT. VIA can improve cost-to-performance ratios and enable
       revenue-generating, value-added services with simultaneous support of
       multi-vendor remote access servers and gateway devices. With VIA's
       centralized call control, investments are protected through the ability
       to interface with the switching solutions of multiple vendors.

     - SIGNALING POINT CONSOLIDATION. Carriers can lower capital expenditures
       and minimize network points of failure with VIA's virtual signaling point
       capability. This capability increases SS7 link utilization, resulting in
       a reduction of leased access, facilities, equipment and network
       management costs.

     - FULLY-MANAGED PLATFORM. Our extensive experience with management
       applications from other product lines has been carried forward to VIA so
       that carriers can immediately realize the advantage of a platform that is
       efficiently provisioned and maintained.


                                      14
<PAGE>


     - EVERGREEN TECHNOLOGY. Capacity-on-demand growth aligns network investment
       with service revenue and individual business requirements while reducing
       time-to-market. VIA permits carriers to scale from small points of
       presence to large central office proportions. Applications licensing and
       card-level upgrades are performed with software keys, enabling data port
       increases without service interruption to the carrier or its customers.

     Together, our network intelligence, business intelligence, and diagnostic
solutions represent an integrated and comprehensive set of offerings for network
design, monitoring, management, testing and diagnosis. Additionally, our network
infrastructure solutions address a broad range of carrier needs for
next-generation software switching.

     PRODUCTS UNDER DEVELOPMENT

     We utilize an open architecture approach in the design of our products.
This approach facilitates and accelerates the development of new applications
and products and permits us to enhance existing products by substituting new
hardware or software modules. This modular approach helps to extend the life
cycles of our products, simplify the manufacturing process and facilitate cost
reduction.

     Current and planned product enhancements for our network intelligence
solutions include a higher density probe, GPRS, UMTS, next-generation wireless
and the ability to monitor signaling in IP networks.

     Current and planned product enhancements for our business intelligence
solutions include additional quality of service capabilities for our
GeoConnect and GeoRoam applications, as well as quality of service
measurement for IP networks which carry telephony traffic.

     We are developing a suite of next-generation diagnostic solutions that will
be used to test emerging packet-based technologies. These new solutions are
expected to be introduced throughout 2001.

     The VIA product line addresses a very dynamic market. The initial
offerings of Internet call diversion and VoIP will be augmented with the
addition of MGCP and SIP capabilities. This collective solution is targeted
at the SIP/PSTN gateway market, where the emerging broadband access devices
(such as highly Intelligent Access Devices, or IADs) are controlled by
network softswitches through SIP, and the network interoperability is achieved
through media gateways which are controlled by network softswitches through
MGCP.

CUSTOMERS

     As of December 31, 2000, we had sold our solutions to over 500 customers
in more than 50 countries. In 2000, British Telecom and Worldcom each
accounted for approximately 13% of our total revenues. No individual customer
accounted for 10% or more of our total revenues in 1999 or 1998. Our target
customers include communications carriers and equipment manufacturers
throughout North America, Latin America, EMEA and the Asia/Pacific region.

     The following is a sampling of customers in various market segments that
purchased in excess of $500,000 worth of our products in 2000. These customers
collectively accounted for approximately 78% of our total revenues in 2000.

<TABLE>
<CAPTION>

         LONG DISTANCE CARRIERS (IXCS)         WIRELESS CARRIERS          PTTS/OLOS             EQUIPMENT MANUFACTURERS
      --------------------------------      --------------------       -----------------       ------------------------
      <S>                                   <C>                        <C>                     <C>
      AT&T                                  Airtouch                   British Telecom                   3Com



                                       15
<PAGE>


      WorldCom                              Alltel                     COLT                              Alcatel
      Sprint                                Bell South Mobility        Celcom/Guntong                    Cisco
      Teleglobe                             CellularOne-Maryland       Czech Telecom                     Clarent
                                            Era GSM                    Deutsche Telekom                  Compaq
         LOCAL EXCHANGE CARRIERS            Nextel                     KPN Telecom                       IpVerse
      ------------------------------        Swisscom                   Portugal Telecom                  Lucent
      Broadwing                             Voicestream                Telenor                           Motorola
      Verizon                                                          Telia                             Nortel
         NEXT-GENERATION CARRIERS                                      Telkom So. Africa                 Tachion
      ------------------------------                                   Telstra                           Telica
      Global Crossing                                                                                    Unisphere
      Williams Communications
      Level 3
</TABLE>


SALES, MARKETING AND SUPPORT

     SALES AND MARKETING

     We sell our products to communications carriers and equipment manufacturers
globally through both direct and indirect channels. Domestically, the direct
channel is used for all product lines with our sales force, which is structured
around a two-tiered model focused on strategic accounts and geographic areas.
Internationally, we use both channels. Our network intelligence and business
intelligence solutions are sold directly and in cooperation with system
integrators, distributors and consultants, while our diagnostic solutions are
sold primarily through distributors. At year end, we had 11 sales offices in the
U.S. and sales support facilities outside London, England, in Frankfurt, Germany
and in Roissey, France.

     The sales cycle for our solutions is long, typically ranging from six to
12 months for our network intelligence and business intelligence solutions
(excluding the cycle for subsequent applications and enhancements, which
varies widely) and up to three months for occasional, large sales of our
diagnostic products. For our new network infrastructure product, VIA, the
sales cycle is expected to initially range from six to 18 months.

     Our primary marketing activities include raising potential customer
awareness of the benefits of proactively managed signaling networks and
interoperability benefits as well as identification of new opportunities with
existing customers. To accomplish these tasks, we use direct sales and marketing
efforts, advertising in trade magazines, exhibitions at industry trade shows and
presence on the Internet through our Web site. These activities focus on
generating qualified sales leads and demonstration opportunities for our
solutions.

     We provide extensive training and support for our direct sales force and
our worldwide distributors, including classroom training, product brochures,
demonstration systems and promotional literature.

     SERVICES, SUPPORT AND WARRANTY

     We believe that customer service, support and training are important to
building and maintaining strong customer relationships. We service, repair and
provide technical support for our products. Support services include 24-hour,
seven days a week technical support, remote access assessment and servicing
capabilities, installation support and advance replacements for emergency
situations.

     We maintain an in-house repair facility and provide on-going telephone
assistance to customers from our support center in Richardson, Texas. In
addition, we service our customers in EMEA from product support offices located
outside London, England and in Frankfurt, Germany. As our customers become more
geographically diverse, we may open service centers in other key locations.


                                       16

<PAGE>

     We typically warrant our products against defects in materials and
workmanship for one year after the sale. We also provide varying levels of
extended product support under support services agreements. Support services
agreements are typically sold to customers for a one-year term and may be
renewed for additional one-year periods. Customers that do not renew their
support services agreements but wish to obtain product updates and new
version releases generally are required to purchase such items from us at
market prices.

RESEARCH AND DEVELOPMENT

     Our primary development facilities are located at our Richardson, Texas
headquarters. Our product development efforts include expenditures for
research and development, new product and software design and enhancements to
existing products.

     Our products and solutions are designed to comply with a significant number
of standards and regulations, some of which are evolving as new technologies are
deployed. For sales to customers in the U.S., our products must comply with
various standards established by Telcordia (formerly Bellcore) and the American
National Standards Institute. Internationally, our products must comply with
standards established by telecommunications authorities in various countries as
well as with recommendations of the International Telecommunications Union and
the European Telephone Standards Institute.

MANUFACTURING

     Our production process consists of procurement and inspection of
components, final assembly, burn-in, quality control testing and packaging,
primarily performed at our location in Richardson, Texas. We outsource the
manufacturing of our hardware to a number of Texas-based contract manufacturers.
We have obtained ISO 9001 certification for in-house processes and have obtained
the CE certification for shipments to the European Community.

     We generally use industry-standard components, which are available from
multiple sources. However, our products currently utilize certain
semiconductors that are available from only one manufacturer and other
components that are available from one or a limited number of suppliers. We
attempt to minimize the need for sole and limited source components by
performing design reviews, prior to the manufacture of any new product,
during which we seek to eliminate sole source components. During manufacture,
we forecast annual parts usage and meet with key vendors to obtain their
commitment to meet forecast supply needs. As necessary, we reevaluate the
sources of components identified as having potential delivery problems and
the costs and benefits of redesigning our products to incorporate alternative
components. If any sole or limited source components should become
unavailable, we believe that we could design similar functionality into our
product using other components, although the amount of time and effort
required could vary widely depending on the function and complexity of the
component.

COMPETITION

                                      17

<PAGE>

     We compete with a number of U.S. and international suppliers that vary
in size and in the scope and breadth of the products and services offered.
Our network intelligence solutions principally compete with products offered
by Agilent Technologies and to a lesser extent in specific geographical
areas, Tekelec, GN Nettest and NMG. The market for our business intelligence
solutions is extremely fragmented, and there is not a group of competitors
that offers an entire suite of applications such as ours. Some of the
companies we compete with on an application by application basis include
companies from the network intelligence area and other market segments such
as billing and customer care solutions providers. Our diagnostic products
principally compete with products offered by Agilent Technologies, Tekelec
and Tektronix. The market for communications network infrastructure products
also is intensely competitive on a global basis and is subject to rapid
technological change as traditional networks converge with new world
networks. Our network infrastructure offering, the VIA softswitch, will face
competition from many of the traditional network infrastructure providers,
including Lucent Technologies and Nortel Networks, data communications
companies such as 3Com and Cisco, and new start-ups such as Sonus Networks.

     We believe that our ability to compete successfully depends on numerous
factors, both within and outside our control, including: responsiveness to
communications service providers' needs; our ability to support existing and new
industry standards; the development of technical innovations; the attraction and
retention of qualified personnel; regulatory changes; the quality, reliability
and security of our products and services and our competitors' products and
services; sufficient market presence by us; the ability to execute a strategy of
rapid expansion; ease of use of our products; the pricing policies of our
competitors and suppliers; the timing of introductions of new products and
services by us and our competitors; and general market and economic conditions.

PROPRIETARY RIGHTS

     Our continued success is dependent in part upon our proprietary
technology. To protect our proprietary technology, we rely on a combination
of technical innovation, trade secret, copyright and trademark laws,
non-disclosure agreements and, to a lesser extent, patents, each of which
affords only limited protection. In addition, the laws of some foreign
countries do not protect our proprietary rights in the products to the same
extent as do the laws of the U.S. Although we hold two U.S. patents, have
additional patent applications pending and are in the process of preparing
additional patent applications for filing, there can be no assurance that we
will receive additional patents. Despite the measures taken by us, it may be
possible for a third party to copy or otherwise obtain and use our
proprietary technology and information without authorization.

     We rely upon certain software that we license from third parties, including
software that is integrated with our internally developed software and used in
our products to perform key functions.

     The trademarks Inet, Inet Technologies, GeoProbe, GeoProbe Mobile,
GeoBill, GeoCare, GeoConnect, GeoRoam, IT:seven, Spectra, Spectra Trunk
Tester, VIA, OpenSeven, VIA-Virtual Voice and VIA-Internet Access used herein
are registered or unregistered trademarks owned by us.

EMPLOYEES

     As of December 31, 2000, we had 640 employees, of which 326 were engaged in
research and development, 97 were engaged in sales and marketing, 141 were
engaged in operations and 76 were engaged in administrative and other business
support functions. We believe we have experienced good employee relations to
date.

                                      18

<PAGE>

ITEM 2. PROPERTIES.

     We are headquartered in Richardson, Texas, under a lease that expires in
2010. We also lease U.S. sales offices in California, Colorado, Georgia,
Indiana, Maryland, New Jersey, Pennsylvania, Virginia and Washington.
Additionally, we lease international offices near London, England; Frankfurt,
Germany; and Sao Paulo, Brazil, which provide product and sales support, and in
Roissey, France, which provides sales support. These leases expire on various
dates through 2005.

ITEM 3. LEGAL PROCEEDINGS.

     We are subject to various legal proceedings and claims that arise in the
normal course of our business. While many of these matters involve inherent
uncertainty, our management believes that the amount of the liability, if any,
ultimately incurred by us with respect to any existing proceedings and claims,
net of applicable reserves and available insurance, will not materially harm
our business, financial condition or results of operations.

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

     No matters were submitted to a vote of security holders during the fourth
quarter of 2000.

                                     PART II

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

     Our common stock has traded publicly on the Nasdaq Stock Market under
the symbol "INTI" since May 26, 1999. Prior to May 26, 1999, there was no
established public trading market for any of our securities. The following
table sets forth, for the periods indicated, the high and low sales prices
for the common stock as reported on the Nasdaq Stock Market.

<TABLE>
<CAPTION>

           2000                                       HIGH             LOW
           ----                                       ----             ---
           <S>                                       <C>             <C>
           Fourth Quarter                            $44.00          $17.50
           Third Quarter                              65.25           27.88
           Second Quarter                             59.50           36.63
           First Quarter                              74.38           37.50

           1999
           ----
           Fourth Quarter                            $74.88          $31.06
           Third Quarter                              41.69           21.69
           Second Quarter (from May 26, 1999)         24.88           15.25

</TABLE>

On March 15, 2001, the last reported sales price of our common stock on the
Nasdaq Stock Market was $6.03 per share. As of March 15, 2001, there were
approximately 131 stockholders of record (not including beneficial holders of
stock held in street name) of our common stock.

     We have never paid cash dividends on our common stock and do not intend
to pay cash dividends on our common stock in the foreseeable future. Our
revolving credit facility restricts the payment of cash dividends without the
lender's consent. Future dividends, if any, will be determined by our board
of directors.

                                      19

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

     The selected consolidated financial data below should be read in
conjunction with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our consolidated financial
statements included in Part IV, Item 14.

<TABLE>
<CAPTION>

                                                                             YEARS ENDED DECEMBER 31,
                                                          -------------------------------------------------------------
                                                            2000            1999        1998        1997         1996
                                                          --------        --------     -------     -------      -------
                                                                     (in thousands, except per share data)
<S>                                                       <C>             <C>          <C>         <C>          <C>
STATEMENTS OF INCOME DATA:
Revenues................................................  $159,007        $109,983     $77,428     $57,701      $42,041
Income from operations..................................    51,238          34,752      24,153      19,096       13,288
Income before provision for income taxes................    59,422          44,663      24,980      19,112       13,260
Net income..............................................    39,521          29,701(1)   17,085      12,714        8,936
Earnings per share (2):
          Basic.........................................  $   0.86        $   0.68     $  0.42     $  0.31      $  0.22
          Diluted.......................................      0.84            0.66        0.40        0.30         0.22
Weighted-average shares outstanding (2):
          Basic.........................................    46,126          43,449      40,879      40,855       40,615
          Diluted.......................................    46,885          45,037      42,452      41,722       41,069

</TABLE>

<TABLE>
<CAPTION>

                                                                                     DECEMBER 31,
                                                          -------------------------------------------------------------
                                                            2000            1999        1998        1997         1996
                                                          --------        --------     -------     -------      -------
                                                                                (in thousands)
<S>                                                       <C>             <C>          <C>         <C>          <C>
BALANCE SHEET DATA:
Cash and cash equivalents...............................  $131,419        $127,903     $21,914     $ 3,386      $   742
Working capital.........................................   167,161         123,909      38,313      24,290       15,101
Total assets............................................   226,207         169,917      65,508      38,758       27,105
Stockholders' equity....................................   185,420         133,423      46,813      29,386       16,614

</TABLE>

----------

(1)  Includes a one-time gain from our sale of wireless data assets in
     September 1999.

(2)  See Note 1 of notes to consolidated financial statements for the
     determination of shares used in computing basic and diluted earnings per
     share.

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

OVERVIEW

     We were founded in 1989 and during the early stages of our operations we
focused primarily on developing and selling diagnostic tools for a predecessor
to the Signaling System #7, or SS7, signaling protocol. As the
telecommunications industry increasingly adopted SS7, we shifted our focus to
developing and deploying SS7-based solutions as well as broadening our product
offerings. Our diagnostic solution, Spectra, was first introduced in December
1990 and is currently in its tenth generation release. Beginning in 1993, we
focused a significant portion of our product development efforts on developing a
complete monitoring and surveillance solution for SS7 networks, culminating in
the introduction of our network intelligence solution, the GeoProbe, in late
1995. Beginning in late 1999 and through 2000, we introduced a suite of business
intelligence solutions called IT:seven. These applications enable carriers to
protect and generate additional revenues within their networks

                                      20

<PAGE>

and at interconnection boundaries. We continue to focus significant resources
on the development of enhancements, new features and new applications for our
existing product areas. We also have dedicated significant resources to the
development of new products in the network infrastructure area.

     Historically, we have generated substantially all of our revenues from
sales of our network intelligence and diagnostic solutions. Specifically,
revenues attributable to the GeoProbe have represented a majority of our
total revenues since 1998. Although we expect diagnostic revenues to continue
to represent a significant portion of total revenues for the foreseeable
future, these revenues are expected to continue to decline as a percentage of
total revenues as a result of higher growth rates for the network
intelligence and business intelligence offerings and revenues from the
introduction of new products. Our remaining revenues are derived from
services relating to these and other products. These services include product
installation, product integration, training, warranty and product support.

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items reflected in our consolidated
statements of income:

<TABLE>
<CAPTION>

                                                                 YEARS ENDED DECEMBER 31,
                                                               ---------------------------
                                                                2000       1999      1998
                                                               ------     ------    ------
        <S>                                                    <C>        <C>       <C>
        Revenues:
          Product and license fees.....................         88.4%      90.6%     91.9%
          Services.....................................         11.6        9.4       8.1
                                                               -----      -----     -----
            Total revenues.............................        100.0      100.0     100.0
        Cost of revenues:
          Product and license fees.....................         20.5       22.5      24.2
          Services.....................................          5.4        6.4       4.7
                                                               -----      -----     -----
            Total cost of revenues.....................         25.9       28.9      28.9
                                                               -----      -----     -----
        Gross profit...................................         74.1       71.1      71.1
        Operating expenses:
          Research and development.....................         21.3       19.8      20.3
          Sales and marketing..........................         12.8       11.5      11.1
          General and administrative...................          7.8        8.2       8.5
                                                               -----      -----     -----
            Total operating expenses...................         41.9       39.5      39.9
                                                               -----      -----     -----
        Income from operations.........................         32.2       31.6      31.2
        Other income...................................          5.2        9.0*      1.1
                                                               -----      -----     -----
        Income before provision for income taxes.......         37.4       40.6      32.3
        Provision for income taxes.....................         12.5       13.6      10.2
                                                               -----      -----     -----
        Net income.....................................         24.9%      27.0%     22.1%
                                                               =====      =====     =====

</TABLE>

          * Includes a one-time gain from the sale of wireless data assets in
          September 1999.

REVENUES

     PRODUCT AND LICENSE FEES. Revenues from product and license fees
increased 41.1% to $140.6 million in 2000 from $99.6 million in 1999, and
increased 40.0% in 1999 from $71.1 million in 1998. The growth in revenues
from product and license fees is primarily due to an increase in our
installed customer base for GeoProbe, and an increase in unit sales of
Spectra during both 2000 and 1999.

                                      21
<PAGE>

     SERVICES. Revenues from services increased 77.9% to $18.4 million in 2000
from $10.4 million in 1999, and increased 64.8% in 1999 from $6.3 million in
1998. The increase in services revenues is primarily related to product support
services associated with a larger installed customer base.

COST OF REVENUES

     PRODUCT AND LICENSE FEES. Cost of product and license fees consists
primarily of hardware expenses and personnel costs related to the manufacturing,
integration and installation of our products. Cost of product and license fees
was $32.6 million in 2000, $24.7 million in 1999 and $18.7 million in 1998,
representing 20.5% of total revenues in 2000, 22.5% of total revenues in 1999
and 24.2% of total revenues in 1998. The increase in absolute dollars over the
prior year during both 2000 and 1999 primarily resulted from additional hardware
costs and related installation expenses associated with increased unit sales.
The decrease as a percentage of total revenues was primarily attributable to a
higher percentage of revenues being derived from more profitable expansions of
existing systems versus new system installations. New product offerings or
changes in our product mix can affect the cost of revenues as a percentage of
total revenues.

     SERVICES. Cost of services consists of expenses, primarily personnel costs,
related to product support, training, and warranty and non-warranty work. Cost
of services was $8.6 million in 2000, $7.0 million in 1999 and $3.7 million in
1998, representing 5.4% of total revenues in 2000, 6.4% of total revenues in
1999 and 4.7% of total revenues in 1998.

OPERATING EXPENSES

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of personnel costs, including contract labor, travel and
facilities expenses, and other compensation expenses. These expenses were
$34.0 million in 2000, $21.8 million in 1999 and $15.7 million in 1998,
representing 21.3% of total revenues in 2000, 19.8% of total revenues in 1999
and 20.3% of total revenues in 1998. The increase in absolute dollars and as
a percentage of total revenues in 2000 compared to 1999 was primarily related
to increased staffing levels. As of December 31, 2000 we had 326 employees
engaged in research and development activities, compared to 236 as of
December 31, 1999. The increase in absolute dollars in 1999 compared to 1998
was primarily related to increased staffing levels and increased expenses
associated with materials and equipment used in research and development
activities. The decrease as a percentage of total revenues in 1999 compared
to 1998 was partially attributable to the decrease in research and
development expenses associated with the wireless data asset product line,
which was sold in September 1999, as well as our relatively higher revenues
in that year.

     Software development costs are expensed in the period incurred until
technological feasibility has been established, at which time subsequent costs
are capitalized until the product is available for general release to customers.
To date, the establishment of technological feasibility of our products and
their general release have substantially coincided or costs incurred subsequent
to the achievement of technological feasibility have not been material. As a
result, software development costs qualifying for capitalization have been
insignificant, and we have not capitalized any software development costs.

     SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of personnel, travel and facilities expenses related to sales and
marketing activities, distributor commissions and expenses for trade shows and
advertising. These expenses were $20.3 million in 2000, $12.6 million in 1999
and $8.6 million in 1998, representing 12.8% of total revenues in 2000, 11.5% of
total revenues in 1999 and 11.1% of total revenues in 1998. The increase in
absolute dollars and as a


                                       22
<PAGE>


percentage of total revenues in 2000 compared to 1999 is attributable to
continued expansion of our direct sales force, increased commissions, continued
expansion of international sales activities, and increased marketing and
promotional activities. As of December 31, 2000, we had 97 employees engaged in
sales and marketing activities, compared to 58 as of December 31, 1999. The
increase in absolute dollars and as a percentage of total revenues in 1999
compared to 1998 was attributable to the expansion of our direct sales force,
expansion of international sales activities and increased marketing and
promotional activities.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel, facilities and other costs of our finance,
administrative and executive departments, as well as fees and expenses
associated with legal and accounting requirements. These expenses were $12.3
million in 2000, $9.0 million in 1999, and $6.6 million in 1998, representing
7.8% of total revenues in 2000, 8.2% of total revenues in 1999 and 8.5% of total
revenues in 1998. The increase in absolute dollars in 2000 compared to 1999 was
primarily attributable to increased staffing levels and facility-related
expansion efforts associated with the growth of our business. As of December 31,
2000, we had 76 employees engaged in general and administrative activities,
compared to 50 employees as of December 31, 1999. The increase in absolute
dollars in 1999 compared to 1998 was primarily attributable to increased
staffing levels and increased accounting and professional fees related to being
a public company. General and administrative expenses decreased as a percentage
of total revenues during 2000 and 1999 primarily due to relatively higher
revenues and our ability to leverage our base of resources to support a larger
organization.

OTHER INCOME

    Other income is primarily interest income earned on our cash and cash
equivalents. Other income was $8.2 million in 2000, $9.9 million in 1999 and
$827,000 in 1998. The decrease in 2000 compared to 1999 resulted from a $5.9
million gain on the sale of our wireless data assets realized in 1999. Excluding
this one-time gain, the increase in other income in 2000 resulted from a full
year of interest earned on proceeds from our May 1999 initial public offering
and from increased interest earned on higher balances of cash and cash
equivalents, which resulted from proceeds from the issuance of stock under our
employee stock option and stock purchase plans and increased income from
operations. The increase in 1999 from 1998 primarily resulted from the $5.9
million gain on the sale of our wireless data assets and an increase in interest
earned on higher balances of cash and cash equivalents resulting from our
initial public offering.

PROVISION FOR INCOME TAXES

     We recorded income tax expense of $19.9 million in 2000, $15.0 million in
1999 and $7.9 million in 1998. Our effective income tax rates were 33.5% in 2000
and 1999 and 31.6% in 1998. In 2000 and 1999, the effective tax rate benefit of
1.5% varies from the U.S. statutory rate primarily due to the effect of our
foreign sales corporation and the utilization of the research and development
credit. The lower effective tax rate in 1998 was primarily due to the same
items.

SALE OF INET GLOBAL RESEARCH, L.L.C.

     Effective January 1, 2000, we sold our membership interest in Inet Global
Research, L.L.C. to an entity controlled by a related party for a cash purchase
price of $82,000. No gain or loss was recorded for the sale. This entity is
currently performing services for us for which it is paid a monthly fee per
dedicated full time programmer plus reimbursement of reasonable business
expenses. In 2000, the expense associated with these services was approximately
$1.1 million.


                                       23
<PAGE>


SALE OF WIRELESS DATA ASSETS

     In September 1999, we sold our wireless data product line and related
assets to Nextcell, Inc., an entity controlled by a related party, for a cash
purchase price of $7.0 million. A special committee of our independent directors
approved the transaction. We recorded a pre-tax gain of $5.9 million and an
after-tax gain of $3.9 million, or $0.09 per share on a diluted basis, for 1999.
Excluding the gain on the sale of the wireless data assets, our diluted earnings
per share were $0.57 for 1999. Revenues from the wireless data product line were
approximately $1.7 million for the year ended December 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

     Since our inception, we have funded our operations and met our capital
expenditure requirements primarily through cash flows from operations and bank
borrowings. We had working capital of $167.2 million at December 31, 2000,
compared to $123.9 million at December 31, 1999. At December 31, 2000, we had
$131.4 million in cash and cash equivalents, an increase of $3.5 million from
$127.9 million in cash and cash equivalents at December 31, 1999. The increase
in cash and cash equivalents is attributable to income from operations and
proceeds from the issuance of stock under our employee stock option and stock
purchase plans.

     We have a credit facility with a commercial bank providing for
borrowings of up to $10.0 million. This credit facility will expire on June
15, 2001. Up to $5.0 million may be utilized to support letters of credit.
The per annum usage fee on unused portions of the line is 0.125%. At our
option, borrowings under this facility bear interest at either (i) the bank's
prime rate less up to 0.50% or (ii) the London interbank offered rate, or
LIBOR, as adjusted to meet specified Federal Reserve requirements with
respect to Eurocurrency liabilities, plus up to 1.50%. This facility is
collateralized by our accounts receivable, inventories and property and
equipment. The credit facility includes covenants requiring us to maintain
specified financial ratios and restricts the payment of cash dividends
without the bank's consent. At December 31, 2000, no amounts were outstanding
under the credit facility, and the amount available to us, after considering
outstanding letters of credit, was $9.8 million.

     Cash provided by operating activities was $13.9 million in 2000, $48.1
million in 1999 and $24.5 million in 1998. Operating cash flows in 2000
decreased primarily due to increased accounts receivable, increased inventory
and increased income taxes receivable. Operating cash flows in 1999 increased
primarily due to increased levels of net income, increased deferred revenues
and increased accrued compensation and benefits.

     Cash used in investing activities was $14.2 million in 2000 compared to
cash provided by investing activities of $1.8 million in 1999 and cash used in
investing activities of $6.0 million in 1998. Net cash used in investing
activities in 2000 and 1998 was primarily related to purchases of property and
equipment. Net cash provided by investing activities in 1999 resulted from
proceeds from the sale of our wireless data assets of $7.0 million less cash
used to purchase property and equipment of $5.2 million.

     Financing activities provided cash of $3.8 million in 2000, $56.1 million
in 1999 and $9,000 in 1998. Net cash provided by financing activities in 2000
related to proceeds from the issuance of stock under our employee stock option
and stock purchase plans. Net cash provided by financing activities in 1999
resulted primarily from proceeds from our initial public offering.

     We may in the future pursue acquisitions of businesses, products or
technologies, or enter into joint venture arrangements, that could complement or
expand our business and product offerings.


                                       24
<PAGE>


Any material acquisition or joint venture could result in a decrease in our
working capital depending on the amount, timing and nature of the consideration
to be paid.

     We believe that current cash balances, potential cash flows from operations
and available borrowings under our bank credit facility will be sufficient to
meet our anticipated cash needs for working capital, capital expenditures and
other activities through 2001. Thereafter, if current sources are not sufficient
to meet our needs, we may seek additional equity or debt financing. In addition,
any material acquisition of complementary businesses, products or technologies
or material joint ventures could require us to obtain additional equity or debt
financing. There can be no assurance that such additional financing would be
available on acceptable terms, if at all.

RISK FACTORS

     OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND ARE DIFFICULT TO PREDICT.

     Since our future operating results are likely to vary significantly from
quarter to quarter, you should not rely on our results of operations during any
particular quarter as an indication of our future performance in any fiscal year
or quarterly period. Our quarterly operating results have varied significantly
in the past and are likely to vary significantly from quarter to quarter in the
future based on a number of factors, many of which are outside of our control.
These factors include:

     -    the size, timing and terms of specific orders by customers;

     -    competition;

     -    the degree of market acceptance of new products and technologies
          introduced by us and our competitors;

     -    the mix of products and services sold by us;

     -    the timing of product shipments and product installations by us;

     -    the timing of customer acceptance of products we deliver to them;

     -    the capital spending patterns of our customers;

     -    the mix of domestic and international sales;

     -    customer order deferrals in anticipation of enhancements or new
          products;

     -    the timing of and level of our investments in research and development
          activities;

     -    changes in, and our ability to implement, our strategy;


                                       25
<PAGE>


     -    changes in the availability or cost of materials needed to produce our
          products;

     -    the progress and timing of the privatization and restructuring of
          telecommunications markets and the worldwide deregulation of the
          international telecommunications industry;

     -    defects and product quality problems;

     -    intellectual property disputes;

     -    expansion of and risks associated with our international operations;
          and

     -    changes in general economic conditions.

     Furthermore, a large portion of our operating expenses, including rent and
salaries, is largely fixed in nature. Accordingly, if revenues are below
expectations, our operating results are likely to be adversely and
disproportionately affected because these operating expenses are not variable in
the short term, and cannot be quickly reduced to respond to unanticipated
decreases in revenues.

     The amount of revenues associated with particular product sales can vary
significantly. The deferral or loss of one or more individually significant
sales could harm our operating results in a particular quarter.

     Our operating results also are likely to fluctuate due to factors that
impact our current and prospective customers. Expenditures by customers tend to
vary in cycles that reflect overall economic conditions and individual budgeting
and buying patterns and, in some cases, the ability of some of our customers to
obtain the financing they require to make capital expenditures. Our business
would be harmed by a decline in the economic prospects of our customers or the
economy in general, because these adverse conditions could alter current or
prospective customers' capital spending priorities or budget cycles, or extend
our sales cycle with respect to some of our customers. Our business also could
be harmed by changes in customer spending patterns reflecting industry trends.
In addition, our operating results historically have been influenced by seasonal
fluctuations, with revenues tending to be strongest in the fourth quarter of
each year. We believe that this seasonality has been due to the capital
appropriation practices of many of our customers. We expect that in future
periods this seasonal trend may cause our first quarter revenues to remain
consistent with, or decrease from, the level achieved in the preceding quarter.

     As a result of all of the foregoing, we cannot assure you that our revenues
will grow in future periods or that we will remain profitable. In addition, in
some future quarters our operating results again may be below the expectations
of public market analysts. In such event, the market price of our common stock
likely would fall.

     CONSOLIDATIONS IN, OR A SLOWDOWN IN THE GROWTH OF, THE TELECOMMUNICATIONS
INDUSTRY COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     We have derived substantially all of our revenues from sales of products
and related services to the telecommunications industry. In recent months, we
and a number of other companies have experienced reduced spending by
telecommunications carriers and equipment manufacturers. Our business,
financial condition and results of operations could be materially harmed in
the event of a significant slowdown in the growth of this industry or in the
event there are consolidations of our current or prospective customers. A

                                       26
<PAGE>


slowdown in spending on telecommunications products and services or
consolidations of customers could delay or cause cancellations of significant
sales of our products or could delay the installation of our products, which
could harm our operating results in a particular period.






















                                       27
<PAGE>


     CHANGES OR DELAYS IN IMPLEMENTATION OF OUR PRODUCTS COULD HARM OUR
OPERATING RESULTS.

     Revenues for our network intelligence and business intelligence
solutions are typically recognized upon the completion of installation,
unless the contract provides for significant obligations after that point.
Customer- or Inet-caused delays in the commencement or completion of
scheduled product installations, which from time to time result from
site-readiness delays, lack of resources or other issues, could materially
harm our operating results. With respect to contracts providing for a
significant payment or performance milestone tied to customer acceptance or
allowing customer return, termination or similar rights prior to acceptance,
revenue will generally not be recognized until the customer provides the
acceptance. Further, for new products we also recognize revenue upon
acceptance, until a track record of installation is achieved, after which
recognition is tied to completion of installation in most cases. In all cases
where the recognition of revenue is tied to customer acceptance, the failure
or delay in receiving such acceptance could harm our operating results for a
particular period.

     ANY REVERSAL OR SLOWDOWN IN DEREGULATION OF TELECOMMUNICATIONS MARKETS
COULD MATERIALLY HARM THE MARKET FOR OUR PRODUCTS.

     Future growth in the markets for our products will depend in part on
continued privatization, deregulation and the restructuring of
telecommunications markets worldwide. Any reversal or slowdown in the pace of
this privatization, deregulation or restructuring could materially harm the
markets for our products. Moreover, the consequences of deregulation are subject
to many uncertainties, including judicial and administrative proceedings that
affect the pace at which the changes contemplated by deregulation occur, and
other regulatory, economic and political factors. Any invalidation, repeal or
modification of the requirements imposed by the Telecommunications Act of 1996,
the local telephone competition rules adopted by the U.S. Federal Communications
Commission to implement that Act or similar international regulation could
materially harm our business, financial condition and results of operations.
Furthermore, the uncertainties associated with deregulation have in the past,
and could in the future, cause our customers to delay purchasing decisions
pending the resolution of these uncertainties.

     THE SALES CYCLE FOR OUR PRODUCTS IS LONG, WHICH COULD HARM OUR QUARTERLY
OPERATING RESULTS.

     Sales of our products and solutions are made predominately to large
communications service providers and involve significant capital expenditures
and lengthy implementation processes. Prospective customers generally commit
significant resources to an evaluation of our product offerings and our
competitors' product offerings and require each vendor to expend substantial
time, effort and money educating the prospective customer about the value of the
vendor's solutions. Consequently, sales to this type of customer generally
require an extensive sales effort throughout the customer's organization and
final approval by an executive officer or other senior level employee. We
frequently experience delays following initial contact with a prospective
customer and expend substantial funds and management effort pursuing these
sales. Additionally, delays associated with potential customers' internal
approval and contracting procedures, procurement practices, testing and
acceptance processes are common and may cause potential sales to be delayed or
foregone. As a result of these or other factors, the sales cycle for our
solutions is long, typically ranging from six to 12 months for our network
intelligence and business intelligence solutions (excluding the cycle for
subsequent applications and enhancements, which varies widely) and up to three
months for occasional, large sales of our diagnostic solutions. For our new
network infrastructure product, VIA, the sales cycle is expected to initially
range from six to 18 months. Accordingly, our ability to forecast the timing and
amount of specific sales is limited, and the deferral or loss of one or more


                                       28
<PAGE>


significant sales could materially harm operating results in a particular
quarter, particularly if there are significant sales and marketing expenses
associated with any deferred or lost sales.

     ANY DECREASE IN DEMAND FOR OUR PRODUCTS COULD SIGNIFICANTLY DECREASE OUR
SALES.

     Our principal products, the GeoProbe, IT:seven and Spectra, generate
substantially all of our revenues today and, together with our VIA product,
are expected to continue to account for a substantial majority of our
revenues for the foreseeable future. Any downturn in the demand for these
products could materially harm our business, financial condition and results
of operations. We cannot assure you that we will be successful in developing
any other products or taking any other steps to reduce the risk associated
with any slowdown in demand for the GeoProbe, IT:seven, Spectra and VIA.

     IF THE MARKET FOR CONVERGING AND NEXT-GENERATION NETWORK SOLUTIONS FAILS TO
DEVELOP OR GROWS MORE SLOWLY THAN WE ANTICIPATE, OUR OPERATING RESULTS COULD BE
HARMED.

     Our future operating results are dependent in significant part on the
continued viability and expansion of SS7 signaling networks, the convergence
of the public switched telephone network, or PSTN, with new packet-based
networks (for example, Internet protocol, or IP, and asynchronous transfer
mode, or ATM) and the build out of next-generation networks. Our business,
financial condition and results of operations could be materially harmed if
the market for converging and next-generation network solutions fails to
develop or grows more slowly than we currently anticipate.

     COMPETITION COULD REDUCE OUR MARKET SHARE, WHICH WOULD LIKELY HARM OUR
BUSINESS AND OPERATING RESULTS.

     The market for signaling-based communications network solutions is
relatively new, intensely competitive, both in the U.S. and internationally, and
subject to rapid technological change, evolving industry standards and
regulatory developments. Competition for all of our solutions is expected to
intensify in the future. We compete with a number of U.S. and international
suppliers that vary in size, and in the scope and breadth of the products and
services offered. Certain of our competitors have, in relation to us, longer
operating histories, larger installed customer bases, longer-standing
relationships with customers, greater name recognition and significantly greater
financial, technical, marketing, customer service, public relations,
distribution and other resources. Additionally, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire
significant market share. As a result, these competitors may be able to more
quickly develop or adapt to new or emerging technologies and changes in customer
requirements, or devote greater resources to the development, promotion and sale
of their products. Increased competition is likely to result in price
reductions, reduced margins and loss of market share. The competitive pressures
we face could materially harm our business, financial condition and results of
operations.

     OUR RAPID GROWTH AND EXPANSION MAY STRAIN OUR RESOURCES AND HINDER OUR
ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY.

     We have experienced rapid and significant growth that has placed, and may
continue to place, a significant strain on our management, information systems
and operations. For example, our revenues have increased from $17.5 million in
1995 to $159.0 million in 2000. The number of our employees has increased from
116 at December 31, 1995 to 640 at December 31, 2000. Our ability to effectively
manage significant additional growth will require us to improve our financial,
operational and management information and control systems and procedures.


                                       29
<PAGE>


     We anticipate that continued growth, if any, will require us to recruit and
hire a substantial number of new employees, particularly sales and marketing
personnel and technical personnel with signaling and IP knowledge and
experience, both in the U.S. and internationally. Competition for personnel is
intense, and we have at times experienced difficulty in recruiting qualified
personnel. We historically have filled a portion of our new personnel needs with
non-U.S. citizens holding temporary work visas that allow these individuals to
work in the U.S. for only a limited period of time. Accordingly, any change in
U.S. immigration policy further limiting the issuance of temporary work visas
could adversely affect our ability to recruit new personnel. Furthermore, the
addition of significant numbers of new personnel requires us to incur
significant start-up expenses, including recruiting fees, procurement of office
space and equipment, and initial training costs; and we often experience low
utilization rates with new personnel. We may be unable to successfully recruit
or retain additional personnel as needed. In addition, the start-up expenses
incurred in connection with the hiring of additional personnel could harm our
future operating results.

     OUR BUSINESS DEPENDS ON RETAINING OUR EXISTING KEY PERSONNEL.

     Our business depends to a significant extent upon the continued service and
performance of a relatively small number of key senior managers, technical
personnel and sales and marketing personnel, few of whom are bound by an
employment agreement. The loss of any existing key personnel, or the inability
to attract, motivate and retain additional key personnel, could harm our
business, financial condition and results of operations.

     WE MAY BE UNABLE TO ADAPT TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING
CUSTOMER REQUIREMENTS.

     The market for our products is characterized by rapid technological
advances, evolving industry and customer-specific protocol standards, changes in
customer requirements and frequent new product introductions and enhancements.
The introduction of communications network management products involving
superior technologies or the evolution of alternative technologies or new
industry protocol standards could render our existing products, as well as
products currently under development, obsolete and unmarketable. We believe that
our future success will depend in part upon our ability, on a timely and
cost-effective basis, to continue to:

     -    enhance our network intelligence, business intelligence, diagnostic
          and network infrastructure solutions;

     -    develop and introduce new products for the communications network
          management market, communications infrastructure market and other
          markets;

     -    keep pace with evolving industry protocol standards and changing
          customer needs; and

     -    achieve broad market acceptance for our products.

     We cannot assure you that we will achieve these objectives.

     OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO DEVELOP NEW PRODUCTS BASED
ON EMERGING TECHNOLOGIES.

     We expect carrier spending for legacy networks to decrease over time, which
requires that we develop solutions for networks based on emerging technologies
and standards, such as IP and ATM. These emerging technologies and standards are
likely to be characterized by continuing technological


                                       30
<PAGE>


developments, evolving industry standards and changing customer requirements. We
may not successfully develop competitive products for these emerging
technologies and standards, which could harm our business, financial condition
and results of operations.

     Products as complex as those currently under development by us
frequently are subject to delays, and we cannot assure you that we will not
encounter difficulties that could delay or prevent the successful and timely
development, introduction and marketing of these potential new products. Even
if such potential new products are developed and introduced, we cannot assure
you that they will achieve any significant degree of market acceptance.
Failure to release these or any other potential new products on a timely
basis, or failure of these or any other potential new products, if and when
released, to achieve any significant degree of market acceptance, could
materially harm our business, financial condition and results of
operations.

     WE HAVE INTERNATIONAL CUSTOMERS, AND, AS A RESULT, OUR BUSINESS MAY BE
HARMED BY POLITICAL AND ECONOMIC CONDITIONS IN FOREIGN MARKETS AND THE
CHALLENGES ASSOCIATED WITH OPERATING INTERNATIONALLY.

     Our international operations are subject to the risks inherent in
international business activities. Revenues from customers located outside of
the U.S. represented 55.8% of total revenues in 2000, 51.7% of total revenues in
1999 and 52.2% of total revenues in 1998. We believe that continued growth and
profitability will require expansion of our efforts in international markets.
This expansion may be costly and time-consuming and may not generate returns for
a significant period of time, if at all. The risks inherent in international
operations include:

     -    management of geographically dispersed operations;

     -    a longer sales cycle, especially in areas of recent expansion;

     -    longer accounts receivable payment cycles, and greater difficulty in
          the collection of past due accounts;

     -    the ability to establish relationships with government-owned or
          subsidized communications providers;

     -    general economic conditions in each country;

     -    currency controls and exchange rate fluctuations;

     -    seasonal reductions in business activity specific to certain markets;

     -    loss of revenues, property and equipment from expropriation,
          nationalization, war, insurrection, terrorism and other political
          risks;

     -    foreign taxes and the overlap of different tax structures, including
          modifications to the U.S. tax code as a result of international trade
          regulations;

     -    greater difficulty in safeguarding intellectual property;

     -    import and export licensing requirements and other trade restrictions;


                                       31

<PAGE>


     -    involuntary renegotiation of contracts with foreign governments and
          communications carriers; and

     -    existence or adoption of laws and regulations affecting the pace of
          deregulation, taxation of our business and the general business
          climate for foreign companies.

     International expansion of our business will require significant management
attention and financial resources. Moreover, in order to further expand
internationally, we may be required to establish relationships with additional
distributors and third-party integrators. We cannot assure you that we will
effectively establish such relationships. If international revenues are not
adequate to offset the additional expense of expanding international operations,
it could harm our business, financial condition and results of operations.

     To date, a very high percentage of international sales have been
denominated in U.S. dollars, and accordingly we have not been significantly
exposed to fluctuations in non-U.S. currency exchange rates. As a result, our
revenues in international markets may be harmed by a strengthening U.S. dollar.
However, we expect that in future periods a greater portion of international
sales may be denominated in currencies other than U.S. dollars, thereby exposing
us to exchange rate gains and losses on non-U.S. currency transactions. We may
choose to limit such exposure by entering into various hedging strategies. We
cannot be certain that any hedging strategies that we undertake would be
successful in avoiding exchange-related losses.

     WE MAY BE UNABLE TO PRODUCE SUFFICIENT QUANTITIES OF OUR PRODUCTS BECAUSE
WE OBTAIN KEY COMPONENTS FROM SOLE AND LIMITED SOURCE SUPPLIERS. IF WE ARE
UNABLE TO OBTAIN THESE COMPONENTS, WE COULD BE UNABLE TO SHIP OUR PRODUCTS IN A
TIMELY MANNER.

     Currently, our products utilize certain semiconductors that are available
from only one manufacturer and other components that are available from one or a
limited number of suppliers. While alternative suppliers have been identified
for a variety of key components, those alternative sources have not been
qualified by us. Our qualification process could be lengthy, and we cannot
assure you that additional sources would become available to us on a timely
basis, or if such sources were to become available, that the components would be
comparable in price and quality to our current components. We have no long-term
agreements with our suppliers and in the case of many components make our
purchases with purchase orders on an "as-needed basis." Furthermore, certain
components require an order lead-time of approximately nine months. Other
components that currently are readily available may become difficult to obtain
in the future. Our failure to order sufficient quantities of these components in
advance of product delivery deadlines could prevent us from adequately
responding to unanticipated increases in customer orders. In the past, we have
experienced delays in the receipt of a variety of our key components, which have
resulted in delays in product deliveries. We could experience delays or
reductions in product shipments or increases in product costs if we are unable
to obtain sufficient key components as required or to develop alternative
sources if and as required in the future.

     Accordingly, we make advance purchases of certain components in relatively
large quantities to ensure that we have an adequate and readily available
supply. Our failure to accurately project our needs for these components or
changes in our business strategy that reduce our need for these components could
result in these components becoming obsolete prior to their intended use or
otherwise unusable in our business.


                                       32
<PAGE>


     WE RELY ON THIRD-PARTY SUBCONTRACTORS TO MANUFACTURE AND DEVELOP OUR
PRODUCTS. OUR ABILITY TO SELL PRODUCTS TO OUR CUSTOMERS COULD BE IMPAIRED IF
THESE SUBCONTRACTORS DO NOT MEET THEIR COMMITMENTS TO US.

     We rely exclusively upon third-party subcontractors to manufacture our
subassemblies and we have retained, from time to time, third-party design
services in the development of application-specific integrated circuits or the
layout of circuit boards. We also frequently subcontract the development of
specific features and enhancements of our products. Our reliance on third-party
subcontractors involves a number of risks, including the potential absence of
adequate capacity, the unavailability of or interruption in access to certain
process technologies, and reduced control over product quality, delivery
schedules, manufacturing yields and costs. Any disruption in our relationships
with third-party subcontractors and our inability to develop alternative sources
if and as required in the future could result in delays or reductions in product
shipments or increases in product costs.

     WE RELY UPON SOFTWARE LICENSED FROM THIRD PARTIES. IF WE ARE UNABLE TO
MAINTAIN THESE SOFTWARE LICENSES ON COMMERCIALLY REASONABLE TERMS, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE HARMED.

     We rely upon software that we license from third parties, including
software that is integrated with our internally developed software and used in
our products to perform key functions. The inability to maintain any software
licenses on commercially reasonable terms could result in shipment delays or
reductions until equivalent software could be developed or licensed and
integrated into our products, which could harm our business, financial condition
and results of operations.

     WE MAY NOT RECEIVE THE INTENDED BENEFITS OF FUTURE ACQUISITIONS, JOINT
VENTURES OR OTHER BUSINESS RELATIONSHIPS.

     We may in the future pursue acquisitions of businesses, products and
technologies, or the establishment of joint venture, strategic partnership or
other arrangements that could expand our business. The negotiation of potential
acquisitions or strategic relationships, as well as the integration of an
acquired or jointly developed business, technology or product, could cause
diversion of management's time and resources. Future acquisitions and strategic
relationships by our company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities,
amortization of goodwill and other intangibles, research and development
write-offs and other acquisition-related expenses. Further, we cannot assure you
that any acquisition or joint venture will be successfully integrated with our
operations. If we were to pursue any such acquisition or strategic relationship,
we may not receive the intended benefits of the acquisition or strategic
relationship. Also, we may pursue arrangements with third parties to perform
specified activities for us such as the development of products or product
features. We cannot assure you that these arrangements will produce to the level
of quality or in the time frame expected, which could materially and adversely
harm our business.

     WE RELY ON STRATEGIC DISTRIBUTION AND MARKETING RELATIONSHIPS WITH
MANUFACTURERS OF COMPLIMENTARY PRODUCTS. IF WE FAIL TO DERIVE BENEFITS FROM OUR
EXISTING AND FUTURE STRATEGIC RELATIONSHIPS, OUR BUSINESS LIKELY WILL SUFFER.

     We believe that the ability of our new VIA product to compete against other
softswitch products depends in part on our success with distribution and
marketing relationships with leading communications equipment manufacturers.
These relationships are a meaningful part of our business


                                       33
<PAGE>


strategy. If we cannot successfully enter and maintain these types of
relationships on favorable terms, our business may suffer.

     There are various risks associated with our reliance on these
relationships, including:

     -   the number of different manufacturers that we may be able to support
         will be limited by the finite amount of our resources available to
         support the varying levels of customized engineering required to
         achieve and maintain interoperability and feature/function performance;

     -   these manufacturers may not develop or deliver their products on a
         timely basis, or may not develop products that perform as expected or
         are priced competitively;

     -   these manufacturers may subsequently change the design of their
         products in a manner that requires substantial additional development
         by us to keep our products compatible;

     -   these manufacturers may develop a fully-integrated solution that
         alleviates the need for non-integrated products, including our
         products; and

     -   some of our current and potential strategic partners are either actual
         or potential competitors, which may impair the viability of these
         relationships.

Many of these risks are outside of our control. Any of these risks could
materially harm our business, financial condition and results of operations.

     WE MAY BE ACCUSED OF INFRINGING THE PROPRIETARY RIGHTS OF OTHERS, WHICH
COULD SUBJECT US TO COSTLY AND TIME-CONSUMING LITIGATION.

     The communications industry is characterized by the existence of a large
number of patents and frequent allegations of patent infringement. We have
received, and may receive in the future, notices from holders of patents that
raise issues as to possible infringement by our products. As the number of
communications network management products increases and the functionality of
these products further overlaps, we believe that we may become increasingly
subject to allegations of infringement. To date, we have engaged in
correspondence with third-party holders of patents as a result of two such
notices. While we believe that our products do not infringe on any valid
patents cited in the notices, questions of infringement and the validity of
patents in the field of communications signaling technologies involve highly
technical and subjective analyses. We cannot assure you that any of these
patent holders, or others, will not initiate legal proceedings in the future
against us, or that if any proceedings were initiated, we could be successful
in defending ourselves. Any proceeding could be time consuming and expensive
to defend or resolve, result in substantial diversion of management
resources, cause product shipment delays, or force us to enter into royalty
or license agreements rather than dispute the merits of any such proceeding
initiated against us. We cannot assure you that any such royalty or license
agreements could be available on terms acceptable to us, if at all.

     OUR LIMITED ABILITY OR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY
MATERIALLY HARM OUR ABILITY TO COMPETE.

     Our continued success is dependent in part upon our proprietary technology.
To protect our proprietary technology, we rely on a combination of technical
innovation, trade secret, copyright and trademark laws, non-disclosure
agreements and, to a lesser extent, patents, each of which affords only limited
protection. In addition, the laws of some foreign countries do not protect our
proprietary


                                       34
<PAGE>


rights in the products to the same extent as do the laws of the U.S. Despite
the measures taken by us, it may be possible for a third party to copy or
otherwise obtain and use our proprietary technology and information without
authorization. Policing unauthorized use of our products is difficult, and
litigation may be necessary in the future to enforce our intellectual
property rights. Any litigation could be time consuming and expensive to
prosecute or resolve, result in substantial diversion of management
resources, and materially harm on our business, financial condition and
results of operations. We cannot assure you that we will be successful in
protecting our proprietary technology or that our proprietary rights will
provide us a meaningful competitive advantage.

     WE MAY FACE POTENTIAL LIABILITY FOR PRODUCT DEFECTS.

     Products as complex as ours may contain undetected defects or errors when
first introduced or as enhancements are released that, despite our testing, are
not discovered until after a product has been installed and used by customers,
which could result in delayed market acceptance of the product or damage to our
reputation and business. To date, we have not been materially harmed by products
containing defects or errors. We attempt to include provisions in our agreements
with customers that are intended to limit our exposure to potential liability
for damages arising out of defects or errors in our products. However, the
nature and extent of these limitations vary from customer to customer and it is
possible that these limitations may not be effective as a result of unfavorable
judicial decisions or laws enacted in the future. Although we have not
experienced any product liability suits to date, the sale and support of our
products entails the risk of these claims. Any product liability claim brought
against us, regardless of its merit, could result in material expense to us,
diversion of management time and attention, and damage to our business
reputation and our ability to retain existing customers or attract new
customers.

     OUR THREE FOUNDERS OWN APPROXIMATELY 78% OF OUR COMMON STOCK, WHICH ALLOWS
THEM TO CONTROL THE MANAGEMENT AND AFFAIRS OF OUR COMPANY OR PREVENT A CHANGE OF
CONTROL.

     As of December 31, 2000, our three founders, Samuel S. Simonian, Elie S.
Akilian and Mark A. Weinzierl, beneficially owned approximately 78% of the
outstanding shares of our common stock. Consequently, two or more of these
individuals, acting together, could control the outcome of all matters submitted
for stockholder action, including the election of our board of directors and the
approval of significant corporate transactions. They effectively control the
management and affairs of our company, which could have the effect of delaying
or preventing a change in control of our company. In addition, Messrs. Simonian,
Akilian and Weinzierl constitute three of the six members of our board of
directors and have significant influence in directing the actions taken by our
board.

     OUR BUSINESS AND REPUTATION COULD SUFFER IF WE DO NOT PREVENT SECURITY
BREACHES.

     We have included security features in some of our products that are
intended to protect the privacy and integrity of customer data. Despite the
existence of these security features, our products may be vulnerable to breaches
in security due to unknown defects in the security mechanisms, as well as
vulnerabilities inherent in the operating system or hardware platform on which
the product runs and/or the networks linked to that platform. Security
vulnerabilities, regardless of origin, could jeopardize the security of
information stored in and transmitted through the computer systems of our
customers. Any security problem may require significant capital expenditures to
solve and could adversely affect our reputation and product acceptance.

     WE HAVE ADOPTED ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN
ACQUISITION OF OUR COMPANY.


                                       35
<PAGE>


     Our certificate of incorporation and bylaws and Delaware law contain
provisions that may have the effect of discouraging, delaying or preventing a
change in control of our company or unsolicited acquisition proposals that a
stockholder may consider favorable. For example, we provide for a classified
board of directors with three-year terms, our stockholders are unable to take
action by written consent and our stockholders are limited in their ability to
make proposals at stockholder meetings.

     VOLATILITY IN OUR STOCK PRICE COULD RESULT IN CLAIMS AGAINST US.

     The market price of our common stock has been, and is likely to continue to
be, highly volatile and may be significantly affected by factors such as:

     -    variations in our results of operations;

     -    future sales of common stock;

     -    the announcement of technological innovations or new products by us,
          our competitors and others;

     -    market analysts' estimates of our performance;

     -    general market and economic conditions; and

     -    equity market conditions and industry-specific equity market trends.

     The public markets have experienced significant volatility that has
particularly affected the market prices of securities of many technology and
telecommunications companies for reasons that have often been unrelated to
operating results. This volatility has and may continue to adversely affect the
market price of our common stock as well as our visibility and credibility in
our markets.

     Additionally, in the past, securities class action litigation often has
been brought against a company following periods of volatility in the market
price of its common stock. We may be the target of similar litigation in the
future. Securities litigation could result in substantial costs and divert our
management's attention and resources.

     ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are exposed to immaterial levels of market risk. Revenues from customers
located outside of the U.S. represented 55.8% of total revenues in 2000, 51.7%
of total revenues in 1999 and 52.2% of total revenues in 1998. To date, a very
high percentage of international revenues have been denominated in U.S. dollars,
and accordingly, we have not been significantly exposed to fluctuations in
currency exchange rates.

     Our international business is subject to the typical risks of any
international business, including, but not limited to, the risks described in
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors". Accordingly, our future results could be
materially harmed by changes in these or other factors.

     Currently, our cash is solely invested in money market funds denominated in
U.S. dollars. We account for these investments in accordance with SFAS No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS


                                       36
<PAGE>


IN DEBT AND EQUITY SECURITIES. These cash equivalents are treated as
available-for-sale under SFAS No. 115. The carrying value of these cash
equivalents approximates fair market value.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     See our consolidated financial statements included in Part IV, Item 14.

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

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Information called for by Item 10 will be included under "ELECTION OF
DIRECTORS" and "EXECUTIVE COMPENSATION" in our definitive Proxy Statement for
the 2001 Annual Meeting of Stockholders, which information is incorporated in
this Annual Report by reference.
















                                       37
<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION.

     Information called for by Item 11 will be included under the caption
"EXECUTIVE COMPENSATION" in our Proxy Statement for the 2001 Annual Meeting of
Stockholders, which information is incorporated in this Annual Report by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Information called for by Item 12 will be included under the caption
"PRINCIPAL STOCKHOLDERS" in our Proxy Statement for the 2001 Annual Meeting of
Stockholders, which information is incorporated in this Annual Report by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Information called for by Item 13 will be included under the caption
"CERTAIN TRANSACTIONS WITH MANAGEMENT" in our Proxy Statement for the 2001
Annual Meeting of Stockholders, which information is incorporated in this Annual
Report by reference.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.

(a)  (1) Consolidated Financial Statements

<TABLE>
         <S>                                                                                                   <C>
         Report of Independent Auditors......................................................................  F-1
         Consolidated Balance Sheets as of December 31, 2000 and 1999........................................  F-2
         Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998..............  F-3
         Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,
            1999 and 1998....................................................................................  F-4
         Consolidated Statements of Cash Flows for the years ended December 31, 2000,
            1999 and 1998....................................................................................  F-5
         Notes to Consolidated Financial Statements..........................................................  F-6

         Report of Independent Auditors......................................................................  S-1
         Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2000,
           1999 and 1998.....................................................................................  S-2
</TABLE>


     (2) Financial Statement Schedule

         Schedule II - Valuation and Qualifying Accounts

     (3) Exhibits

         The following Exhibits are incorporated in this Annual Report by
         reference or are filed with this report as indicated below. The
         exhibits filed with this report have been included only with the copy
         filed with the Securities and Exchange Commission. Copies of exhibits
         will be furnished, upon request, subject to payment of a reasonable fee
         to reimburse us for our reproduction costs.


                                       38

<PAGE>

<TABLE>
<CAPTION>
                   EXHIBIT
                    NUMBER                                     DESCRIPTION
                   -------                                     -----------
                    <S>    <C>

                     3.1   Certificate of Incorporation (1)
                     3.2   Amended and Restated Bylaws (1)
                     4.1   Specimen Common Stock certificate (1)
                     4.2   See Exhibits 3.1 and 3.2 for provisions of the
                           Certificate of Incorporation and Bylaws of the
                           registrant defining the rights of holders of common
                           stock
                    10.1   Loan Agreement dated as of June 26, 1997 by and between NationsBank of Texas, N.A. and
                           the registrant (1)
                    10.2   Renewal, Extension and First Amendment to Loan Agreement entered into to be effective
                           as of June 15, 1998 between the registrant and NationsBank of Texas, N.A. (1)
                    10.3   Assumption and Modification Agreement, dated effective as of July 16, 1998, between the
                           registrant and NationsBank of Texas, N.A. (1)
                    10.4   Renewal, Extension and Second Amendment to Loan Agreement entered into to be effective
                           as of June 15, 2000 between the registrant and Bank of America, N.A., f/k/a
                           NationsBank, N.A. (2)
                    10.5   Inet Technologies, Inc. 1998 Stock Option/Stock Issuance Plan (1), (7)
                    10.6   Form of Indemnification Agreement between the registrant and each of its directors and
                           executive officers (1)
                    10.7   Form of Registration Rights Agreement, dated as of July 17, 1998 by and among the
                           registrant, Samuel S. Simonian, Elie S. Akilian and Mark A. Weinzierl (1)
                    10.8   Executive Employment Agreement, dated August 30, 1999, between the registrant and Luis
                           Pajares (3) (7)
                    10.9   Inet Technologies, Inc. 1998 Employee Stock Purchase Plan (4)
                    10.10  Lease dated as of January 27, 2000 by and among Collins Crossing, LTD. and the
                           registrant (5)
                    10.11  Lease Amendment No. 1 dated March 31, 2000 by and among Collins Crossing, LTD. and
                           the registrant (6)
                    10.12  Lease Amendment No. 2 dated June 1, 2000 by and among Collins Crossing, LTD. and
                           the registrant (6)
                    21.1   Subsidiaries of the registrant (6)
                    23.1   Consent of Ernst & Young LLP (6)
                    24.1   Power of Attorney, pursuant to which amendments to
                           this report may be filed, is included on the
                           signature page contained in Part IV hereof

                ---------
                      (1)  Previously filed as an exhibit to the registrant's Registration Statement on Form S-1
                           (Reg. No. 333-59753) and incorporated herein by reference.
                      (2)  Previously filed as an exhibit to the registrant's Quarterly Report on Form 10-Q for
                           the quarter ended June 30, 2000 and incorporated herein by reference.
                      (3)  Previously filed as an exhibit to the registrant's Quarterly Report on Form 10-Q for
                           the quarter ended March 31, 2000 and incorporated herein by reference.
                      (4)  Previously filed as an exhibit to the registrant's Registration Statement on Form S-8
                           (Reg. No. 333-83285) and incorporated herein by reference.
                      (5)  Previously filed as an exhibit to the registrant's Annual Report on Form 10-K for the
                           fiscal year ended December 31, 1999 and incorporated herein by reference.
                      (6)  Filed herewith.
                      (7)  Management contract or compensatory plan or arrangement required to be filed as an
                           exhibit to this form pursuant to Item 14(c) of Form 10-K.

</TABLE>

(b)      Reports on Form 8-K


                                                      39
<PAGE>


     We did not file any Current Reports on Form 8-K during the fourth quarter
of 2000.
































                                      40
<PAGE>



                                   SIGNATURES

     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.

                                   INET TECHNOLOGIES, INC.



         Date: March 23, 2001      By: /s/ Elie S. Akilian
                                       -----------------------------------------
                                           Elie S. Akilian
                                           President, Chief Executive Officer
                                              and Director
                                           (Principal executive officer)

                                 POWER OF ATTORNEY

     Each person whose signature appears below hereby authorizes and constitutes
Mark H. Kleinman and Jeffrey A. Kupp, and each of them singly, his true and
lawful attorneys-in-fact with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities to sign and file
any and all amendments to this report with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and he hereby ratifies and confirms all that said attorneys-in-fact or any of
them, or their substitutes, may lawfully do or cause to be done by virtue
hereof.

     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.

         Date:  March 23, 2001    By: /s/ Samuel S. Simonian
                                      ------------------------------------------
                                          Samuel S. Simonian
                                          Chairman of the Board


         Date:  March 23, 2001    By: /s/ Elie S. Akilian
                                      ------------------------------------------
                                          Elie S. Akilian
                                          President, Chief Executive Officer
                                            and Director
                                          (Principal executive officer)


         Date: March 23, 2001     By: /s/ William H. Mina
                                      ------------------------------------------
                                          William H. Mina
                                          Senior Vice President,
                                          Administration and Legal Affairs
                                          and Director




                                      41
<PAGE>




   Date: March 23, 2001     By: /s/ Jeffrey A. Kupp
                                ------------------------------------------
                                    Jeffrey A. Kupp
                                    Vice President and Chief Financial Officer
                                    (Principal financial and accounting officer)

   Date: March 23, 2001     By: /s/ Mark A. Weinzierl
                                ------------------------------------------
                                    Mark A. Weinzierl
                                    Director


   Date: March 23, 2001     By: /s/ James R. Adams
                                ------------------------------------------
                                    James R. Adams
                                    Director


   Date: March 23, 2001     By: /s/ Grant A. Dove
                                ------------------------------------------
                                    Grant A. Dove
                                    Director












                                42
<PAGE>


                      REPORT OF INDEPENDENT AUDITORS




Board of Directors
Inet Technologies, Inc.

     We have audited the accompanying consolidated balance sheets of Inet
Technologies, Inc., or the Company, as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Inet
Technologies, Inc. at December 31, 2000 and 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.


                                               ERNST & YOUNG LLP


Dallas, Texas
January 22, 2001



















                                      F-1
<PAGE>

                                          INET TECHNOLOGIES, INC.
                                        CONSOLIDATED BALANCE SHEETS

                                                 ASSETS


<TABLE>
<CAPTION>

                                                                                    DECEMBER 31,
                                                                                ---------------------
                                                                                  2000         1999
                                                                                ---------   ---------
                                                                          (In thousands, except share data)
<S>                                                                             <C>         <C>
Current assets:
  Cash and cash equivalents..........................................           $ 131,419   $ 127,903
  Trade accounts receivable, net of allowance for doubtful accounts
     of $1,065 at December 31, 2000 and $939 at December 31, 1999....              47,634      20,781
  Unbilled receivables...............................................               1,925       2,196
  Income taxes receivable............................................              12,179          --
  Inventories........................................................               9,381       5,893
  Deferred income taxes..............................................               1,667       2,318
  Other current assets...............................................               3,254       1,312
                                                                                ---------   ---------
          Total current assets.......................................             207,459     160,403
Property and equipment, net..........................................              18,408       9,324
Deferred income taxes................................................                  --           6
Other assets.........................................................                 340         184
                                                                                ---------   ---------
          Total assets...............................................           $ 226,207   $ 169,917
                                                                                =========   =========

                                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable...................................................           $   4,629   $   2,599
  Accrued compensation and benefits..................................               7,885       5,252
  Deferred revenues..................................................              22,744      26,432
  Taxes payable......................................................                  --         213
  Other accrued liabilities..........................................               5,040       1,998
                                                                                ---------   ---------
          Total current liabilities..................................              40,298      36,494
Deferred tax liabilities.............................................                 489          --
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $.001 par value:
     Authorized shares -- 25,000,000
     Issued shares -- None...........................................                  --          --
  Common stock, $.001 par value:
     Authorized shares -- 175,000,000
     Issued shares -- 46,319,633 at December 31, 2000 and
       45,312,759 at December 31, 1999...............................                  46          45
  Additional paid-in capital.........................................              69,935      57,693
  Unearned compensation..............................................                  --        (233)
  Retained earnings..................................................             115,439      75,918
                                                                                ---------   ---------
          Total stockholders' equity.................................             185,420     133,423
                                                                                ---------   ---------
          Total liabilities and stockholders' equity.................           $ 226,207   $ 169,917
                                                                                =========   =========

</TABLE>

                    See accompanying notes to consolidated financial statements.


                                                F-2

<PAGE>

                                    INET TECHNOLOGIES, INC.
                               CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>

                                                                 YEARS ENDED DECEMBER 31,
                                                           -------------------------------------
                                                             2000           1999          1998
                                                           --------       --------       -------
                                                                    (In thousands,
                                                                 except per share data)
<S>                                                        <C>            <C>            <C>
Revenues:
  Product and license fees........................         $140,562       $ 99,615       $71,137
  Services........................................           18,445         10,368         6,291
                                                           --------       --------       -------
       Total revenues.............................          159,007        109,983        77,428

Cost of revenues:
  Product and license fees........................           32,643         24,748        18,724
  Services........................................            8,565          7,007         3,680
                                                           --------       --------       -------
       Total cost of revenues.....................           41,208         31,755        22,404
                                                           --------       --------       -------

           Gross profit...........................          117,799         78,228        55,024
Operating expenses:
  Research and development........................           33,951         21,793        15,667
  Sales and marketing.............................           20,270         12,646         8,612
  General and administrative......................           12,340          9,037         6,592
                                                           --------       --------       -------
                                                             66,561         43,476        30,871
                                                           --------       --------       -------
          Income from operations..................           51,238         34,752        24,153
Other income (expense):
  Gain (loss) on sale of assets...................               (6)         5,924            (7)
  Interest income.................................            8,224          3,991           833
  Other income (expense)..........................              (34)            (4)            1
                                                           --------       --------       -------
                                                              8,184          9,911           827
                                                           --------       --------       -------
          Income before provision for income
            taxes.................................           59,422         44,663        24,980
Provision for income taxes........................           19,901         14,962         7,895
                                                           --------       --------       -------
          Net income..............................         $ 39,521       $ 29,701       $17,085
                                                           ========       ========       =======

Earnings per common share:
          Basic...................................         $   0.86       $   0.68       $  0.42
                                                           ========       ========       =======
          Diluted.................................         $   0.84       $   0.66       $  0.40
                                                           ========       ========       =======

Weighted-average shares outstanding:
          Basic...................................           46,126         43,449        40,879
                                                           ========       ========       =======
          Diluted.................................           46,885         45,037        42,452
                                                           ========       ========       =======

</TABLE>

                    See accompanying notes to consolidated financial statements.


                                                F-3

<PAGE>

<TABLE>
<CAPTION>

                                              INET TECHNOLOGIES, INC.
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                         COMMON STOCK     ADDITIONAL                               TREASURY STOCK       TOTAL
                                     -------------------   PAID-IN      UNEARNED     RETAINED    -----------------   STOCKHOLDERS'
                                       SHARES     AMOUNT   CAPITAL    COMPENSATION   EARNINGS    SHARES     AMOUNT      EQUITY
                                     ----------   ------  ----------  ------------   --------    -------    ------  -------------
                                                                       (In thousands, except share data)
<S>                                  <C>          <C>     <C>         <C>            <C>         <C>        <C>     <C>
Balance at December 31, 1997.......  40,900,422    $ 41     $   430      $    --     $ 29,132     38,842    $ (217)   $ 29,386
  Issuance of common stock.........      19,000      --         106           --           --         --        --         106
  Issuance of common stock under
    stock option plan..............      15,000      --           9           --           --         --        --           9
  Net income.......................          --      --          --           --       17,085         --        --      17,085
  Stock option compensation........          --      --         691         (464)          --         --        --         227
                                     ----------   ------  ----------  ------------   --------    -------    ------  -------------
Balance at December 31, 1998.......  40,934,422      41       1,236         (464)      46,217     38,842      (217)     46,813
  Issuance of common stock for
    cash in initial public
    offering, net..................   3,802,637       4      55,478           --           --    (38,842)      217      55,699
  Issuance of common stock under
    stock option plan..............     575,700      --         426           --           --         --        --         426
  Net income.......................          --      --          --           --       29,701         --        --      29,701
  Stock option compensation........          --      --         553          231           --         --        --         784
                                     ----------   ------  ----------  ------------   --------    -------    ------  -------------
Balance at December 31, 1999.......  45,312,759      45      57,693         (233)      75,918         --        --     133,423
 Issuance of common stock under
    stock option and stock
    purchase plans, including tax
    benefit of $8,437..............   1,006,874       1      12,242           --           --         --        --      12,243
  Net income.......................          --      --          --           --       39,521         --        --      39,521
  Stock option compensation........          --      --          --          233           --         --        --         233
                                     ----------   ------  ----------  ------------   --------    -------    ------  -------------
Balance at December 31, 2000.......  46,319,633    $ 46     $69,935      $    --     $115,439         --    $   --    $185,420
                                     ==========   ======  ==========  ============   ========    =======    ======  =============

</TABLE>
                    See accompanying notes to consolidated financial statements.

                                               F-4
<PAGE>


                                              INET TECHNOLOGIES, INC.
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                           -----------------------------------
                                                             2000         1999         1998
                                                           ---------    ---------    ---------
                                                                       (In thousands)
<S>                                                        <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $  39,521    $  29,701    $  17,085
Adjustments to reconcile net income to net cash
provided by operating activities:
  Depreciation............................................     5,073        3,955        2,752
  (Gain) loss on sale or disposal of assets...............         6       (5,924)           7
  Deferred income taxes...................................     1,146          233       (3,427)
  Issuance of common stock and stock options
    charged to expense....................................       233          231          333
  Change in assets and liabilities:
     (Increase) decrease in trade accounts receivable.....   (26,853)       1,119       (6,241)
     (Increase) decrease in unbilled receivables..........       271         (594)       4,203
     (Increase) decrease in inventories...................    (3,488)       1,669         (629)
     Increase in income taxes receivable..................    (3,742)          --           --
     (Increase) decrease in other assets..................    (2,098)        (139)         245
     Increase in accounts payable.........................     2,030          741          529
     Increase (decrease) in taxes payable.................      (213)        (665)         618
     Increase (decrease) in accrued compensation and
       benefits...........................................     2,633        3,093          (78)
     Increase (decrease) in deferred revenues.............    (3,688)      13,359        8,912
     Increase in other accrued liabilities................     3,042        1,282          201
                                                           ---------    ---------    ---------
Net cash provided by operating activities.................    13,873       48,061       24,510
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................   (14,163)      (5,197)      (5,991)
Proceeds from sale of assets..............................        --        7,000           --
                                                           ---------    ---------    ---------
Net cash provided by (used in) investing activities.......   (14,163)       1,803       (5,991)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock in initial
   public offering, net...................................        --       55,699           --
Proceeds from issuance of common stock upon exercise
   of stock options and purchases under employee
   stock purchase plan....................................     3,806          426            9
                                                           ---------    ---------    ---------
Net cash provided by financing activities.................     3,806       56,125            9
                                                           ---------    ---------    ---------
Net increase in cash and cash equivalents.................     3,516      105,989       18,528
Cash and cash equivalents at beginning of period..........   127,903       21,914        3,386
                                                           ---------    ---------    ---------
Cash and cash equivalents at end of period................ $ 131,419    $ 127,903    $  21,914
                                                           =========    =========    =========
SUPPLEMENTAL DISCLOSURES:
   Interest paid.......................................... $      --    $      --    $      --
                                                           =========    =========    =========
   Income taxes paid...................................... $  22,672    $  15,329    $   9,263
                                                           =========    =========    =========
</TABLE>

     See accompanying notes to consolidated financial statements.

                                        F-5
<PAGE>


                             INET TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

     We are a global provider of communications software solutions that enable
carriers to more effectively design, deploy, diagnose, monitor and manage
communications networks that carry signaling information used to control and
deliver communications sessions and services. These communications sessions
include phone calls, dial-up Internet access and other service transactions or
sessions. Our solutions also address the fundamental business needs of
communications carriers, such as improved billing, targeted sales and marketing,
fraud prevention and enhanced routing. We provide these comprehensive offerings
through our network intelligence, business intelligence, diagnostics and network
infrastructure solutions.

CONSOLIDATION

     The consolidated financial statements include the accounts of our
wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated.

CASH AND CASH EQUIVALENTS

     All highly liquid securities with original maturities of three months or
less are classified as cash equivalents. The carrying value of cash equivalents
approximates fair market value.

INVENTORIES

     Inventories are valued at the lower of standard cost, which approximates
actual cost determined on a first-in, first-out basis, or market. Inventories
consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                     -------------------
                                                      2000         1999
                                                     ------       ------
                <S>                                  <C>          <C>
                Raw materials....................    $4,183       $1,791
                Work-in-process..................       241          241
                Finished goods...................     4,957        3,861
                                                     ------       ------
                                                     $9,381       $5,893
                                                     ======       ======
</TABLE>


PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost less accumulated depreciation and
amortization and are depreciated on a straight-line basis over their estimated
useful lives, as follows:

<TABLE>
                <C>                                        <C>
                Computers and other equipment...........   3-5 Years
                Software................................   3 Years
                Office furniture and fixtures...........   7 Years


                                     F-6
<PAGE>

                Leasehold improvements..................   Term of lease
</TABLE>






















                                     F-7
<PAGE>


RESEARCH AND DEVELOPMENT EXPENDITURES

     Software development costs are expensed as incurred until technological
feasibility has been established, at which time subsequent costs are capitalized
until the product is available for general release to customers. To date, either
the establishment of technological feasibility of our products and their general
release have substantially coincided or costs incurred subsequent to the
achievement of technological feasibility have not been material. As a result,
software development costs qualifying for capitalization have been
insignificant, and we have not capitalized any software development costs.
Research and development expenditures are charged to expense in the period
incurred.

REVENUE RECOGNITION

     Effective January 1, 2000, we adopted Statement of Position, or SOP, 98-9,
MODIFICATION OF SOP 97-2, `SOFTWARE REVENUE RECOGNITION' WITH RESPECT TO CERTAIN
TRANSACTIONS, which did not require a significant change to our revenue
recognition policies. In December 1999, the Securities and Exchange Commission,
or SEC, issued Staff Accounting Bulletin, or SAB, No. 101, REVENUE RECOGNITION
IN FINANCIAL STATEMENTS, which was effective in the fourth quarter of this
fiscal year. The adoption of SAB 101 did not materially affect our revenue
recognition policies.

     We derive revenues primarily from the sale of products and software license
fees as well as services, which include product installation, product
integration, training and product support services.

     Except as otherwise discussed below, revenues from product and license fees
are recognized in the period we have completed all hardware manufacturing and/or
software development to contractual specifications, factory testing has been
completed, the product has been shipped to the customer, the fee is fixed and
determinable and collection is considered probable. When we have significant
obligations subsequent to shipment (for example, installation and system
integration), revenues are recognized when there are no significant unfulfilled
obligations. Revenues from arrangements that include significant acceptance
terms are recognized when acceptance has occurred.

     Revenues for fixed-priced contracts that require significant software
development and are generally in duration in excess of nine months are
recognized on a percentage-of-completion method. Revenues from these contracts
are recognized upon attainment of scheduled performance milestones. Anticipated
losses on fixed-priced contracts are recognized when estimable.

     Revenues from product installation, product integration and other services,
excluding product support services, are recognized when the services have been
completed.

     We offer our customers product support services, which include the
correction of software problems, telephone access to our technical personnel and
the right to receive unspecified product updates, upgrades and enhancements,
when and if they become available. Revenues from these services, including
product support services included in initial licensing fees, are recognized
ratably over the contract period. Product support services included in the
initial licensing fee are allocated from the total contract amount based on the
relative fair value of these services determined using vendor-specific objective
evidence, or VSOE.

     Deferred revenues represent amounts billed to customers, but not yet
recognized as revenue. Unbilled receivables represent amounts recognized as
revenue, but not yet billed to customers.


                                     F-8
<PAGE>


STOCK OPTIONS

     We have elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, or APB 25, in accounting for our
employee stock options. Under APB 25, if the exercise price of an employee's
stock options equals or exceeds the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

     Effective July 1, 2000, we adopted Financial Accounting Standards Board
Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK
COMPENSATION, or FIN 44, an interpretation of APB 25, which requires changes
to previous practice regarding the accounting for certain stock compensation
arrangements. FIN 44 does not change APB 25's intrinsic value method, under
which compensation expense is generally not recognized for grants of stock
options to employees with an exercise price equal to the market price of the
stock at the date of grant, but it has narrowed its application. Adoption of
FIN 44 did not have a significant effect on our results of operations for the
year ended December 31, 2000.

CONCENTRATION OF CREDIT RISK

     Financial instruments which potentially subject us to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. We sell products and services to customers associated with the
communications industry, both within the United States and internationally. We
continually evaluate the creditworthiness of our customers' financial condition
and generally do not require collateral. We have not experienced significant
losses on uncollectible accounts. All cash equivalents are maintained with
nationally recognized financial institutions.

RISKS AND UNCERTAINTIES

     Our future results of operations and financial condition could be impacted
by the following factors, among others: dependence on the communications
industry, general economic conditions, market growth for converging and
next-generation network solutions, lengthy sales cycle, delays in product
implementation, product concentration, competition, dependence on key
personnel, ability to manage rapid growth, rapid technological change and
dependence on new products, international operations, potential acquisitions,
potential joint ventures, strategic relationships with other product
manufacturers, proprietary rights and product liability.

ACCOUNTING ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.

BASIS OF PRESENTATION

     Certain prior period amounts have been reclassified to conform to the
current period presentation.

COMPREHENSIVE INCOME

     For all periods presented, we had no material components of comprehensive
income other than net income.

EARNINGS PER SHARE

     Basic earnings per common share data is computed using the weighted-average
number of common shares outstanding for the relevant period. Diluted earnings
per common share data is computed using the weighted-average number of common
shares outstanding plus common share equivalents represented by stock options
and purchase rights, if such stock options and purchase rights have a dilutive
effect in the aggregate.


                                     F-9
<PAGE>


     The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                           ---------------------------------
                                                             2000        1999         1998
                                                           --------    --------     --------
           <S>                                             <C>         <C>          <C>
           Numerator:
             Net income for basic and diluted
               earnings per share.....................     $ 39,521    $ 29,701     $ 17,085
                                                           ========    ========     ========
           Denominator:
             Denominator for basic earnings per
               share - weighted-average shares........       46,126      43,449       40,879
             Effect of dilutive securities:
             Employee stock options and purchase
               rights.................................          759       1,588        1,573
                                                           --------    --------     --------
             Potentially dilutive common shares.......          759       1,588        1,573
                                                           --------    --------     --------
             Denominator for diluted earnings
               per share - adjusted
               weighted-average shares................       46,885      45,037       42,452
                                                           ========    ========     ========
           Basic earnings per common share............     $   0.86    $   0.68     $   0.42
                                                           ========    ========     ========
           Diluted earnings per common share..........     $   0.84    $   0.66     $   0.40
                                                           ========    ========     ========
</TABLE>


DERIVATIVES

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value on the balance
sheet, and that the corresponding gains or losses be included in comprehensive
income, depending on the type of hedging relationship that exists. SFAS 133 was
effective for us on January 1, 2001. The adoption of SFAS 133 did not have a
material effect on our financial position and results of operations.

2. RELATED PARTY TRANSACTIONS

     Effective January 1, 2000, we sold our membership interest in Inet Global
Research, L.L.C., to an entity controlled by a related party for a cash purchase
price of $82,000. No gain or loss was recorded for the sale. This entity is
currently performing services for us for which it is paid a monthly fee per
dedicated full time programmer plus reimbursement of reasonable business
expenses. In 2000, the expense associated with these services was approximately
$1.1 million.

     In September 1999, we sold our wireless data assets to Nextcell, Inc., an
entity controlled by a related party, for a total purchase price of $7.0
million, resulting in a pre-tax gain of $5.9 million. A special committee of our
independent directors approved the transaction. We recognized $553,000 of
compensation expense related to the accelerated vesting of certain stock options
for employees affected by the sale.


                                    F-10
<PAGE>


3. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                          ------------------
                                                                           2000       1999
                                                                          -------    -------
         <S>                                                              <C>        <C>
         Computer and other equipment..................................   $20,788    $13,236
         Software......................................................     4,204      3,297
         Office furniture, fixtures, and leasehold improvements........     6,512      2,299
                                                                          -------    -------
                                                                           31,504     18,832
         Less accumulated depreciation and amortization................    13,096      9,508
                                                                          -------    -------
                                                                          $18,408    $ 9,324
                                                                          =======    =======
</TABLE>


4. CREDIT FACILITY

     We have a credit facility with a bank providing for borrowings of up to
$10.0 million. This credit facility will expire on June 15, 2001. Up to $5.0
million may be utilized to support letters of credit. The per annum usage fee
on unused portions of the line is 0.125%. At our option, borrowings under
this facility bear interest at either (i) the bank's prime rate less up to
0.50% or (ii) the London interbank offered rate, or LIBOR, as adjusted to
meet specified Federal Reserve requirements with respect to Eurocurrency
liabilities, plus up to 1.50%. This facility is collateralized by our
accounts receivable, inventories and property and equipment. The credit
facility includes covenants requiring us to maintain certain financial ratios
and restricts the payment of cash dividends without the bank's consent. At
December 31, 2000, no amounts were outstanding under the credit facility, and
the amount available to us, after considering outstanding letters of credit,
was $9.8 million.

5. INCOME TAXES

     Components of the provision for income taxes were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              2000         1999        1998
                                                            -------      -------      -------
               <S>                                          <C>          <C>          <C>
               Current federal provision................    $17,403      $13,731      $10,630
               Current state provision..................      1,186          654          645
               Deferred federal expense (benefit).......        854          118       (2,830)
               Current foreign provision................        166          344           47
               Deferred state expense (benefit).........        292          115         (597)
                                                            -------      -------      -------
                    Total income tax provision..........    $19,901      $14,962      $ 7,895
                                                            =======      =======       ======
</TABLE>


                                    F-11

<PAGE>

     The provision for income taxes is reconciled with the federal statutory
rate as follows (in thousands):


<TABLE>
<CAPTION>

                                                                             YEARS ENDED DECEMBER 31,
                                                                      ----------------------------------
                                                                        2000         1999          1998
                                                                      -------      -------        ------
        <S>                                                           <C>          <C>            <C>
        Provision computed at federal statutory rate........          $20,798      $15,632        $8,743
        Research and development tax credits................           (1,119)        (836)         (342)
        Foreign sales corporation income exemption..........           (1,521)        (783)         (687)
        State income taxes, net of federal tax effect.......              961          639            31
        Other...............................................              782          310           150
                                                                      -------      -------        ------
                                                                      $19,901      $14,962        $7,895
                                                                      =======      =======        ======

</TABLE>

     The significant components of our deferred tax assets and liabilities were
as follows (in thousands):


<TABLE>
<CAPTION>

                                                                                    DECEMBER 31,
                                                                               --------------------
                                                                                 2000         1999
                                                                               -------       ------
             <S>                                                               <C>           <C>
             Deferred tax assets:
               Deferred revenues.....................................          $     -       $  837
               Reserves and other accrued expenses not currently
                  deductible for tax purposes........................            1,097          986
               Research and development tax credit carryover.........            1,257          418
               Other.................................................                -          259
                                                                               -------       ------
                       Total deferred tax assets.....................            2,354        2,500
                                                                               -------       ------
             Deferred tax liabilities:
               Deferred revenues.....................................             (351)           -
               Depreciation..........................................             (489)        (176)
               Other.................................................             (336)           -
                                                                               -------       ------
                       Total deferred tax liabilities................           (1,176)        (176)
                                                                               -------       ------
             Deferred income tax assets, net of deferred income tax
                liabilities..........................................          $ 1,178       $2,324
                                                                               =======       ======

</TABLE>

6. OPERATING LEASES

     We lease our corporate office facility as well as certain equipment under
noncancelable operating lease agreements. Rental expense for these operating
leases was $3.9 million in 2000, $1.9 million in 1999 and $1.4 million in 1998.

     At December 31, 2000, future minimum lease payments under noncancelable
operating leases were as follows (in thousands):


<TABLE>
<CAPTION>

                                               AMOUNTS
                                               -------
                                <S>            <C>
                                2001.........  $ 5,569
                                2002.........    5,529
                                2003.........    5,503
                                2004.........    5,503
                                thereafter...   31,486
                                               -------
                                               $53,590
                                               =======

</TABLE>


                                    F-12

<PAGE>

7. STOCKHOLDERS' EQUITY

PREFERRED STOCK

     Our Board of Directors has the authority to issue up to 25,000,000 shares
of Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.

EMPLOYEE STOCK OPTION AND STOCK PURCHASE PLANS

     Our 1998 Stock Option/Stock Issuance Plan, or the 1998 Plan, is our
successor equity incentive program to our 1995 Employee Stock Option Plan, or
the 1995 Plan. The 1998 Plan became effective on July 23, 1998 upon adoption by
our Board of Directors and was subsequently approved by our stockholders on July
23, 1998. At December 31, 2000, common stock authorized for issuance under the
1998 Plan was 7,203,127 shares. The share reserve automatically increases on the
first trading day of January each calendar year, by a number of shares equal to
one percent (1%) of the total number of shares of common stock outstanding on
the last trading day of the immediately preceding calendar year. No such annual
increase can exceed 500,000 shares. In no event may any one participant in the
1998 Plan receive option grants or direct stock issuances for more than
1,000,000 shares in the aggregate in a calendar year. During the year ended
December 31, 2000, all stock options granted were under the 1998 Plan.

     The 1998 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program, under which eligible individuals in our
employ or service (including officers, non-employee directors and consultants)
may, at the discretion of the plan administrator, be granted options to purchase
shares of common stock at an exercise price determined by the plan
administrator, which is generally the fair market value of those shares on the
grant date, (ii) the Stock Issuance Program, under which such individuals may,
in the plan administrator's discretion, be issued shares of common stock
directly, through the purchase of such shares at a price determined by the plan
administrator or as a bonus tied to the performance of services and (iii) the
Automatic Option Grant Program, under which option grants will automatically be
made at periodic intervals to eligible non-employee directors to purchase shares
of common stock at an exercise price equal to 100% of the fair market value of
those shares on the grant date. Generally, options granted under the
Discretionary Option Grant Program become exercisable ratably over a period of
four years and expire ten years from the date of grant. Options granted under
the Automatic Option Grant Program are immediately exercisable, vest ratably
over a period of one or three years, and expire ten years from the date of
grant.

     Our 1995 Plan provided for incentive options and nonqualified options that
were granted to our key employees, officers and directors. Options were granted
generally at prices not less than the fair value of our common stock as
determined by the Stock Option Committee of our Board of Directors, or the
Committee, at the dates of grant. Options granted under the 1995 Plan vest at
rates established by the Committee and expire ten years after the date of grant.

     Outstanding options under the 1995 Plan have been incorporated into the
1998 Plan, and no further option grants will be made under the 1995 Plan. The
incorporated options will continue to be governed by their existing terms,
unless the plan administrator elects to extend one or more features of the 1998
Plan

                                    F-13

<PAGE>

to those options. However, except as otherwise noted above, the outstanding
options under the 1995 Plan contain substantially the same terms and conditions
summarized above for the Discretionary Option Grant Program in effect under the
1998 Plan.

     Options granted in the first quarter of 1998 at $4.20 per share had a fair
market value of $5.57 per share, which resulted in a total of $692,000 of
compensation expense, which was recognized ratably over the vesting period of
three years beginning in the first quarter of 1998. We recorded compensation
expense of $233,000 in 2000, $231,000 in 1999 and $228,000 in 1998.

     Stock option transactions for the years ended December 31, 2000, 1999 and
1998, are summarized as follows:


<TABLE>
<CAPTION>

                                                                YEARS ENDED DECEMBER 31,
                                       ---------------------------------------------------------------------------
                                                 2000                     1999                    1998
                                       ------------------------ ------------------------ -------------------------
                                                      WEIGHTED-                WEIGHTED-                 WEIGHTED-
                                                       AVERAGE                  AVERAGE                   AVERAGE
                                        NUMBER OF     EXERCISE   NUMBER OF     EXERCISE   NUMBER OF     EXERCISE
                                         OPTIONS        PRICE     OPTIONS        PRICE     OPTIONS        PRICE
                                       ----------     --------- ----------     --------- ----------     ----------
      <S>                              <C>            <C>       <C>            <C>       <C>            <C>
      Outstanding at beginning of
        period:....................     1,841,950       $8.82    1,947,000       $1.67    1,531,750       $0.80
      Granted......................     1,791,900       39.23      489,250       27.88      506,000        4.20
      Exercised....................      (835,150)       1.62     (575,700)       0.74      (15,000)       0.60
      Forfeited....................      (227,200)      29.12      (18,600)      11.73      (75,750)       1.16
                                       ----------               ----------               ----------
      Outstanding at end of
        period.....................     2,571,500       30.56    1,841,950        8.82    1,947,000        1.67
                                       ==========               ==========               ==========
      Weighted-average fair value
        of options granted during
        the period.................    $    26.99               $    17.21               $     2.12
                                       ==========               ==========               ==========

</TABLE>

     At December 31, 2000, 235,463 shares were exercisable at a weighted-average
exercise price of $19.96 and 3,205,777 shares were available for future grants
to employees under the 1998 Plan.

     Information related to options outstanding at December 31, 2000, is
summarized below:


<TABLE>
<CAPTION>

                                               OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                               -----------------------------------------------------    ---------------------------------
                                                WEIGHTED-AVERAGE
                                 NUMBER OF          REMAINING      WEIGHTED-AVERAGE      NUMBER OF      WEIGHTED-AVERAGE
 EXERCISE PRICES                  OPTIONS       CONTRACTUAL LIFE    EXERCISE PRICE        OPTIONS        EXERCISE PRICE
-----------------              ------------    -----------------  ------------------    -----------    ------------------
<S>                            <C>             <C>                <C>                   <C>            <C>
$ 0.60 - $16.00.......            588,550               6.96             $ 5.54           102,438            $ 3.56
$18.06 - $40.13.......          1,395,825               9.49              32.89           106,650             29.12
$40.13 - $67.00.......            587,125               9.31              50.09            26,375             46.66

</TABLE>

     Our Employee Stock Purchase Plan, or the Purchase Plan, was adopted by our
Board of Directors and approved by our stockholders on July 23, 1998. The
Purchase Plan provides for the issuance of up to 750,000 shares of common stock.
Eligible employees can have up to 15% of their earnings withheld, subject to
certain limitations, to be used to purchase shares of our common stock on every
January 31st and July 31st. The price of the common stock purchased under the
Purchase Plan will be equal to 85% of the lower of the fair market value of the
common stock on the commencement date of the offering period or the fair market
value of the common stock on the specified purchase date. The Purchase Plan has
been implemented in a series of successive offering periods, each with a maximum
duration of 24 months, except the initial offering period which will have a
duration of 26 months. The initial offering period began on June 1, 1999 and
will end on the last business day of July 2001. The next offering period will
commence on the first business day in August 2001, and subsequent offering
periods will commence as designated by the plan administrator. At December 31,
2000, 171,724 shares had been issued under the Purchase Plan.

                                    F-14

<PAGE>

     Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK
BASED COMPENSATION, or SFAS 123, requires the disclosure of pro forma net income
and earnings per share information computed as if we had accounted for our
employee stock options granted subsequent to December 31, 1994 and the Purchase
Plan, under the fair value method set forth in SFAS 123. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rates of 6.16% for 2000, 5.74% for 1999, and 5.66% for 1998; a dividend
yield of 0% for 2000, 1999 and 1998; and volatility factors of 1.01 for 2000,
1.08 for 1999, and 0 for 1998. In addition, the fair value of these options was
estimated based on an expected life of 1.2 years from the vesting date for 2000
and one-half year from the vesting date for 1999 and 1998 using the multiple
option method. The fair value for the purchase rights under the Purchase Plan
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions: a risk-free interest rate of
6.04% in 2000 and 5.81% in 1999; a dividend yield of 0% in 2000 and 1999; and
volatility factors of 1.05 in 2000 and 1.08 in 1999. In addition, the fair value
of these purchase rights was estimated based on an expected life of 0.60 years
for 2000 and 0.67 years for 1999.

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because our employee stock options and purchase rights have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in our opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of our employee stock
options and purchase rights. In addition, because options vest over several
years and additional option grants and purchase rights are expected, the effects
of these hypothetical calculations are not likely to be representative of
similar future calculations.

     For purposes of pro forma disclosures, the estimated fair value of the
options and purchase rights is amortized to expense over the options' vesting
period or purchase rights' purchase period. Our pro forma information follows
(in thousands, except for per share information):


<TABLE>
<CAPTION>

                                                                        YEARS ENDED DECEMBER 31,
                                                                  -----------------------------------
                                                                    2000          1999          1998
                                                                  -------       -------       -------
        <S>                                                       <C>           <C>           <C>
        Pro forma net income................................      $24,312       $26,756       $16,679
        Pro forma basic earnings per common share...........        $0.53         $0.62         $0.41
        Pro forma diluted earnings per common share.........        $0.52         $0.59         $0.39

</TABLE>

8. SEGMENT INFORMATION

     We operate in a single industry segment, providing communications software
solutions and associated services to our customers through our sales personnel
and certain foreign distributors. As a result, the financial information
disclosed in this report represents all material financial information related
to our sole operating segment. The geographic distribution of our revenues as a
percentage of total revenues is as follows:


<TABLE>
<CAPTION>

                                                                     YEARS ENDED DECEMBER 31,
                                                               ---------------------------------
                                                                2000         1999         1998
                                                               ------       ------       -------
              <S>                                              <C>          <C>          <C>
              United States............................         44.2%        48.3%         47.8%
              Export:
                Asia/Pacific...........................          6.4          7.0           7.5



                                                  F-15

<PAGE>

                Europe, Middle East and Africa.........         44.9         39.9          37.9
                Other..................................          4.5          4.8           6.8
                                                               -----        -----         -----
                        Total export revenues                   55.8         51.7          52.2
                                                               -----        -----         -----
                                                               100.0%       100.0%        100.0%
                                                               =====        =====         =====

</TABLE>

     We have no significant long-lived assets deployed outside of the United
States.

     In 2000, revenues from British Telecom and Worldcom each accounted for
approximately 13% of total revenues. No individual customer accounted for 10% or
more of total revenues in 1999 or 1998. Sales to customers in the United States
accounted for more than 10% of total revenues in 2000, 1999 and 1998. Sales to
customers in the United Kingdom accounted for more than 10% of total revenues
during 2000. No other individual country accounted for 10% or more of total
revenues in 2000, 1999 or 1998.

9. EMPLOYEE BENEFIT PROGRAM

     We have a retirement savings plan structured under Section 401(k) of the
Internal Revenue Code, or the Code. The plan covers substantially all employees
meeting minimum service requirements. Under the plan, employees may elect to
reduce their current compensation by up to 15%, subject to certain maximum
dollar limitations prescribed by the Code, and have the amount contributed to
the plan as salary deferral contributions. We may make contributions to the plan
at the discretion of our Board of Directors. We accrued discretionary
contributions to the plan totaling $2.0 million in 2000, $1.6 million in 1999
and $1.2 million in 1998.

10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following table contains selected financial information from unaudited
consolidated statements of income for each quarter of 2000 and 1999.


<TABLE>
<CAPTION>

                                                                      QUARTER ENDED
                                    ----------------------------------------------------------------------------------
                                                     2000                                       1999
                                    ---------------------------------------    ---------------------------------------
                                    DEC. 31   SEPT. 30   JUNE 30    MAR. 31    DEC. 31   SEPT. 30    JUNE 30   MAR. 31
                                    -------   --------   -------    -------    -------   --------    -------   -------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                 <C>       <C>        <C>        <C>        <C>       <C>         <C>       <C>
Revenues..........................  $47,793    $41,425   $36,828    $32,961    $31,958    $29,010    $25,776   $23,239
Gross profit......................   34,422     30,979    27,196     25,202     23,321     20,656     18,137    16,114
Net income (2)....................   11,142     10,139     9,550      8,690      8,880     10,974      5,493     4,354
Basic earnings per share (1)(2)...    $0.24      $0.22     $0.21      $0.19      $0.20      $0.24      $0.13     $0.11
Diluted earnings per share (1))2).    $0.24      $0.22     $0.20      $0.19      $0.19      $0.24      $0.12     $0.10
Shares used in computing basic
earnings per share................   46,310     46,205    46,090     45,895     45,297     45,146     42,389    40,896
Shares used in computing
diluted earnings per share........   46,927     46,864    46,833     46,823     46,800     46,589     44,126    42,638

</TABLE>

(1)  Earnings per common share are computed independently for each of the
     quarters presented. Therefore, the sum of the quarterly earnings per common
     share information may not equal the annual earnings per common share due to
     rounding differences.

(2)  For the quarter ended September 30, 1999, net income and basic and diluted
     earnings per share are affected by the one-time pre-tax gain of $5.9
     million from the sale of our wireless data assets.



                                                 F-16

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS





Board of Directors
Inet Technologies, Inc.


We have audited the consolidated financial statements of Inet Technologies, Inc.
as of December 31, 2000 and 1999, and for each of the three years in the period
ended December 31, 2000, and have issued our report thereon dated January 22,
2001. Our audits also included the financial statement schedule listed in Item
14 of this Form 10-K. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.


                                             ERNST & YOUNG LLP



Dallas, Texas
January 22, 2001










                                     S-1

<PAGE>

                                             INET TECHNOLOGIES, INC.
                                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                   Years Ended December 31, 2000, 1999 and 1998
                                                  (In thousands)


<TABLE>
<CAPTION>

                                                                         ADDITIONS
                                                         BALANCE AT     CHARGED TO
                                                        BEGINNING OF     COSTS AND                        BALANCE AT
                                                            YEAR         EXPENSES       DEDUCTIONS (1)   END OF YEAR
                                                        ------------    ----------      --------------   -----------
<S>                                                     <C>             <C>             <C>              <C>
Year ended December 31, 2000:
Deducted from asset accounts--
  Allowance for doubtful accounts..............             $939           $133            $  (7)          $1,065
                                                            ====           ====            ======          ======

Year ended December 31, 1999:
Deducted from asset accounts--
  Allowance for doubtful accounts..............             $659           $245            $  35           $  939
                                                            ====           ====            ======          ======

Year ended December 31, 1998:
Deducted from asset accounts--
  Allowance for doubtful accounts..............             $500           $392            $(233)          $  659
                                                            ====           ====            ======          ======

</TABLE>

(1)  Activity includes uncollectible accounts written off, net of recoveries.




















                                      S-2

<PAGE>

                               INET TECHNOLOGIES, INC.
                                  INDEX TO EXHIBITS


<TABLE>
<CAPTION>
                   EXHIBIT
                    NUMBER                                     DESCRIPTION
                   -------                                     -----------
                    <S>    <C>

                     3.1   Certificate of Incorporation (1)
                     3.2   Amended and Restated Bylaws (1)
                     4.1   Specimen Common Stock certificate (1)
                     4.2   See Exhibits 3.1 and 3.2 for provisions of the
                           Certificate of Incorporation and Bylaws of the
                           registrant defining the rights of holders of common
                           stock
                    10.1   Loan Agreement dated as of June 26, 1997 by and between NationsBank of Texas, N.A. and
                           the registrant (1)
                    10.2   Renewal, Extension and First Amendment to Loan Agreement entered into to be effective
                           as of June 15, 1998 between the registrant and NationsBank of Texas, N.A. (1)
                    10.3   Assumption and Modification Agreement, dated effective as of July 16, 1998, between the
                           registrant and NationsBank of Texas, N.A. (1)
                    10.4   Renewal, Extension and Second Amendment to Loan Agreement entered into to be effective
                           as of June 15, 2000 between the registrant and Bank of America, N.A., f/k/a
                           NationsBank, N.A. (2)
                    10.5   Inet Technologies, Inc. 1998 Stock Option/Stock Issuance Plan (1), (7)
                    10.6   Form of Indemnification Agreement between the registrant and each of its directors and
                           executive officers (1)
                    10.7   Form of Registration Rights Agreement, dated as of July 17, 1998 by and among the
                           registrant, Samuel S. Simonian, Elie S. Akilian and Mark A. Weinzierl (1)
                    10.8   Executive Employment Agreement, dated August 30, 1999, between the registrant and Luis
                           Pajares (3) (7)
                    10.9   Inet Technologies, Inc. 1998 Employee Stock Purchase Plan (4)
                    10.10  Lease dated as of January 27, 2000 by and among Collins Crossing, LTD. and the
                           registrant (5)
                    10.11  Lease Amendment No. 1 dated March 31, 2000 by and among Collins Crossing, LTD. and
                           the registrant (6)
                    10.12  Lease Amendment No. 2 dated June 1, 2000 by and among Collins Crossing, LTD. and
                           the registrant (6)
                    21.1   Subsidiaries of the registrant (6)
                    23.1   Consent of Ernst & Young LLP (6)
                    24.1   Power of Attorney, pursuant to which amendments to
                           this report may be filed, is included on the
                           signature page contained in Part IV hereof

                ---------
                      (1)  Previously filed as an exhibit to the registrant's Registration Statement on Form S-1
                           (Reg. No. 333-59753) and incorporated herein by reference.
                      (2)  Previously filed as an exhibit to the registrant's Quarterly Report on Form 10-Q for
                           the quarter ended June 30, 2000 and incorporated herein by reference.
                      (3)  Previously filed as an exhibit to the registrant's Quarterly Report on Form 10-Q for
                           the quarter ended March 31, 2000 and incorporated herein by reference.
                      (4)  Previously filed as an exhibit to the registrant's Registration Statement on Form S-8
                           (Reg. No. 333-83285) and incorporated herein by reference.
                      (5)  Previously filed as an exhibit to the registrant's Annual Report on Form 10-K for the
                           fiscal year ended December 31, 1999 and incorporated herein by reference.
                      (6)  Filed herewith.
                      (7)  Management contract or compensatory plan or arrangement required to be filed as an
                           exhibit to this form pursuant to Item 14(c) of Form 10-K.

</TABLE>