<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q



        (x)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934.

                  For the quarterly period ended June 30, 2000

                                       OR

        ( )   TRANSITION REPORT PERSUANT 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 of                    (I.R.S. employer
      incorporation or organization)                    identification no.)


                          1500 North Greenville Avenue
                             Richardson, Texas 75081
          (Address of principal executive offices, including zip code)


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


                        1255 West 15th Street, Suite 600
                               Plano, Texas 75075
               (Former name, former address and former fiscal year,
                            if changed since last report)


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 / /


Number of shares of common stock of registrant outstanding at August 1, 2000:
46,243,733


                                  Page 1 of 25
<PAGE>


                             INET TECHNOLOGIES, INC.
                                      INDEX


<TABLE>
<CAPTION>
                                                                                                    Page No.
                                                                                                    --------
<S>                                                                                                 <C>
Part I - Financial Information (Unaudited)

         Item 1.  Financial Statements

                  Consolidated Balance Sheets ...................................................         3

                  Consolidated Statements of Income .............................................         4

                  Consolidated Statement of Stockholders' Equity.................................         5

                  Consolidated Statements of Cash Flows..........................................         6

                  Notes to Consolidated Financial Statements ....................................         7

         Item 2.  Management's Discussion and Analysis of Financial Condition and
                  Results of Operations .........................................................         10

         Item 3.  Quantitative and Qualitative Disclosures about Market Risk.....................         22

Part II - Other Information

         Item 2.  Changes in Securities and Use of Proceeds .....................................         23

         Item 4.  Submissions of Matters to Vote of Security Holders ............................         23

         Item 6.  Exhibits and Reports on Form 8-K...............................................         24

Signatures        ...............................................................................         24
</TABLE>


                                  Page 2 of 25
<PAGE>

PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                             INET TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                         JUNE 30,         DECEMBER 31,
                                                                                          2000                1999
                                                                                       ------------       -----------
                                                                                               (In thousands)
<S>                                                                                    <C>                <C>
Current assets:
  Cash and cash equivalents.........................................................   $    138,650       $   127,903
  Trade accounts receivable, net of allowance for doubtful accounts of $935 and
    $938 at June 30, 2000 and December 31, 1999, respectively.......................         23,502            20,781
  Unbilled receivables..............................................................          3,042             2,196
  Inventories.......................................................................          6,960             5,893
  Deferred income taxes.............................................................          2,023             2,318
  Other current assets..............................................................          3,095             1,312
                                                                                       ------------       -----------
          Total current assets......................................................        177,272           160,403
Property and equipment, net.........................................................         10,169             9,324
Deferred income taxes...............................................................             35                 6
Other assets........................................................................            299               184
                                                                                       ------------       -----------
          Total assets..............................................................   $    187,775       $   169,917
                                                                                       ============       ===========

                             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..................................................................   $      2,794       $     2,599
  Accrued compensation and benefits.................................................          5,650             5,252
  Deferred revenue..................................................................         21,612            26,432
  Taxes payable.....................................................................             --               213
  Other accrued liabilities.........................................................          4,031             1,998
                                                                                       ------------       -----------
          Total current liabilities.................................................         34,087            36,494
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 -- 46,097,009 at June 30, 2000 and
       45,312,759 at December 31, 1999..............................................             46                45
  Additional paid-in capital........................................................         59,602            57,693
  Unearned compensation.............................................................           (118)             (233)
  Retained earnings.................................................................         94,158            75,918
                                                                                       ------------       -----------
          Total stockholders' equity................................................        153,688           133,423
                                                                                       ------------       -----------
          Total liabilities and stockholders' equity................................   $    187,775       $   169,917
                                                                                       ============       ===========
</TABLE>

               See accompanying notes to consolidated financial statements.


                                  Page 3 of 25
<PAGE>


                             INET TECHNOLOGIES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                JUNE 30,                    JUNE 30,
                                                       ------------------------    ------------------------
                                                          2000          1999        2000          1999
                                                       ----------    ----------    ----------    ----------
                                                               (In thousands, except per share data)
<S>                                                    <C>           <C>           <C>           <C>
Revenues:
  Product and license fees........................     $   32,586    $   23,037    $   62,483    $   44,395
  Services........................................          4,242         2,739         7,306         4,620
                                                       ----------    ----------    ----------    ----------
       Total revenues.............................         36,828        25,776        69,789        49,015

Cost of revenues:
  Product and license fees........................          7,506         6,084        13,520        11,617
  Services........................................          2,126         1,555         3,871         3,147
                                                       ----------    ----------    ----------    ----------
       Total cost of revenues.....................          9,632         7,639        17,391        14,764
                                                       ----------    ----------    ----------    ----------

           Gross profit...........................         27,196        18,137        52,398        34,251
Operating expenses:
  Research and development........................          7,818         5,531        14,921        10,383
  Sales and marketing.............................          3,983         2,835         8,214         5,793
  General and administrative......................          3,032         2,123         5,491         4,153
                                                       ----------    ----------    ----------    ----------
                                                           14,833        10,489        28,626        20,329
                                                       ----------    ----------    ----------    ----------
          Income from operations..................         12,363         7,648        23,772        13,922
Other income (expense):
  Interest income.................................          2,113           685         3,885         1,027
  Other expense...................................             (7)          (11)          (21)          (30)
                                                       ----------    ----------    ----------    ----------
                                                            2,106           674         3,864           997
                                                       ----------    ----------    ----------    ----------
          Income before provision for income
            taxes.................................         14,469         8,322        27,636        14,919
Provision for income taxes........................          4,919         2,829         9,396         5,072
                                                       ----------    ----------    ----------    ----------
          Net income..............................     $    9,550    $    5,493    $   18,240    $    9,847
                                                       ==========    ==========    ==========    ==========
Earnings per common share:
          Basic...................................     $     0.21    $     0.13    $     0.40    $     0.24
                                                       ==========    ==========    ==========    ==========
          Diluted.................................     $     0.20    $     0.12    $     0.39    $     0.23
                                                       ==========    ==========    ==========    ==========

Weighted-average shares outstanding:
          Basic...................................         46,090        42,389        45,993        41,646
                                                       ==========    ==========    ==========    ==========
          Diluted.................................         46,833        44,126        46,832        43,401
                                                       ==========    ==========    ==========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                  Page 4 of 25

<PAGE>


                             INET TECHNOLOGIES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)

<TABLE>
<CAPTION>
                                          COMMON STOCK        ADDITIONAL                                TOTAL
                                     -------------------       PAID-IN      UNEARNED     RETAINED   STOCKHOLDERS'
                                      SHARES      AMOUNT       CAPITAL    COMPENSATION   EARNINGS     EQUITY
                                     ----------   ------     ----------   ------------   --------   ------------
                                                          (In thousands, except share data)
<S>                                  <C>          <C>        <C>          <C>            <C>        <C>
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...............       784,250       1          1,909           --            --        1,910
  Net income.....................            --      --             --           --        18,240       18,240
  Stock option compensation......            --      --             --          115            --          115
                                     ----------    ----        -------       ------       -------     --------
Balance at June 30, 2000.........    46,097,009    $ 46        $59,602       $ (118)      $94,158     $153,688
                                     ==========    ====        =======       ======       =======     ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                  Page 5 of 25
<PAGE>


                             INET TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                             SIX MONTHS ENDED
                                                                  JUNE 30,
                                                          ----------------------
                                                              2000        1999
                                                          ----------   ---------
                                                              (In thousands)
<S>                                                       <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..........................................      $   18,240   $   9,847
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation......................................           2,352       1,941
  Deferred income taxes.............................             266       1,508
  Issuance of common stock and stock options
   charged to expense...............................             115         114
  Change in operating assets and liabilities:
     Decrease (increase) in trade accounts
       receivable...................................          (2,721)      7,770
     Increase in unbilled receivables...............            (846)       (745)
     Increase in taxes receivable...................            (714)     (1,229)
     Decrease (increase) in inventories.............          (1,067)        217
     Increase in other assets.......................          (1,184)       (318)
     Increase (decrease) in accounts payable........             195        (122)
     Decrease in taxes payable......................            (213)       (878)
     Increase in accrued compensation and benefits..             398         556
     Increase (decrease) in deferred revenue........          (4,820)     13,598
     Increase in other accrued liabilities..........           2,033         131
                                                          ----------   ---------
Net cash provided by operating activities...........          12,034      32,390
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................          (3,197)     (2,500)
                                                          -----------  ---------
Net cash used in investing activities...............          (3,197)     (2,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock in initial
   public offering, net.............................              --      55,952
Proceeds from issuance of common stock upon
   exercise of stock options and purchases under
   employee stock purchase plan.....................           1,910         122
                                                          ----------   ---------
Net cash provided by financing activities...........           1,910      56,074
                                                          ----------   ---------

Net increase in cash and cash equivalents...........          10,747      85,964
Cash and cash equivalents at beginning of period....         127,903      21,914
                                                          ----------   ---------
Cash and cash equivalents at end of period..........      $  138,650   $ 107,878
                                                          ==========   =========

SUPPLEMENTAL DISCLOSURES:
   Interest paid....................................      $       --   $      --
                                                          ==========   =========
   Income taxes paid................................      $    4,615   $   6,087
                                                          ==========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                  Page 6 of 25
<PAGE>


                             INET TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          THE COMPANY

          We provide communications software solutions that enable carriers
          to more effectively design, deploy, diagnose, monitor and manage
          communications networks that carry signaling information used to
          manage communications sessions which include phone calls, dial-up
          Internet access, and other service transactions. Our products also
          address the fundamental business needs of communications carriers,
          such as improved billing, targeted sales and marketing, fraud
          prevention and enhanced routing. We currently provide these
          comprehensive solutions primarily through our GeoProbe and Spectra
          product offerings.

          CONSOLIDATION

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

          UNAUDITED INTERIM FINANCIAL STATEMENTS

          We have prepared the accompanying unaudited consolidated financial
          statements in accordance with generally accepted accounting
          principles for interim financial information and the instructions
          to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
          not include all of the information and footnotes required by
          generally accepted accounting principles for complete financial
          statements. In our opinion, all adjustments (consisting solely of
          normal recurring adjustments) necessary for a fair statement of the
          results for the interim periods presented have been included. These
          financial statements should be read in conjunction with the audited
          financial statements and related notes for the three years ended
          December 31, 1999, included in our Annual Report on Form 10-K filed
          with the Securities and Exchange Commission, or SEC, on March 3,
          2000. Operating results for the three- and six-month periods ended
          June 30, 2000 are not necessarily indicative of the results that
          may be expected for any other interim period or for the year ending
          December 31, 2000.

          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. At June 30, 2000 and December 31, 1999, inventories
          consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                               JUNE 30,      DECEMBER 31,
                                                                2000            1999
                                                           -------------   ---------------
                      <S>                                  <C>             <C>
                      Raw materials....................    $      2,299    $         1,791
                      Work-in-process..................           1,064                241
                      Finished goods...................           3,597              3,861
                                                           ------------    ---------------
                                                           $      6,960    $         5,893
                                                           ============    ===============
</TABLE>


                               Page 7 of 25
<PAGE>


          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 SEC issued Staff Accounting Bulletin, or SAB, No. 101,
          REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which will be
          effective in the fourth quarter of this fiscal year. We believe our
          revenue recognition policies are in compliance with SAB 101.

          We derive revenues primarily from the sale of products and license
          of software, and product installation, integration and
          post-contract support services.

          Product revenues 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 not recognized prior to the time
          the product has been delivered and installed at the customer's
          premises and there are no significant unfulfilled obligations.
          Revenues from arrangements that include significant acceptance
          terms are not recognized until acceptance has occurred.

          Revenues for fixed-priced contracts that require significant
          software development and are generally in duration in excess of six
          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 installation, integration and other services,
          excluding post-contract support services, are recognized when the
          services have been completed.

          We provide our customers with post-contract 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 post-contract
          support services included in initial licensing fees, are recognized
          ratably over the contract period. Post-contract 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 revenue represents amounts billed to customers, but not
          yet recognized as revenue. Unbilled receivables represent amounts
          recognized as revenue, but not yet billed to customers.

          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.

NOTE 2 -  RELATED PARTY TRANSACTION

          On 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.


                               Page 8 of 25
<PAGE>


NOTE 3 -  EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                         JUNE 30,                    JUNE 30,
                                                                -------------------------    ---------------------
                                                                    2000          1999          2000        1999
                                                                -----------   -----------    ----------   --------
                <S>                                             <C>           <C>            <C>          <C>
                Numerator:
                  Net income for basic and diluted
                    earnings per share.....................     $     9,550   $     5,493    $   18,240   $  9,847
                                                                ===========   ===========    ==========   ========
                Denominator:
                  Denominator for basic earnings per
                    share -- weighted-average shares.......          46,090        42,389        45,993     41,646
                  Effect of dilutive securities:
                  Employee stock options and purchase
                    rights.................................             743         1,737           839      1,755
                                                                -----------   -----------    ----------   --------
                  Dilutive potential common shares.........             743         1,737           839      1,755
                                                                -----------   -----------    ----------   --------

                  Denominator for diluted earnings
                    per share -- adjusted
                    weighted-average shares................          46,833        44,126        46,832     43,401
                                                                ===========   ===========    ==========   ========

                Basic earnings per common share............     $      0.21   $      0.13    $     0.40   $   0.24
                                                                ===========   ===========    ==========   ========

                Diluted earnings per common share..........     $      0.20   $      0.12    $     0.39   $   0.23
                                                                ===========   ===========    ==========   ========
</TABLE>

NOTE 4 -  COMPREHENSIVE INCOME

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

NOTE 5 -  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 principal operating
          segment. The geographic distribution of our revenues as a
          percentage of total revenues is as follows:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                    JUNE 30,                    JUNE 30,
                                                           ------------------------  ------------------------
                                                               2000          1999        2000          1999
                                                           ----------   -----------  ----------    ----------
             <S>                                           <C>          <C>          <C>           <C>
             United States............................         36.3%         45.1%       47.8%          48.6%
             Export:
               Asia/Pacific...........................          4.9           3.0         6.4            3.9
               Europe, Middle East and Africa.........         56.0          47.3        42.0           42.8
               Other..................................          2.8           4.6         3.8            4.7
                                                             ------       -------      ------        -------
                       Total export revenue                    63.7          54.9        52.2           51.4
                                                             ------       -------      ------        -------
                                                              100.0%        100.0%      100.0%         100.0%
                                                             ======       =======      ======        =======
</TABLE>

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


                                  Page 9 of 25
<PAGE>


ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

             FORWARD-LOOKING STATEMENTS

             THIS QUARTERLY REPORT ON FORM 10-Q 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, FINANCIAL CONDITION, 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, CHANGES IN PRODUCT DEMAND, THE
             AVAILABILITY OF PRODUCTS, CHANGES IN COMPETITION, FOREIGN RISKS,
             ECONOMIC CONDITIONS, CHANGES IN TAX RISKS, AND OTHER RISKS
             INDICATED BELOW UNDER THE CAPTION "RISK FACTORS" AND IN OUR OTHER
             FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. 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 QUARTERLY REPORT, THE
             WORDS "BELIEVES," "PLANS," "EXPECTS," "ANTICIPATES," "INTENDS,"
             "CONTINUE," "MAY," "WILL," "SHOULD" OR THE NEGATIVE OF SUCH TERMS
             AND SIMILAR EXPRESSIONS AS THEY RELATE TO US OR OUR MANAGEMENT ARE
             INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.

             THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
             QUALIFIED IN ITS ENTIRETY BY, THE CONSOLIDATED FINANCIAL STATEMENTS
             AND NOTES THERETO INCLUDED IN ITEM 1 OF THIS QUARTERLY REPORT AND
             THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND
             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS IN OUR ANNUAL REPORT ON FORM 10-K FILED WITH
             THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000. HISTORICAL
             RESULTS AND PERCENTAGE RELATIONSHIPS AMONG ANY AMOUNTS IN THE
             FINANCIAL STATEMENTS ARE NOT NECESSARILY INDICATIVE OF TRENDS IN
             OPERATING RESULTS FOR ANY FUTURE PERIODS.

             OVERVIEW

             Inet was 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 tool, 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 GeoProbe product in late 1995. We continue to
             focus significant resources on the development of enhancements to
             Spectra, enhancements and add-on applications to GeoProbe and new
             products focused on network optimization and interoperability for
             next-generation networks.

             Historically, we have generated substantially all of our revenues
             from Spectra and GeoProbe. Revenues attributable to GeoProbe
             represented a majority of our total revenues since 1998. Revenues
             attributable to Spectra represented a majority of our total
             revenues in 1997. Although we expect Spectra revenues to continue
             to represent a significant portion of total revenues for the
             foreseeable future, Spectra revenues are expected to continue to
             decline as a percentage of total revenues as a result of a higher
             growth rate for the GeoProbe product and revenues from the
             introduction of new products. Our remaining revenues are derived
             from services relating to these products and other products. These
             services include training, warranty and post-contract support.

             RESULTS OF OPERATIONS

             The following table sets forth, for the periods presented, certain
             data derived from our unaudited consolidated statements of income
             as a percentage of revenues. The operating results for the three
             and six


                                 Page 10 of 25

<PAGE>

             months ended June 30, 2000 are not necessarily indicative of the
             results that may be expected for any future periods.

<TABLE>
<CAPTION>

                                                                            THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                                 JUNE 30,                  JUNE 30,
                                                                          ----------------------    --------------------
                                                                            2000          1999        2000         1999
                                                                          --------    ----------    --------    --------
                <S>                                                       <C>         <C>           <C>         <C>
                Revenues:
                  Product and license fees                                   88.5%        89.4%        89.5%        90.6%
                  Services                                                   11.5         10.6         10.5          9.4
                                                                           ------       ------       ------       ------
                    Total revenues                                          100.0        100.0        100.0        100.0
                Cost of revenues:
                  Product and license fees                                   20.4         23.6         19.4         23.7
                  Services                                                    5.7          6.0          5.5          6.4
                                                                           ------       ------       ------       ------
                    Total cost of revenues                                   26.1         29.6         24.9         30.1
                                                                           ------       ------       ------       ------
                  Gross profit                                               73.9         70.4         75.1         69.9
                Operating expenses:
                  Research and development                                   21.3         21.5         21.4         21.2
                  Sales and marketing                                        10.8         11.0         11.8         11.8
                  General and administrative                                  8.2          8.2          7.8          8.5
                                                                           ------       ------       ------       ------
                    Total operating expenses                                 40.3         40.7         41.0         41.5
                                                                          -------      -------      -------      -------
                Income from operations                                       33.6         29.7         34.1         28.4
                Other income                                                  5.7          2.6          5.5          2.0
                                                                          -------      -------      -------      -------
                Income before provision for income taxes                     39.3         32.3         39.6         30.4
                Provision for income taxes                                   13.4         11.0         13.5         10.4
                                                                          -------      -------      -------      -------
                Net income                                                   25.9%        21.3%        26.1%        20.0%
                                                                          =======      =======      =======      =======
</TABLE>

             REVENUES

             PRODUCT AND LICENSE FEES. Revenues from product and license fees
             increased 41.5% to $32.6 million for the three months ended June
             30, 2000 from $23.0 million for the three months ended June 30,
             1999. For the six months ended June 30, 2000, revenues from product
             and license fees increased 40.7% to $62.5 million from $44.4
             million for the six months ended June 30, 1999. The growth in
             revenues from product and license fees is primarily due to an
             increase in unit sales during the three and six months ended June
             30, 2000. We expect that product and license fees will continue to
             increase in absolute dollars from the levels achieved in the
             quarter ended June 30, 2000.

             SERVICES. Revenues from services increased 54.9% to $4.2 million
             for the three months ended June 30, 2000 from $2.7 million for the
             three months ended June 30, 1999. For the six months ended June 30,
             2000, revenues from services increased 58.1% to $7.3 million from
             $4.6 million for the six months ended June 30, 1999. The increase
             in the services revenues as a percentage of total revenues is
             primarily related to post-contract support services associated with
             a larger installed customer base. We expect that services revenues
             will continue to increase in absolute dollars from the levels
             achieved in the quarter ended June 30, 2000.

             CONCENTRATION OF REVENUES. In the three and six months ended June
             30, 2000, we had two customers that each accounted for more than
             10% of total revenues. We anticipate that in the future,
             individual, large transactions may represent a large percentage of
             total revenues, particularly on a quarterly basis.

             INTERNATIONAL REVENUES. For the three months ended June 30, 2000,
             international revenues accounted for 63.7% of total revenues
             compared to 54.9% for the three months ended June 30, 1999. The
             increase in international revenues as a percentage of total
             revenues was the result of several large, international GeoProbe
             deployments. For the six months ended June 30, 2000, international
             revenues accounted for 52.2% of total revenues compared to 51.4%
             for the six months ended June 30, 1999.


                                 Page 11 of 25

<PAGE>

             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 $7.5 million and $6.1 million for
             the three months ended June 30, 2000 and 1999, representing 23.0%
             and 26.4% of product and license fee revenues, respectively. For
             the six months ended June 30, 2000 and 1999, cost of product and
             license fees was $13.5 million and $11.6 million, representing
             21.6% and 26.1% of product and license fee revenues, respectively.
             The increase in dollar amounts for both the three and six months
             ended June 30, 2000 resulted primarily from additional material
             costs associated with higher unit sales. The decrease as a
             percentage of product and license fee revenues was primarily
             attributable to a higher percentage of revenues being derived from
             more profitable expansions of existing systems versus new system
             installations, as well as economies of scale achieved in
             production and implementation activities.

             SERVICES. Cost of services consists of expenses, primarily
             personnel costs, related to post-contract support, training and
             warranty and non-warranty work. Cost of services was $2.1 million
             and $1.6 million for the three months ended June 30, 2000 and 1999,
             representing 50.1% and 56.8% of service revenues, respectively. For
             the six months ended June 30, 2000 and 1999, cost of services was
             $3.9 million and $3.1 million, representing 53.0% and 68.1% of
             services revenues, respectively. Cost of services as a percentage
             of services revenues has fluctuated, and is expected to continue to
             fluctuate, on a period-to-period basis based upon the relative mix
             of post-contract support, training and warranty and non-warranty
             work.

             OPERATING EXPENSES

                  RESEARCH AND DEVELOPMENT EXPENSES

             Research and development expenses consist primarily of salaries and
             other compensation expenses associated with our research and
             development activities. These expenses increased to $7.8 million
             for the three months ended June 30, 2000 from $5.5 million for the
             three months ended June 30, 1999. The increase was primarily due to
             increased staffing dedicated to research and development
             activities. Research and development expenses as a percentage of
             total revenues were 21.2% and 21.5% in the three months ended June
             30, 2000 and 1999, respectively.

             For the six months ended June 30, 2000, research and development
             expenses increased to $14.9 million from $10.4 million for the
             comparable prior-year period. The increase in dollars was primarily
             due to additional staffing and related personnel costs. Research
             and development expenses as a percentage of total revenues were
             21.4% and 21.3% in the six months ended June 30, 2000 and 1999,
             respectively. We expect that research and development expenses in
             future periods will increase in absolute dollars, as these
             investments are crucial to our ability to evolve our technologies
             and expand our product offerings to meet our customers' needs.

             Software development costs are expensed as incurred until
             technological feasibility has been established, at which time
             subsequent costs are permitted to be capitalized until the product
             is available for general release to our customers. To date, either
             the establishment of technological feasibility of our products has
             substantially coincided with their general release, 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 increased to $4.0 million in the three
             months ended June 30, 2000 from $2.8 million in the three months
             ended June 30, 1999. The increase was primarily related to
             continued expansion of our direct sales force, increased
             international sales activities and increased marketing and
             promotional activities.


                                 Page 12 of 25

<PAGE>

             Sales and marketing expenses as a percentage of total revenues were
             10.8% and 11.0% in the three months ended June 30, 2000 and 1999,
             respectively.

             Sales and marketing expenses increased to $8.2 million in the six
             months ended June 30, 2000 from $5.8 million in the six months
             ended June 30, 1999. The increase was primarily related to
             continued expansion of our direct sales force, increased
             international sales activities and increased marketing and
             promotional activities. Sales and marketing expenses as a
             percentage of total revenues were 11.8% in both the six months
             ended June 30, 2000 and 1999. Although these expenses can be
             affected by the timing of certain sales and marketing activities,
             we expect that these expenses will increase in absolute dollars
             and as a percentage of total revenues through 2000 due to planned
             expansion of our domestic and international sales efforts.

                  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 increased to $3.0
             million for the three months ended June 30, 2000 from $2.1 million
             for the three months ended June 30, 1999. The increase was
             primarily related to increased staffing levels associated with the
             growth of our business and increased costs related to being a
             public company. General and administrative expenses as a percentage
             of revenues were 8.2% in both the three months ended June 30, 2000
             and 1999.

             General and administrative expenses increased to $5.5 million for
             the six months ended June 30, 2000 from $4.2 million for the six
             months ended June 30, 1999. The increase was primarily related to
             increased staffing levels associated with the growth of our
             business and increased costs related to being a public company.
             General and administrative expenses as a percentage of total
             revenues were 7.8% and 8.5% in the six months ended June 30, 2000
             and 1999, respectively. We anticipate that general and
             administrative expenses will continue to increase in absolute
             dollars but decrease slightly as a percentage of total revenues.

             OTHER INCOME

             Other income is primarily interest income earned on our cash and
             cash equivalents. Other income was $2.1 million for the three
             months ended June 30, 2000 compared to $700,000 for the three
             months ended June 30, 1999. Other income was $3.9 million for the
             six months ended June 30, 2000 compared to $1.0 million for the six
             months ended June 30, 1999. For both the three and six months ended
             June 30, 2000, the increase was due to higher balances of cash and
             cash equivalents, which resulted from proceeds from our initial
             public offering completed in June 1999.

             PROVISION FOR INCOME TAXES

             We recorded income tax expense of $4.9 million and $2.8 million in
             the three months ended June 30, 2000 and 1999, respectively. Our
             effective income tax rate for each three-month period was 34.0%. We
             recorded income tax expense of $9.4 million and $5.1 million in the
             six months ended June 30, 2000 and 1999, respectively. Our
             effective income tax rate for each six-month period was 34.0%.

             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 $143.2
             million at June 30, 2000, compared with $123.9 million at December
             31, 1999. At June 30, 2000, we had $138.7 million in cash and cash
             equivalents, an increase of $10.8 million from $127.9 million in
             cash and cash equivalents at December 31, 1999. The increase in
             cash and cash equivalents is attributable to higher levels of
             income from operations and proceeds from the issuance of common
             stock upon the exercise of stock options and purchases under our
             employee stock purchase plan.


                                 Page 13 of 25

<PAGE>

             We renewed our line of 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%. Borrowings under this facility are
             collateralized by our accounts receivable, inventories, and
             property and equipment and bear interest payable quarterly at LIBOR
             plus a margin, determined by our level of indebtedness, ranging
             from 0.25% to 0.5% for United States dollar borrowings and 1.25% to
             1.5% for Eurodollar borrowings. 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 June 30, 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.

             Net cash provided by operating activities was $12.0 million for the
             six months ended June 30, 2000, compared to $32.4 million during
             the same period in 1999. Net cash provided by operating activities
             resulted primarily from net income and changes in components of
             working capital. The decline in cash provided by operating
             activities for the six months ended June 30, 2000, compared to the
             six months ended June 30, 1999,was attributable to changes in
             working capital accounts.

             Net cash used in investing activities was $3.2 million for the six
             months ended June 30, 2000, compared to $2.5 million during the
             same period in 1999. Net cash used in investing activities was
             related to purchases of property and equipment.

             Net cash provided by financing activities was $1.9 million for the
             six months ended June 30, 2000, resulting from proceeds from the
             issuance of common stock upon the exercise of stock options and
             purchases under our employee stock purchase plan. Net cash provided
             by financing activities was $56.1 for the same period in 1999,
             resulting from proceeds from the issuance of common stock in our
             initial public offering and from proceeds from the issuance of
             common stock upon the exercise of stock options.

             In January 2000, we signed a ten-year lease agreement for corporate
             headquarters in Richardson, Texas. We estimate that our remaining
             commitment for leasehold improvements for this office space is
             between $4.0 million and $5.0 million. Our current cash balances
             are sufficient to cover these estimated capital expenditures.

             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. Absent any such
             acquisitions and joint ventures, we anticipate that current cash
             balances, potential cash flows from operations and available
             borrowings under our revolving credit facility will be sufficient
             to meet our anticipated cash needs for working capital, capital
             expenditures and other activities for at least the next 12 months.
             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 venture could require us
             to obtain additional equity or debt financing. There can be no
             assurance that 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. Such factors include:

                  *        the size and timing of specific orders by customers;

                  *        competition;


                                 Page 14 of 25

<PAGE>


                  -        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;

                  -        in limited circumstances, 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;

                  -        the mix of new installations and system expansions;

                  -        changes in the timing of and level of expenses;

                  -        the relative percentages of products sold through our
                           direct and indirect sales channels;

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

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

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

                  -        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, are 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 sale could harm our operating results in a
             particular quarter.

             Our operating results also are likely to fluctuate due to factors
             which impact our prospective customers. Expenditures by prospective
             customers tend to vary in cycles that reflect overall economic
             conditions and individual budgeting and buying patterns. Our
             business would be adversely affected 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. 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


                                 Page 15 of 25
<PAGE>

             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 may be below the expectations of public market analysts. In
             such event, the market price of our common stock would likely 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.
             The telecommunications industry has undergone a period of rapid
             growth and consolidation during the past few years. Our business,
             financial condition and results of operations could be materially
             and adversely affected in the event of a significant slowdown in
             the growth of this industry. Further, consolidations of our
             prospective customers may delay or cause cancellations of
             significant sales of our products, which could harm our operating
             results in a particular period.

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

             Future growth in the markets for our products will depend in part
             on privatization, deregulation and the restructuring of
             telecommunications markets worldwide. Any reversal or slowdown in
             the pace of this privatization, restructuring or deregulation could
             have a material adverse effect on 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 or the
             local telephone competition rules adopted by the U.S. Federal
             Communications Commission to implement that Act could have a
             material adverse effect on 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 ADVERSELY
             AFFECT OUR QUARTERLY OPERATING RESULTS.

             The sales cycle for our products is long, typically ranging from
             six to 12 months for GeoProbe sales (excluding the cycle for
             subsequent applications and enhancements, which varies widely) and
             up to three months for occasional, large Spectra sales. As a
             result, our ability to forecast the timing and amount of specific
             sales is limited. Accordingly, the deferral or loss of one or more
             significant sales could harm our operating results in a given
             quarter, particularly if there are significant sales and marketing
             expenses associated with the deferred or lost sales.

             ANY DECREASE IN DEMAND FOR OUR GEOPROBE AND SPECTRA PRODUCTS COULD
             SIGNIFICANTLY DECREASE OUR SALES.

             Our two principal products, GeoProbe and Spectra, generate
             substantially all of our revenues and are expected to continue to
             account for a substantial majority of our revenues for the
             foreseeable future. Any downturn in the demand for either or both
             of these products could have a material adverse effect on our
             business, financial condition and results of operations. Moreover,
             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 GeoProbe and Spectra.

             IF THE MARKET FOR SS7 AND CONVERGING NETWORK SOLUTIONS FAILS TO
             GROW 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 and
             the convergence of the packet-based networks (for example, Internet


                                 Page 16 of 25
<PAGE>

             protocol, or IP, and asynchronous transfer mode, or ATM) and the
             public switched telephone network. Our business, financial
             condition and results of operations could be materially and
             adversely affected if the market for SS7 and converging network
             solutions fails to grow or grows more slowly than we currently
             anticipate.

             COMPETITION COULD REDUCE OUR MARKET SHARE, WHICH WOULD LIKELY HARM
             OUR BUSINESS AND OPERATING RESULTS AND CAUSE OUR STOCK PRICE TO
             FALL.

             The market for signaling-based communications network management
             applications 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 is expected to persist, intensify and increase 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. GeoProbe principally competes with
             products offered by Agilent Technologies. Our diagnostic tools
             principally compete with products offered by Agilent Technologies,
             Tekelec and Tektronix, Inc. There have been new entrants in both
             the network optimization and diagnostic product areas, but to date
             they do not comprise a significant portion of the market. Some of
             our competitors have, in relation to our company, 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 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 is expected to 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 $110.0
             million in 1999. The number of our employees has increased from 116
             at December 31, 1995 to 457 at December 31, 1999 and 516 at June
             30, 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 and to
             effectively attract, train, motivate and manage our employees. The
             failure to manage growth effectively could harm our business,
             financial condition and results of operations.

             WE MAY BE UNABLE TO SUCCESSFULLY GROW OUR BUSINESS IF WE ARE UNABLE
             TO ATTRACT ADDITIONAL HIGHLY-SKILLED PERSONNEL OR RETAIN OUR
             EXISTING KEY PERSONNEL.

             Our future success will depend to a significant extent upon the
             continued service and performance of a relatively small number of
             key senior managers, technical personnel, sales and marketing
             personnel, most of whom are not bound by an employment agreement.
             The loss of any existing key personnel or the inability to attract,
             motivate and retain additional qualified personnel could harm our
             business, financial condition and results of operations.

             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
             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 procurement of
             office space and equipment, initial training


                                 Page 17 of 25
<PAGE>

             costs and low utilization rates of new personnel. We may be unable
             to successfully recruit 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.

             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 our future success will depend in part
             upon our ability, on a timely and cost-effective basis, to continue
             to:

                  -        enhance our network optimization and diagnostic
                           products;

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

                  -        address 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.

             Our future success will depend in part on our ability to develop
             solutions for networks based on emerging technologies and
             standards, such as IP and ATM, which are likely to be characterized
             by continuing technological developments, evolving industry
             standards and changing customer requirements. We may not
             successfully develop competitive products for these emerging
             technologies, and our failure to do so could harm our business,
             financial condition and results of operations.

             WE HAVE INTERNATIONAL CUSTOMERS, AND, AS A RESULT, OUR BUSINESS MAY
             BE ADVERSELY AFFECTED BY POLITICAL AND ECONOMIC CONDITIONS IN
             FOREIGN MARKETS.

             Our international operations are subject to the risks inherent in
             international business activities. Revenues from customers located
             outside of the U.S. represented 52.2% of our total revenues for the
             six months ended June 30, 2000 and 51.7%, 52.2% and 52.6% of our
             total revenues in 1999, 1998 and 1997, respectively. 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;

                  -        longer accounts receivable payment cycles;

                  -        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;


                                 Page 18 of 25
<PAGE>

                  -        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;

                  -        greater difficulty in safeguarding intellectual
                           property;

                  -        import and export licensing requirements;

                  -        trade restrictions; and

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

             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
             adversely affected 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 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 a limited number of suppliers. While alternative
             suppliers have been identified for certain 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
             generally make our purchases with purchase orders on an "as-needed
             basis." Furthermore, certain components require an order lead-time
             of approximately six months. Other components that currently are
             readily available may become difficult to obtain 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 order sufficient
             quantities of these components sufficiently 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 certain 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.


                                 Page 19 of 25

<PAGE>


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

             We rely exclusively upon third-party subcontractors to manufacture
             our subassemblies. We also have retained, from time to time,
             third-party design services in the development of
             application-specific integrated circuits. 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
             arrangements, that could expand our business. The negotiation of
             potential acquisitions or joint ventures 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 joint ventures 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 any such acquisition or joint venture were
             to occur, we cannot be certain that we will receive the intended
             benefits of the acquisition or joint venture. Also, we may pursue
             arrangements with third parties to perform certain activities for
             us such as the development of certain 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 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. We believe that our products do
             not infringe on any valid patents cited in the notices, however,
             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 such 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


                                 Page 20 of 25
<PAGE>

             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 ADVERSELY AFFECT 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 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 have a material
             adverse effect 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 those we offer 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
             adversely affected 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 tend to 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 PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS OWN
             APPROXIMATELY 80% OF OUR COMMON STOCK, WHICH ALLOWS THEM TO CONTROL
             THE MANAGEMENT AND AFFAIRS OF OUR COMPANY OR PREVENT A CHANGE OF
             CONTROL.

             As of June 30, 2000, our three founders, Samuel S. Simonian, Elie
             S. Akilian and Mark A. Weinzierl, beneficially owned approximately
             80% 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, and could 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
             could 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 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


                                 Page 21 of 25
<PAGE>

             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.

             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; and

                  -        general market and economic conditions.

             The public markets have experienced volatility that has
             particularly affected the market prices of securities of many
             technology companies for reasons that have often been unrelated to
             operating results. This volatility may 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 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

             We are exposed to immaterial levels of market risk.


                                 Page 22 of 25
<PAGE>




PART II.     OTHER INFORMATION

ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS

             In the three months ended June 30, 2000, we issued 12,000 shares
             of our common stock to employees pursuant to exercises of stock
             options under our 1995 Employee Stock Option Plan (with exercise
             prices ranging from $0.60 to $1.15 per share). These issuances
             were deemed exempt from registration under Section 5 of the
             Securities Act of 1933 in reliance upon Rule 701 thereunder.

             The Securities and Exchange Commission on May 26, 1999 declared
             effective the Registration Statement on Form S-1 (File No.
             333-59753) relating to the initial public offering of our common
             stock.

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

             At our Annual Meeting of Stockholders held on May 16, 2000, our
             stockholders voted on and approved the following matters:

             1.  The election of two Class I Directors to serve until the annual
                 stockholders' meeting in 2001, or until their successors have
                 been elected and qualified.
<TABLE>
<CAPTION>
                 <S>                           <C>                             <C>
                 NAME OF NOMINEE               NUMBER OF VOTES FOR             NUMBER OF VOTES WITHHELD

                 James R. Adams                     44,583,580                          22,479
                 Grant A. Dove                      44,580,955                          25,104

             2.  The election of two Class II Directors to serve until the
                 annual stockholders' meeting in 2002, or until their successors
                 have been elected and qualified.

                 NAME OF NOMINEE               NUMBER OF VOTES FOR             NUMBER OF VOTES WITHHELD

                 William H. Mina                    43,804,236                         801,823
                 Mark A. Weinzierl                  43,772,590                         833,469

             3.  The election of two Class III Directors to serve until the
                 annual stockholders' meeting in 2003, or until their successors
                 have been elected and qualified.

                 NAME OF NOMINEE               NUMBER OF VOTES FOR             NUMBER OF VOTES WITHHELD

                 Elie S. Akilian                    43,806,396                          799,663
                 Samuel S. Simonian                 42,892,296                        1,713,763
</TABLE>

                                 Page 23 of 25
<PAGE>



ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

             (a)  Exhibits

                  Exhibit
                  Number           Exhibit
                  -------          -------

                    10.1           Renewal, Extension, and Second Amendment to
                                   Loan Agreement, dated June 15, 2000, between
                                   Bank of America, N.A., f/k/a NationsBank,
                                   N.A., and the Company

                    27.0           Financial Data Schedule (for SEC information
                                   only)

             (b) We did not file any Current Reports on Form 8-K during the
quarter ended June 30, 2000.

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

                    INET TECHNOLOGIES, INC.


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




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


Date:     August 4, 2000





                                 Page 24 of 25
<PAGE>


                                INDEX TO EXHIBITS

                  Exhibit
                  Number           Exhibit
                  -------          -------

                    10.1           Renewal, Extension, and Second Amendment to
                                   Loan Agreement, dated June 15, 2000, between
                                   Bank of America, N.A., f/k/a NationsBank,
                                   N.A., and the Company

                    27.0           Financial Data Schedule (for SEC information
                                   only)






                                 Page 25 of 25