<PAGE>   1
                                  UNITED STATES
                       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 September 30, 1999

                                       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.)


                        1255 West 15th Street, Suite 600
                               Plano, Texas 75075
                    (Address of principal executive offices)
                                   (Zip code)



                                 (972) 578-6100
              (Registrant's telephone number, including area code)




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 November 8, 1999:
45,294,759



                                  Page 1 of 25
<PAGE>   2

                            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 .............................................        5
                  Consolidated Statements of Stockholders' Equity................................        6
                  Consolidated Statements of Cash Flows..........................................        7
                  Notes to Consolidated Financial Statements ....................................        8
         Item 2.  Management's Discussion and Analysis of Financial Condition and
                  Results of Operations .........................................................       12
Part II - Other Information

         Item 2.  Changes in Securities and Use of Proceeds .....................................       24
         Item 6.  Exhibits and Reports on Form 8-K...............................................       24
Signatures        ...............................................................................       25
Exhibit 27        Financial Data Schedule (for SEC information only)
</TABLE>


                                  Page 2 of 25
<PAGE>   3

PART I.  FINANCIAL INFORMATION


Item 1.           Financial Statements

                             INET TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
              (In thousands, except par value and number of shares)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                               September 30,  December 31,
                                                                                   1999          1998
                                                                               ------------   -----------
<S>                                                                            <C>            <C>
ASSETS

Current assets
    Cash and cash equivalents                                                    $121,792       $ 21,914
    Trade accounts receivable (net of allowance for doubtful accounts of $889
         and $659 at September 30, 1999 and December 31, 1998,
         respectively)                                                             13,270         22,073
    Unbilled receivables                                                            2,656          1,602
    Inventories                                                                     6,082          7,592
    Deferred income taxes                                                             774          2,568
    Other current assets                                                            1,834          1,248
                                                                                 --------       --------
         Total current assets                                                     146,408         56,997


Property and equipment, net                                                         8,480          8,394


Other assets                                                                          316            117
                                                                                 --------       --------

         Total assets                                                            $155,204       $ 65,508
                                                                                 ========       ========
</TABLE>


See accompanying notes to financial statements.


                                  Page 3 of 25
<PAGE>   4


                             INET TECHNOLOGIES, INC.
                     CONSOLIDATED BALANCE SHEETS (Continued)
              (In thousands, except par value and number of shares)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                      September 30,  December 31,
                                                                         1999           1998
                                                                      ------------   -----------
<S>                                                                   <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable                                                     $   1,429      $   1,858
  Accrued compensation and benefits                                        4,250          2,159
  Deferred revenue                                                        22,908         13,073
  Income tax payable                                                       1,333            878
  Other accrued liabilities                                                  883            716
                                                                       ---------      ---------
      Total current liabilities                                           30,803         18,684

Deferred tax liabilities                                                      --             11

Commitments

Stockholders' equity
   Common stock, $.001 par value:
     Authorized shares - 175,000,000
     Issued shares - 45,265,009 at September 30, 1999
      and 40,934,422 at December 31, 1998                                     45             41
   Additional paid-in capital                                             57,609          1,236
   Unearned compensation                                                    (291)          (464)
   Retained earnings                                                      67,038         46,217
   Treasury stock, no common shares at September 30,
           1999, and 38,842 at December 31, 1998, at cost                     --           (217)
                                                                       ---------      ---------
        Total stockholders' equity                                       124,401         46,813
                                                                       ---------      ---------

        Total liabilities and stockholders' equity                     $ 155,204      $  65,508
                                                                       =========      =========
</TABLE>

See accompanying notes to financial statements.


                                  Page 4 of 25
<PAGE>   5

                             INET TECHNOLOGIES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                    (In thousands, except per share amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                    Three months ended        Nine months ended
                                                       September 30,             September 30,
                                                   ---------------------     ---------------------
                                                     1999         1998         1999         1998
                                                   --------     --------     --------     --------
<S>                                                <C>          <C>          <C>          <C>
Revenues                                           $ 29,010     $ 20,470     $ 78,025     $ 54,635
Cost of revenues                                      8,354        5,959       23,118       15,572
                                                   --------     --------     --------     --------

      Gross profit                                   20,656       14,511       54,907       39,063

Operating expenses:
   Selling and marketing                              3,001        2,439        8,794        6,231
   General and administrative                         2,376        1,650        6,529        4,907
   Research and development                           5,805        4,341       16,188       11,051
                                                   --------     --------     --------     --------
                                                     11,182        8,430       31,511       22,189
                                                   --------     --------     --------     --------

      Income from operations                          9,474        6,081       23,396       16,874

Gain (loss) on sale of assets                         5,985           --        5,960           (4)
Other income                                          1,362          266        2,384          592
                                                   --------     --------     --------     --------
                                                      7,347          266        8,344          588
                                                   --------     --------     --------     --------

      Income before provision for income taxes       16,821        6,347       31,740       17,462

Provision for income taxes                            5,847        1,844       10,919        5,711
                                                   --------     --------     --------     --------

Net income                                         $ 10,974     $  4,503     $ 20,821     $ 11,751
                                                   ========     ========     ========     ========

Basic net income per common share                  $   0.24     $   0.11     $   0.49     $   0.29
                                                   ========     ========     ========     ========

Diluted net income per common share                $   0.24     $   0.11     $   0.47     $   0.28
                                                   ========     ========     ========     ========

Weighted average shares outstanding
        Basic                                        45,146       40,886       42,826       40,874
                                                   ========     ========     ========     ========
        Diluted                                      46,589       42,614       44,473       42,389
                                                   ========     ========     ========     ========
</TABLE>


See accompanying notes to financial statements.


                                  Page 5 of 25
<PAGE>   6

                             INET TECHNOLOGIES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     (In thousands, except number of shares)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                        Common Stock       Additional                               Treasury Stock       Total
                                    --------------------    Paid-in      Unearned     Retained   -------------------  Stockholders'
                                      Shares     Amount     Capital    Compensation   Earnings      Shares   Amount      Equity
                                    ----------   -------   ----------  ------------  ----------  ---------  --------  ------------
<S>                                 <C>          <C>       <C>         <C>           <C>         <C>        <C>       <C>
Balance at December 31, 1998 .....   40,934,422  $    41   $    1,236  $     (464)   $   46,217     38,842  $  (217)  $   46,813
   Issuance of common stock
     for cash in initial
     public offering, net of
     offering expenses of
     $1,464 ......................    3,802,637        4       55,478          --            --    (38,842)     217       55,699
   Issuance of common stock
     upon exercise of
     employee stock options ......      527,950       --          342          --            --         --       --          342
   Net income and
     comprehensive income ........           --       --           --          --        20,821         --       --       20,821
   Stock option compensation .....           --       --          553         173            --         --       --          726
                                     ----------  -------   ----------  ----------    ----------   --------  -------   ----------
Balance at September 30, 1999 ....   45,265,009  $    45   $   57,609  $     (291)   $   67,038         --  $    --   $  124,401
                                     ==========  =======   ==========  ==========    ==========   ========  =======   ==========
</TABLE>


See accompanying notes to financial statements.


                                  Page 6 of 25
<PAGE>   7

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

<TABLE>
<CAPTION>
                                                                                 Nine months ended
                                                                                   September 30,
                                                                             ------------------------
                                                                                1999           1998
                                                                             ---------      ---------
<S>                                                                          <C>            <C>
Cash flows from operating activities:
   Net income                                                                $  20,821      $  11,751
   Adjustments to reconcile net income to net cash provided by operating
    activities:
     Depreciation                                                                2,985          1,822
     (Gain) loss on sale or disposal of assets                                  (5,960)             4
     Deferred income taxes                                                       1,646         (1,187)
     Stock option compensation expense                                             173            170
     Changes in assets and liabilities:
       Decrease in trade accounts receivable                                     8,630          5,239
       (Increase) decrease in unbilled receivables                              (1,054)         2,313
       Decrease in taxes receivable                                                 --            816
       (Increase) decrease in inventories                                        1,483         (1,637)
       Increase in other assets                                                   (659)          (344)
       Increase (decrease) in accounts payable                                    (429)           727
       Increase in accrued compensation and benefits                             2,091            791
       Increase in taxes payable                                                   455            183
       Increase (decrease) in deferred revenue                                   9,835         (1,843)
       Increase in accrued liabilities                                             167            982
                                                                             ---------      ---------
Net cash provided by (used by) operations                                       40,184         19,787

Cash flows from investing activities:
       Purchases of property and equipment                                      (3,347)        (4,154)
       Proceeds from sale of assets                                              7,000             --
                                                                             ---------      ---------
Net cash provided by investing activities                                        3,653         (4,154)

Cash flows from financing activities:
   Proceeds from issuance of common stock in
       initial public offering, net                                             55,699             --
   Proceeds from issuance of common stock
       upon exercise of stock options                                              342              9
   Proceeds from issuance of common stock                                           --            106
                                                                             ---------      ---------
Net cash provided by financing activities                                       56,041            115
                                                                             ---------      ---------

Net increase in cash and cash equivalents                                       99,878         15,748
Cash and cash equivalents at beginning of period                                21,914          3,386
                                                                             ---------      ---------

Cash and cash equivalents at end of period                                   $ 121,792      $  19,134
                                                                             =========      =========

Supplemental disclosures:

Taxes paid                                                                   $   8,840      $   5,900
</TABLE>


See accompanying notes to financial statements.


                                  Page 7 of 25
<PAGE>   8
                             INET TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


   Note 1 - Summary of Significant Accounting Policies

             The Company

             Inet Technologies, Inc. (the "Company" or "Inet") provides
             solutions that enable telecommunications carriers to more
             effectively design, deploy, diagnose, monitor and manage
             communications networks that carry signaling information used to
             manage telephone calls. The Company's products also address the
             fundamental business needs of telecommunications carriers, such as
             improved billing, targeted sales and marketing, fraud prevention
             and enhanced call routing. The Company currently provides these
             comprehensive solutions primarily through its GeoProbe and Spectra
             product offerings.

             Consolidation

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

             Unaudited Interim Financial Statements

             The accompanying unaudited consolidated financial statements have
             been prepared by the Company 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 the opinion of management, 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, 1998,
             included in the Company's Form S-1 registration statement (Reg. No.
             333-59753) filed with the Securities and Exchange Commission.
             Operating results for the three- and nine-month periods ended
             September 30, 1999 are not necessarily indicative of the results
             that may be expected for any other interim period or for the year
             ending December 31, 1999.

             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. At
             September 30, 1999 and December 31, 1998, all cash equivalents were
             invested with nationally recognized financial institutions.

             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 September 30, 1999 and December 31, 1998, inventories
             consisted of the following:

<TABLE>
<CAPTION>
                                                September 30,       December 31,
                                                     1999               1998
                                                --------------     -------------
                                                          (in thousands)

<S>                                             <C>                <C>
               Raw materials..............      $        2,171     $       1,895
               Work-in progress...........                 912             2,289
               Finished goods.............               2,999             3,408
                                                --------------     -------------
                                                $        6,082     $       7,592
                                                ==============     =============
</TABLE>


                                  Page 8 of 25
<PAGE>   9

             Revenue Recognition

             Effective January 1, 1998, the Company adopted Statement of
             Position ("SOP") 97-2, Software Revenue Recognition, as amended by
             SOP 98-4, Deferral of the Effective Date of Certain Provisions of
             SOP 97-2, which did not require a significant change to the
             Company's revenue recognition policies.

             The Company derives revenues from the sale of products and related
             product installation, integration and post-contract support service
             to the telecommunications industry. Product revenues are generally
             recognized in the period the Company has 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 by the Company's management. When
             the Company has significant obligations subsequent to shipment
             (e.g., installation and system integration), revenues are not
             recognized prior to the time the system 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.

             The Company provides its customers with post-contract support
             services, which include the correction of software problems,
             telephone access to the Company's technical personnel and the right
             to receive unspecified product updates, upgrades and enhancements.
             Revenues from these services, including product 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 ("VSOE").

             Deferred revenue primarily represents amounts billed to customers
             pursuant to terms specified in contracts but for which revenue has
             not been recognized.

             In December 1998, SOP 98-9, Modification of SOP 97-2, `Software
             Revenue Recognition' with Respect to Certain Transactions, was
             released. SOP 98-9 amends SOP 97-2 to require that an entity
             recognize revenue for multiple element arrangements by means of the
             "residual method" when (1) there is VSOE of the fair values of all
             of the undelivered elements that are not accounted for by means of
             long-term contract accounting, (2) VSOE of fair value does not
             exist for one or more of the delivered elements, and (3) all
             revenue recognition criteria of SOP 97-2 (other than the
             requirement for VSOE of the fair value of each delivered element)
             are satisfied.

             The provisions of SOP 98-9 that extend the deferral of certain
             passages of SOP 97-2 became effective December 15, 1998. All other
             provisions of SOP 98-9 will be effective for the Company's fiscal
             year beginning January 1, 2000. Retroactive application is
             prohibited. The Company is evaluating the requirements of SOP 98-9
             and the effects, if any, on the Company's current revenue
             recognition policies.

             Accounting Estimates

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


   Note 2 - Initial Public Offering

             In June 1999, the Company completed the initial public offering of
             its common stock. The Company issued 3,841,479 shares of its common
             stock at an initial public offering price of $16.00 per share. Net
             proceeds to the Company, after deduction of the underwriting
             discount and estimated expenses, were approximately $55.7 million.


                                  Page 9 of 25
<PAGE>   10


   Note 3 -  Sale of Wireless Data Assets

             In September 1999, the Company sold its wireless data product line
             and related assets to Nextcell, Inc., an entity controlled by a
             related party, for a cash purchase price of $7.0 million. The
             Company recorded a pre-tax gain of $6.0 million for the three and
             nine months ended September 30, 1999.

   Note 4 -  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      Nine months ended
                                                             September 30,          September 30,
                                                         -------------------     -------------------
                                                          1999        1998        1999        1998
                                                         -------     -------     -------     -------
<S>                                                      <C>         <C>         <C>         <C>
             Numerator for basic and diluted
              earnings per share:
               Net income                                $10,974     $ 4,503     $20,821     $11,751
                                                         =======     =======     =======     =======

             Denominator:
               Denominator for basic earnings per
               weighted average share                     45,146      40,886      42,826      40,874

               Effect of dilutive securities:
                 Employee stock options                    1,443       1,728       1,647       1,515
                                                         -------     -------     -------     -------

             Denominator for diluted earnings per
              share-adjusted weighted-average shares
              for assumed conversion                      46,589      42,614      44,473      42,389
                                                         =======     =======     =======     =======

             Basic earnings per share                    $  0.24     $  0.11     $  0.49     $  0.29
                                                         =======     =======     =======     =======

             Diluted earnings per share                  $  0.24     $  0.11     $  0.47     $  0.28
                                                         =======     =======     =======     =======
</TABLE>


   Note 5 -  Comprehensive Income

             In September 1997, the Financial Accounting Standards Board
             ("FASB") issued Statement No. 130, Reporting Comprehensive Income.
             FASB Statement No. 130 establishes standards for the reporting and
             display of comprehensive income and its components in a full set
             of general-purpose financial statements, and was effective for the
             Company beginning January 1, 1998. For all periods presented, the
             Company had no components of comprehensive income other than net
             income.


                                 Page 10 of 25
<PAGE>   11

   Note 6 -  Segment Information

             The Company operates in a single industry segment, providing
             telecommunications equipment, software and associated services, and
             markets its products through its sales personnel and certain
             foreign distributors. As a result, the financial information
             disclosed herein represents all material financial information
             related to the Company's principal operating segment. The
             distribution of the Company's revenues as a percent of total
             revenues is as follows:

<TABLE>
<CAPTION>
                                Three months ended      Nine months ended
                                   September 30,          September 30,
                                ------------------      -----------------
                                 1999        1998        1999        1998
                                -----       ------      -----       -----
<S>                             <C>         <C>         <C>         <C>
United States                    49.8%       49.8%       49.0%       50.2%
Export:
  Asia Pacific Region            11.9         6.1         6.9         8.0
  Europe                         18.4        29.7        33.8        33.0
  Other                          19.9        14.4        10.3         8.8
                                -----       -----       -----       -----
     Total export sales          50.2        50.2        51.0        49.8
                                -----       -----       -----       -----
                                100.0%      100.0%      100.0%      100.0%
                                =====       =====       =====       =====
</TABLE>

             The Company has no significant long-lived assets deployed outside
             of the United States.


   Note 7 -  New Accounting Standards

             In June 1998, the FASB issued Statement of Financial Accounting
             Standards ("SFAS") No.133, Accounting for Derivative Instruments
             and Hedging Activities. This statement establishes accounting and
             reporting standards for derivative instruments, including certain
             derivative instruments embedded in other contracts, and for hedging
             activities. The provisions of SFAS No. 133, as amended, are
             effective for financial statements for all fiscal quarters of all
             fiscal years beginning after June 15, 2000, although early adoption
             is allowed. The Company has chosen not to adopt the provisions of
             this SFAS prior to its effective date. The adoption of SFAS No. 133
             is not expected to have a material impact on the Company's
             consolidated financial statements and related disclosures.


                                 Page 11 of 25
<PAGE>   12

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 the
             business, financial condition, business strategy, plans and
             objectives of management and prospects of the Company are
             forward-looking statements. Although the Company believes 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, risks associated with Year 2000 issues,
             changes in tax risks, and other risks indicated below under the
             captions "Year 2000 Compliance" and "Risk Factors" and in the
             Company's other filings with the Securities and Exchange
             Commission. These risks and uncertainties are beyond the ability of
             the Company to control and, in many cases, the Company cannot
             predict the risks and uncertainties that could cause its 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 the Company or its
             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 for the year ended December 31, 1998,
             contained in the Company's Prospectus filed with the Securities and
             Exchange Commission on May 26, 1999. 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 provides solutions that enable telecommunications carriers to
             more effectively design, deploy, diagnose, monitor and manage
             communications networks that carry signaling information used to
             manage telephone calls. Inet's products also address the
             fundamental business needs of telecommunications carriers, such as
             improved billing, targeted sales and marketing, fraud prevention
             and enhanced call routing. Inet currently provides these
             comprehensive solutions primarily through its GeoProbe and Spectra
             product offerings.

             The GeoProbe system provides real-time monitoring of Common Channel
             Signaling System #7 ("SS7") networks and serves as an open platform
             for business applications developed by Inet, its customers or third
             parties. GeoProbe's monitoring applications enable early warning of
             network faults, collection of statistics for performance
             evaluation, real-time call tracing, troubleshooting and fraud
             detection. GeoProbe's associated IT:seven business applications
             provide reconciliation of billing between carriers, service quality
             reports and marketing data. The Spectra product can be integrated
             within the GeoProbe platform or used on a stand-alone basis to
             provide diagnostic, emulation and load generation capabilities for
             use in the design, deployment, commissioning and diagnosis of
             signaling networks.

             Inet was founded in 1989, and during the early stages of its
             operations it focused primarily on developing and selling
             diagnostic tools that addressed a predecessor to the SS7 signaling
             protocol. As the telecommunications industry increasingly adopted
             SS7, the Company shifted its focus to developing and deploying
             SS7-based solutions as well as broadening its product offerings.
             Spectra was first introduced in December 1990 and is currently in
             its ninth generation release. Beginning in 1993, the Company
             focused a significant portion of its product development efforts on
             developing a complete monitoring and


                                 Page 12 of 25
<PAGE>   13
             surveillance solution for SS7 networks, culminating in the
             introduction of GeoProbe in late 1995. The Company continues to
             focus significant resources on the development of enhancements to
             Spectra and enhancements and add-on applications to GeoProbe, as
             well as management applications to address interoperability between
             SS7 and internet protocol networks.

             Historically, the Company has generated substantially all of its
             revenues from Spectra and GeoProbe. As a result, factors adversely
             affecting GeoProbe and Spectra, such as the condition of the
             telecommunications market, competition, technological change and
             disputes regarding proprietary rights utilized in these products,
             would have a material adverse effect on the pricing of and demand
             for these products. Revenues attributable to Spectra represented a
             majority of total revenues in 1997. Revenues attributable to
             GeoProbe represented a majority of total revenues in 1998 and the
             nine months ended September 30, 1999. Although Inet expects Spectra
             revenues to continue to represent a significant portion of total
             revenues for the foreseeable future, Spectra sales are expected to
             continue to decline as a percentage of total revenues as a result
             of increasing sales of GeoProbe and associated IT:seven business
             applications. The remaining revenues are derived from sales of
             other products and training, warranty and support services related
             to the Company's products.

             RESULTS OF OPERATIONS

             The following table sets forth, for the periods presented, certain
             data derived from the Company's unaudited consolidated statements
             of income as a percentage of revenues. The operating results for
             the three and nine-months ended September 30, 1999 are not
             necessarily indicative of the results that may be expected for any
             future periods.

<TABLE>
<CAPTION>
                                            Three months ended     Nine months ended
                                               September 30,        September 30,
                                            ------------------     -----------------
                                             1999        1998       1999        1998
                                            ------      ------     -----      ------
<S>                                         <C>         <C>        <C>        <C>
Revenues                                     100.0%     100.0%     100.0%     100.0%
Cost of revenues                              28.8       29.1       29.6       28.5
                                             -----      -----      -----      -----
   Gross profit                               71.2       70.9       70.4       71.5
                                             -----      -----      -----      -----
Operating expenses:
    Sales and marketing                       10.3       11.9       11.3       11.4
    General and administrative                 8.2        8.1        8.4        9.0
    Research and development                  20.0       21.2       20.7       20.2
                                             -----      -----      -----      -----
         Total operating expenses             38.5       41.2       40.4       40.6
                                             -----      -----      -----      -----
Income from operations                        32.7       29.7       30.0       30.9
Other income                                  25.3*       1.3       10.7*       1.1
                                             -----      -----      -----      -----
Income before provision for income taxes      58.0       31.0       40.7       32.0
Provision for income taxes                    20.2        9.0       14.0       10.5
                                             -----      -----      -----      -----
Net income                                    37.8%      22.0%      26.7%      21.5%
                                              ====       ====       ====       ====
</TABLE>

                      * includes one-time gain from sale of wireless data assets

             REVENUES

             The Company's revenues were $29.0 million for the three months
             ended September 30, 1999, an increase of 41.7% over the $20.5
             million reported for the three months ended September 30, 1998. For
             the nine months ended September 30, 1999, revenues increased 42.8%
             to $78.0 million from $54.6 million reported for the nine months
             ended September 30, 1998. The growth in revenues is primarily due
             to an increase in unit sales during the three- and nine-months
             ended September 30, 1999. For the nine months ended September 30,
             1999, international revenues accounted for 51.0% of total revenues
             compared to 49.8% for the nine months ended September 30, 1998.
             Revenues from sources other than Spectra and GeoProbe collectively
             accounted for less than 10% of total revenues in these periods.
             Revenues from the wireless data product line were approximately
             $200,000 and $1.7 million for the three- and nine-month periods
             ended September 30, 1999, respectively. In the three months ended
             September 30, 1999, one individual sale represented 16.3% of
             revenues. The Company anticipates that in the future, individual,
             large sales may represent a large percentage of total revenues.
             Accordingly, the


                                 Page 13 of 25
<PAGE>   14

             deferral or loss of one or more significant sales could materially
             adversely affect operating results in a period.

             COST OF REVENUES

             Cost of revenues consists primarily of hardware expenses and
             personnel costs related to the manufacturing, installation and
             support of the Company's products. For the three months ended
             September 30, 1999, cost of revenues increased 40.2% to $8.4
             million from $6.0 million for the three months ended September 30,
             1998. The increase in dollars resulted primarily from additional
             hardware of $800,000 due to increased units sold, related
             installation expenses of $500,000 and additional support expenses
             of $500,000 related to servicing the Company's growing installed
             customer base. Cost of revenues represented 28.8% and 29.1% of
             revenues in the three months ended September 30, 1999 and 1998,
             respectively.

             Cost of revenues of $23.1 million for the nine months ended
             September 30, 1999 increased 48.5% in comparison to $15.6 million
             for the nine months ended September 30, 1998. The increase in
             dollars resulted primarily from additional hardware of $2.8 million
             due to increased units sold, related installation expenses of $1.4
             million, related integration expenses of $600,000, and additional
             support expenses of $1.9 million. Costs of revenues represented
             29.6% and 28.5% of revenues for the nine months ended September 30,
             1999 and 1998, respectively. The increase in cost of revenues as a
             percent of net revenues was primarily due to the increase in
             support services expense. The Company believes that for at least
             the remainder of 1999, cost of revenues should not vary
             significantly as a percentage of revenues from the level
             experienced in the nine months ended September 30, 1999.

             OPERATING EXPENSES

                  SALES AND MARKETING EXPENSES

             Sales and marketing expenses consist primarily of personnel, travel
             and facilities expenses related to sales and marketing, distributor
             commissions and expenses of trade shows and advertising. Such
             expenses increased 23.0% to $3.0 million in the three months ended
             September 30, 1999 from $2.4 million in the three months ended
             September 30, 1998. The increase in dollars was primarily related
             to increased staffing and related costs of approximately $600,000.
             Sales and marketing expenses as a percentage of revenues were 10.3%
             and 11.9% in the three months ended September 30, 1999 and 1998,
             respectively.

             For the nine months ended September 30, 1999, sales and marketing
             expenses were $8.8 million, an increase of 41.1% from $6.2 million
             for the comparable prior year period. The increase in dollars was
             primarily related to increased staffing and related costs of
             approximately $1.8 million and expenses of approximately $600,000
             associated with the expansion of international sales activities.
             Sales and marketing expenses as a percentage of revenues were 11.3%
             and 11.4% in the nine months ended September 30, 1999 and 1998,
             respectively. The Company believes that sales and marketing
             expenses will continue to increase in absolute dollars at least
             through 2000 due to planned expansion of its domestic and
             international sales efforts and related expenses.

                  GENERAL AND ADMINISTRATIVE EXPENSES

             General and administrative expenses consist primarily of personnel,
             facilities and other costs of the finance, administrative and
             executive departments of the Company as well as fees and expenses
             associated with legal and accounting requirements. Such expenses
             increased 44.0% to $2.4 million for the three months ended
             September 30, 1999 from $1.7 million for the three months ended
             September 30, 1998. The increase in dollars was primarily related
             to increased staffing and related costs of approximately $700,000
             associated with the growth of the Company's business. General and
             administrative expenses as a percentage of revenues were 8.2% and
             8.1% in the three months ended September 30, 1999 and 1998,
             respectively.


                                 Page 14 of 25
<PAGE>   15

             For the nine months ended September 30, 1999, general and
             administrative expenses were $6.5 million, an increase of 33.0%
             from $4.9 million for the comparable prior year period. The
             increase in dollars was primarily related to increased staffing and
             related costs of approximately $1.5 million. General and
             administrative expenses as a percentage of revenues were 8.4% and
             9.0% in the nine months ended September 30, 1999 and 1998,
             respectively. The Company anticipates that general and
             administrative expenses will continue to increase in absolute
             dollars as the Company continues to accommodate its growth and adds
             related infrastructure.

                  RESEARCH AND DEVELOPMENT EXPENSES

             Research and development expenses consist primarily of salaries and
             other compensation expenses associated with the Company's research
             and development activities. Such expenses increased 33.7% to $5.8
             million for the three months ended September 30, 1999 from $4.3
             million for the three months ended September 30, 1998. The increase
             in dollars was primarily due to additional staffing and related
             personnel costs of $1.5 million. Research and development expenses
             as a percentage of revenues were 20.0% and 21.2% in the three
             months ended September 30, 1999 and 1998, respectively.

             For the nine months ended September 30, 1999, research and
             development expenses were $16.2 million, an increase of 46.5% from
             $11.1 million for the comparable prior year period. The increase in
             dollars was primarily due to additional staffing and related
             personnel costs of $5.2 million, off-set by slight decreases in
             other expenses. Research and development expenses as a percentage
             of revenues were 20.7% and 20.2% in the nine months ended September
             30, 1999 and 1998, respectively. The Company expects that research
             and development expenses in future periods will increase in
             absolute dollars as these investments are crucial to the Company's
             ability to evolve its technologies and expand its product offerings
             to meet its customers' needs.

             In accordance with SFAS No. 86, software development costs are
             expensed as incurred until technological feasibility has been
             established, at which time subsequent costs are capitalized until
             the product is available for general release to customers. To date,
             either the establishment of technological feasibility of the
             Company's products and their general release have substantially
             coincided or costs incurred subsequent to the achievement of
             technological feasibility have not been material. As a result,
             software development costs qualifying for capitalization have been
             insignificant, and the Company has not capitalized any software
             development costs.

             OTHER INCOME

             Other income was $7.3 million for the three months ended September
             30, 1999 compared to $300,000 for the three months ended September
             30, 1998. Other income was $8.3 million for the nine months ended
             September 30, 1999 compared to $600,000 for the nine months ended
             September 30, 1998. For both the three and nine months ended
             September 30, 1999, the increase resulted from a $6.0 million gain
             on the sale of the Company's wireless data assets and from
             increased interest earned on higher balances of cash and cash
             equivalents resulting from increased cash flows from operations and
             proceeds from the Company's initial public offering completed in
             June 1999. Proceeds from the offering were approximately $55.7
             million in cash, net of underwriting discounts, commissions and
             other offering costs.

             PROVISION FOR INCOME TAXES

             The Company recorded income tax expense of $5.8 million and $1.8
             million in the three months ended September 30, 1999 and 1998,
             respectively. The Company's effective income tax rates were 34.8%
             and 29.1% for the three months ended September 30, 1999 and 1998,
             respectively. The Company recorded income tax expense of $10.9
             million and $5.7 million in the nine months ended September 30,
             1999 and 1998, respectively. The Company's effective income tax
             rates were 34.4% and 32.7% for the nine months ended September 30,
             1999 and 1998, respectively. The higher effective income tax rates
             in 1999 were attributable to higher levels of net income combined
             with state tax benefits and research and development tax credits
             which lowered the 1998 effective income tax rates.


                                 Page 15 of 25
<PAGE>   16

             SALE OF WIRELESS DATA ASSETS

             In September 1999, the Company sold its wireless data product line
             and related assets to Nextcell, Inc., an entity controlled by a
             related party, for a cash purchase price of $7.0 million. The
             Company recorded a pre-tax gain of $6.0 million and an after-tax
             gain of $3.9 million, or $0.09 per share on a diluted basis, for
             the three and nine months ended September 30, 1999. Without the
             gain on the sale of the wireless data assets, the Company's diluted
             net income per common share was $0.15 and $0.38 for the three and
             nine months ended September 30, 1999 compared to $0.11 and $0.28
             for the three and nine months ended September 30, 1998. Revenues
             for the wireless data product line were approximately $200,000 and
             $1.7 million for the three and nine months ended September 30,
             1999. The Company does not anticipate diluted net income per common
             share to be adversely affected in future periods as a result of
             this sale.

             LIQUIDITY AND CAPITAL RESOURCES

             Since inception, the Company has funded its operations and met its
             capital expenditure requirements primarily through cash flows from
             operations and bank borrowings. In June 1999, the Company completed
             its initial public offering and issued 3,841,479 shares of its
             common stock at a price to the public of $16.00 per share. The
             Company received approximately $55.7 million in cash, net of
             underwriting discounts, commissions and other offering costs. In
             September 1999, the Company sold its wireless data product line and
             related assets for a cash purchase price of $7.0 million. The
             Company had working capital of $115.6 million at September 30,
             1999, compared with $38.3 million at December 31, 1998. At
             September 30, 1999, the Company had $121.8 million in cash and cash
             equivalents, an increase of $99.9 million from $21.9 million in
             cash and cash equivalents at December 31, 1998.

             The Company currently maintains a $10.0 million revolving credit
             facility with a commercial bank that expires in June 2000. Up to
             $5.0 million of the credit facility may be used to issue letters of
             credit. At the Company's option, borrowings under the credit
             facility bear interest at either (i) the bank's prime rate less up
             to 0.50% or (ii) the London interbank offered rate (LIBOR), as
             adjusted to meet specified Federal Reserve requirements with
             respect to Eurocurrency liabilities, plus up to 1.50%. The credit
             facility is


                                 Page 16 of 25
<PAGE>   17

             secured by all of the Company's accounts receivable, inventory,
             property, equipment and investments, and contains customary
             restrictive covenants, including covenants requiring the Company to
             maintain certain financial ratios. The credit facility restricts
             the payment of cash dividends without the bank's consent and
             requires the payment of a commitment fee equal to 0.125% of the
             unused portion of the facility. At September 30, 1999, no amounts
             were outstanding under the credit facility, and the amounts
             available to the Company, after considering outstanding letters of
             credit, were $9.99 million.

             Net cash provided by operating activities was $40.2 million for the
             nine months ended September 30, 1999, compared to $19.8 million
             during the same period in 1998. Net cash provided by operating
             activities resulted primarily from increased levels of income from
             operations, decreased trade accounts receivable and increased
             levels of deferred revenue.

             Net cash provided by investing activities was $3.7 million for the
             nine months ended September 30, 1999, compared to net cash used by
             investing activities of $4.2 million during the same period in
             1998. Net cash provided by investing activities in the nine months
             ended September 30, 1999 resulted from proceeds from the sale of
             the Company's wireless data assets of $7.0 million less cash used
             to purchase property and equipment of $3.3 million. Net cash used
             by investing activities in the nine months ended September 30, 1998
             was primarily related to purchases of property and equipment.

             Net cash provided by financing activities was $56.0 million for the
             nine months ended September 30, 1999, compared to $115,000 during
             the same period in 1998. The increase in net cash provided by
             financing activities resulted primarily from the net proceeds from
             the Company's initial public offering of $55.7 million.

             At September 30, 1999, the Company did not have any material
             commitments for capital expenditures. The Company may in the future
             pursue acquisitions of businesses, products or technologies, or
             enter into joint venture arrangements, that could complement or
             expand the Company's business and product offerings. Any material
             acquisition or joint venture could result in a decrease in the
             Company's working capital, depending on the amount, timing and
             nature of the consideration to be paid. Absent any such
             acquisitions and joint ventures, the Company anticipates that
             current cash balances, potential cash flows from operations and
             available borrowings under the revolving credit facility will be
             sufficient to meet its 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
             the Company's needs, it may seek additional equity or debt
             financing. In addition, any material acquisition of complementary
             businesses, products or technologies or material joint venture
             could require the Company to obtain additional equity or debt
             financing. There can be no assurance that such additional financing
             would be available on acceptable terms, if at all.

             YEAR 2000 COMPLIANCE

             The Company believes that the purchasing patterns of customers and
             potential customers may be significantly affected by Year 2000
             issues. Many companies are expending significant resources to
             correct or replace their current software systems to achieve Year
             2000 compliance. These expenditures may result in reduced funds
             available to purchase products such as those offered by the
             Company. Many customers and potential customers may also defer
             installing or purchasing Year 2000 compliant products until they
             believe it is absolutely necessary, thus resulting in potential
             deferred sales. Conversely, Year 2000 issues may cause other
             companies to accelerate installations or purchases, thereby causing
             an increase in short-term revenues and a consequent decrease in
             long-term revenues from products. Additionally, Year 2000 issues
             could cause a significant number of companies, including current
             customers of the Company, to reevaluate their current system needs
             and as a result consider switching to other systems or suppliers.
             These Year 2000 issues could materially adversely affect the
             Company's business, financial condition and results of operations.

             The Company has reviewed its products offered to customers, and
             believes that the versions currently offered to customers are Year
             2000 compliant. Certain earlier versions of its Spectra product are
             not Year 2000 compliant, and the Company has developed and is
             offering upgrades to customers that would bring


                                 Page 17 of 25
<PAGE>   18

             such earlier versions into compliance with Year 2000 requirements.
             Nonetheless, there can be no assurance that the Company's products,
             particularly when such products incorporate third-party hardware or
             software, contain all date code changes necessary to ensure Year
             2000 compliance. Although the Company has not experienced any Year
             2000 related product liability claims or lawsuits to date, the sale
             and support of products that are not Year 2000 compliant entail the
             risk of such claims and lawsuits. The Company's defense against any
             future lawsuits, regardless of their merit, could result in
             substantial expense to the Company as well as the diversion of
             management time and attention. In addition, Year 2000 product
             liability claims, regardless of the merit or eventual outcome of
             such claims, could affect the Company's business reputation and its
             ability to retain existing customers or attract new customers
             which, in turn, could have a material adverse effect on the
             Company's business, financial condition and results of operations.

             In addition, an inventory and analysis of internal management and
             other information systems was performed, and the Company determined
             that it would be required to upgrade certain portions of its
             computer hardware and software tools so that they would be Year
             2000 compliant. These upgrades were made in conjunction with the
             Company's overall information systems initiatives. In addition, the
             Company has contacted significant third-party vendors to ensure
             that any of their products that are incorporated into the Company's
             products, or currently in use by the Company, can adequately deal
             with the change in century. Areas which have been addressed include
             third-party suppliers of semiconductors and other components of the
             Company's products as well as full reviews of the Company's
             manufacturing equipment, telephone and voice mail systems, security
             systems and other office support systems. The Company has
             communicated with significant suppliers and customers to determine
             the extent to which the Company is vulnerable to those third
             parties' failure to remediate their own Year 2000 issues. To date,
             no information technology initiatives have been deferred by the
             Company as a result of its Year 2000 compliance project.

             The Company expects to complete its Year 2000 project during the
             fall of 1999. The Company believes that the aggregate incremental
             costs related to its Year 2000 project have not been, and are not
             expected to be, material to the Company's results of operations,
             financial position or cash flows. The Company does not separately
             track internal costs incurred for the Year 2000 project. Such costs
             are principally for software upgrades, and are being funded through
             operating cash flows. Based on available information, the Company
             does not believe any material exposure to significant business
             interruption exists as a result of Year 2000 compliance issues, or
             that the cost of remedial actions will have a material adverse
             effect on its business, financial condition or results of
             operations. Accordingly, the Company has not adopted any formal
             contingency plan in the event its Year 2000 compliance project is
             not completed in a timely manner.

             RISK FACTORS

             Fluctuations in Quarterly Financial Results

             The Company's 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 the Company's control. Such factors include the size
             and timing of specific orders by customers; competition; the market
             acceptance of new products and technologies by the Company and its
             competitors; the mix of products and services sold by the Company;
             the timing of product shipments and product installations by the
             Company; in limited circumstances, customer product acceptance; the
             capital spending patterns of the Company's customers; the mix of
             domestic and international sales; changes in the timing and level
             of expenses; the relative percentages of products sold through the
             Company's direct and indirect sales channels; customer order
             deferrals in anticipation of enhancements or new products; the
             Company's timing of and investments in research and development
             activities; changes in and the Company's ability to implement its
             strategy; changes in the availability of materials needed to
             produce the Company's products; the progress and timing of the
             privatization 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 the Company's
             international operations; and changes in general economic
             conditions. Furthermore, a large portion of the


                                 Page 18 of 25
<PAGE>   19

             Company's operating expenses, including rent and salaries, are set
             based upon expected future revenues. Accordingly, if revenues are
             below expectations, the Company's operating results are likely to
             be adversely and disproportionately affected because such operating
             expenses are not variable in the short term, and cannot be quickly
             reduced to respond to anticipated decreases in revenues.

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

             The Company's operating results are also likely to fluctuate due to
             factors which impact prospective customers of the Company.
             Expenditures by prospective customers tend to vary in cycles that
             reflect overall economic conditions and individual budgeting and
             buying patterns. The Company's business would be adversely affected
             by a decline in the economic prospects of its customers or the
             economy generally, which could alter current or prospective
             customers' capital spending priorities or budget cycles or extend
             the Company's sales cycle with respect to certain customers. In
             addition, the Company's operating results historically have been
             influenced by certain seasonal fluctuations, with revenues tending
             to be strongest in the fourth quarter of each year. The Company
             believes that this seasonality has been due to the capital
             appropriation practices of many of its customers. The Company
             expects that in future periods this seasonal trend may cause 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, the Company believes that
             future operating results are likely to vary significantly from
             quarter to quarter, and historical operating results should not be
             relied upon as any indication of future performance. Moreover,
             there can be no assurance that the Company's revenues will grow in
             future periods or that the Company will remain profitable. In
             addition, in some future quarters the Company's operating results
             may be below the expectations of public market analysts. In such
             event, the market price of the common stock would likely be
             materially and adversely affected.

             Dependence on Telecommunications Industry

             The Company has derived substantially all of its 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. The
             Company's business, financial condition and results of operations
             would be materially adversely affected in the event of a
             significant slowdown in the growth of this industry. Further,
             consolidations of prospective customers of the Company may delay or
             cause cancellations of significant sales of the Company's products,
             which could materially adversely affect the Company's operating
             results in a particular period.

             Regulatory Uncertainties

             Future growth in the markets for the Company's products will depend
             in part on privatization and deregulation of certain
             telecommunications markets worldwide. Any reversal or slowdown in
             the pace of this privatization or deregulation could have a
             material adverse effect on the markets for the Company's 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 the Company's business, financial
             condition and results of operations. Furthermore, the uncertainties
             associated with deregulation have in the past and could in the
             future cause customers of the Company to delay purchasing decisions
             pending the resolution of such uncertainties.


                                 Page 19 of 25
<PAGE>   20

             Lengthy Sales Cycle

             The sales cycle for the Company's products is long, typically
             ranging from 6 to 12 months for GeoProbe sales (excluding the cycle
             for subsequent applications and enhancements, which varies widely)
             and up to six months for occasional, large Spectra sales.
             Accordingly, the Company's ability to forecast the timing and
             amount of specific sales is limited, and the deferral or loss of
             one or more significant sales could materially adversely affect
             operating results in a quarter, particularly if there are
             significant sales and marketing expenses associated with the
             deferred or lost sales.

             Product Concentration; Reliance on SS7 Networks

             The Company's two principal products, GeoProbe and Spectra,
             generated substantially all of the Company's revenues in 1997, 1998
             and the nine months ended September 30, 1999 and are expected to
             continue to account for a substantial majority of the Company's
             revenues for the foreseeable future. Any downturn in the demand for
             either or both of such products would have a material adverse
             effect on the Company's business, financial condition and results
             of operations. Moreover, there can be no assurance that the Company
             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.

             Inet's future operating results are dependent in significant part
             on the continued viability and expansion of SS7 signaling networks
             and the convergence of the internet protocol ("IP") network and
             public switched telephone network ("PSTN"). The Company's business,
             financial condition and results of operations would be materially
             adversely affected if the market for SS7 and converging network
             solutions fails to grow or grows more slowly than the Company
             currently anticipates.

             Competition

             The market for SS7-based telecommunications network management
             applications is 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. The Company competes 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, a
             subsidiary of Hewlett-Packard Company. Spectra principally competes
             with products offered by Agilent Technologies, Tekelec and
             Tektronix, Inc. Certain of the Company's competitors have, in
             relation to the 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,
             such 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. There
             can be no assurance that competitive pressures faced by the Company
             will not materially adversely affect its business, financial
             condition and results of operations.

             Need to Manage Growth and Expansion

             The Company has experienced rapid and significant growth that has
             placed, and is expected to continue to place, a significant strain
             on the Company's management, information systems and operations.
             For example, the Company's revenues have increased from $17.5
             million in 1995 to $77.4 million in 1998 and to $78.0 million in
             the nine months ended September 30, 1999. The number of employees
             has increased from 116 at December 31, 1995 to 358 at December 31,
             1998 and to 427 at September 30, 1999. The Company's ability to
             effectively manage significant additional growth will require it to
             improve its financial, operational and management information and
             control systems and procedures and to effectively


                                 Page 20 of 25
<PAGE>   21

             expand, train, motivate and manage its employees. The failure to
             manage growth effectively would have a material adverse effect on
             the Company's business, financial condition and results of
             operations.

             The Company anticipates that continued growth, if any, will require
             it to recruit and hire a substantial number of new employees,
             particularly sales and marketing personnel and technical personnel
             with SS7 and IP knowledge and experience, both in the U.S. and
             internationally. Competition for such personnel is intense, and the
             Company has at times experienced difficulty in recruiting qualified
             personnel. The Company historically has filled a portion of its new
             personnel needs with non-U.S. citizens holding temporary work visas
             that allow such persons 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 the Company's ability to recruit new personnel. Furthermore,
             the addition of significant numbers of new personnel requires the
             Company to incur significant start-up expenses, including
             procurement of office space and equipment, initial training costs
             and low utilization rates of new personnel. There can be no
             assurance that the Company will successfully recruit additional
             personnel as needed or that the start-up expenses incurred in
             connection with the hiring of additional personnel would not
             materially adversely affect the Company's future operating results.

             Dependence on Key Personnel

             The Company's future success will depend to a significant extent
             upon the continued service and performance of a relatively small
             number of key senior management, technical personnel, sales and
             marketing personnel, none of whom is bound by an employment
             agreement. Each of the Company's three founders has entered into an
             agreement not to compete against the Company until one year after
             the termination of his employment. However, the terms of such
             non-compete agreements are limited, and there can be no assurance
             that such agreements will be of meaningful benefit to the Company.
             The Company's success also depends upon its ability to continue to
             attract, motivate and retain other highly qualified personnel,
             particularly personnel with SS7 and IP knowledge and experience.
             The Company is also searching for a chief financial officer. The
             loss of any existing key personnel or the inability to attract,
             motivate and retain additional qualified personnel could have a
             material adverse effect on the Company's business, financial
             condition and results of operations.

             Rapid Technological Change and Dependence on New Products

             The market for the Company's 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
             telecommunications network management products involving superior
             technologies or the evolution of alternative technologies or new
             industry protocol standards could render the Company's existing
             products, as well as products currently under development, obsolete
             and unmarketable. The Company believes its future success will
             depend in part upon its ability, on a timely and cost-effective
             basis, to continue to: enhance the GeoProbe and Spectra products;
             develop and introduce new products for the telecommunications
             network management market and other markets; address evolving
             industry protocol standards and changing customer needs; and
             achieve broad market acceptance for its products. There can be no
             assurance the Company will achieve these objectives.

             The Company's future success will also depend in part on the
             Company's ability to develop solutions for networks based on
             emerging technologies (e.g., Asynchronous Transfer Mode and
             Internet telephony) which are likely to be characterized by
             continuing technological developments, evolving industry standards
             and changing customer requirements. There can be no assurance that
             the Company will successfully develop competitive products for
             these emerging technologies, and the failure to do so could have a
             material adverse effect on the Company's business, financial
             condition and results of operations.

             International Operations

             Revenues from customers located outside of the U.S. represented
             52.6%, 52.2% and 51.0% of the Company's total revenues in 1997,
             1998 and the nine months ended September 30, 1999, respectively.


                                 Page 21 of 25
<PAGE>   22

             Inet believes that continued growth and profitability will require
             expansion of its sales 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 Company's international
             operations are subject to various risks inherent in international
             operations, including: management of geographically dispersed
             operations; longer accounts receivable payment cycles; the ability
             to establish relationships with government-owned or subsidized
             telecommunications providers; general economic conditions in each
             country; currency controls and exchange rate fluctuations; seasonal
             reductions in business activity particular to certain markets; loss
             of revenues, property and equipment from expropriation,
             nationalization, war, insurrection, terrorism and other political
             risks; foreign taxes and the overlap of different tax structures;
             greater difficulty in safeguarding intellectual property; import
             and export licensing requirements; trade restrictions; and
             involuntary renegotiation of contracts with foreign governments and
             telecommunications carriers. International expansion of the
             Company's business will require significant management attention
             and financial resources. Moreover, in order to further expand
             internationally, the Company may be required to establish
             relationships with additional distributors and third-party
             integrators. There can be no assurance that the Company will
             effectively establish such relationships. If international revenues
             are not adequate to offset the additional expense of expanding
             international operations, the Company's business, financial
             condition and results of operations could be materially adversely
             affected.

             To date, international sales have been denominated solely in U.S.
             dollars, and accordingly the Company has not been exposed to
             fluctuations in non-U.S. currency exchange rates. As a result, the
             Company's revenues in international markets may be adversely
             affected by a strengthening U.S. dollar. However, the Company
             expects that in future periods a portion of international sales may
             be denominated in currencies other than U.S. dollars, thereby
             exposing the Company to gains and losses on non-U.S. currency
             transactions. The Company may choose to limit such exposure by
             entering into various hedging strategies. There can be no assurance
             that any such hedging strategies undertaken by the Company would be
             successful in avoiding exchange-related losses.

             Potential Acquisitions

             The Company may in the future pursue acquisitions of businesses,
             products and technologies, or the establishment of joint venture
             arrangements, that could expand the Company's 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 the
             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, no assurance can be given that any acquisition or joint
             venture will be successfully integrated with the Company's
             operations. If any such acquisition or joint venture were to occur,
             there can be no assurance that the Company will receive the
             intended benefits of the acquisition or joint venture.

             Proprietary Rights

             The telecommunications industry is characterized by the existence
             of a large number of patents and frequent allegations of patent
             infringement. The Company has received, and may receive in the
             future, notices from holders of patents that raise issues as to
             possible infringement by the Company's products. As the number of
             telecommunications network management products increases and the
             functionality of these products further overlaps, the Company
             believes that it may become increasingly subject to allegations of
             infringement. To date, the Company has engaged in correspondence
             with third-party holders of patents as a result of two such
             notices. The Company believes that its products do not infringe any
             valid patents cited in the notices received. However, questions of
             infringement and the validity of patents in the field of
             telecommunications signaling technologies involve highly technical
             and subjective analyses. There can be no assurance that any such
             patent holders or others will not in the future initiate legal
             proceedings against the Company or that, if any such proceedings
             were initiated, the Company would be successful in defending
             against such proceedings. Any such proceeding could be time
             consuming and expensive to defend or resolve, result in substantial
             diversion of management resources, cause product shipment delays,
             or force the Company to enter into royalty or license agreements
             rather


                                 Page 22 of 25
<PAGE>   23

             than dispute the merits of any such proceeding initiated against
             the Company. There can be no assurance that any such royalty or
             license agreements would be available on terms acceptable to the
             Company, if at all. Any such claims against the Company, with or
             without merit, could have a material adverse effect on the
             Company's business, financial condition and results of operations.

             The Company's continued success is dependent in part upon its
             proprietary technology. To protect its proprietary technology, the
             Company relies 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 the Company's proprietary rights in the products to
             the same extent as do the laws of the U.S. Despite the measures
             taken by the Company, it may be possible for a third party to copy
             or otherwise obtain and use the Company's proprietary technology
             and information without authorization. Policing unauthorized use of
             the Company's products is difficult, and litigation may be
             necessary in the future to enforce the Company's intellectual
             property rights. Any such 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 the
             Company's business, financial condition and results of operations.
             There can be no assurance that the Company will be successful in
             protecting its proprietary technology or that the Company's
             proprietary rights will provide a meaningful competitive advantage
             to the Company.

             Product Liability

             Products as complex as those offered by the Company may contain
             undetected defects or errors when first introduced or as
             enhancements are released that, despite testing by the Company, 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 the Company's reputation and business. To
             date, the Company has not been materially adversely affected by
             products containing defects or errors. The Company attempts to
             include provisions in its agreements with customers that are
             intended to limit the Company's exposure to potential liability for
             damages arising out of defects or errors in or the use of the
             Company's products. However, the nature and extent of such
             limitations tend to vary from customer to customer and it is
             possible that such limitations may not be effective as a result of
             unfavorable judicial decisions or laws enacted in the future.
             Although the Company has not experienced any product liability
             suits to date, the sale and support of the Company's products
             entails the risk of such claims. Any product liability claim
             brought against the Company, regardless of its merit, could result
             in material expense to the Company, diversion of management time
             and attention, and damage to the Company's business reputation and
             its ability to retain existing customers or attract new customers.

             Potential Effect of Shares Eligible for Future Sale

             Sales of a substantial number of shares of common stock into the
             public market could adversely affect the market price of the common
             stock and could impair the Company's ability to raise capital
             through the sale of equity securities. At September 30, 1999, the
             Company had outstanding 44,265,009 shares of common stock. Of these
             shares, approximately 39 million shares of common stock are
             "restricted securities" as that term is defined in Rule 144 of the
             Securities Act ("Rule 144").

             Upon the expiration of lock-up agreements between certain of the
             Company's stockholders and the underwriters of the Company's
             initial public offering (the "Lock-Up Agreements"), beginning
             November 22, 1999, approximately 38 million shares held by various
             stockholders of the Company will become eligible for sale pursuant
             to the volume, manner of sale and notice requirements of Rule 144
             and approximately one million shares held by various other
             stockholders of the Company will become eligible for sale without
             regard to the volume limitations and manner of sale and notice
             requirements of Rule 144. In addition, as of September 30, 1999,
             there were outstanding options to purchase an aggregate 1,814,300
             shares of common stock. Approximately 700,000 shares underlying
             such options will become eligible for sale pursuant to Rule 701
             under the Securities Act beginning November 22, 1999, and the
             remaining 1.1 million shares underlying such options will become
             eligible for sale pursuant to Rule 701 from time to time after
             November 22, 1999 as such options vest.


                                 Page 23 of 25
<PAGE>   24

Part II.    OTHER INFORMATION

Item 2.      Changes in Securities and Use of Proceeds

             (c)  From July 1 through September 30, 1999, the Company issued
                  approximately 328,000 shares of its common stock to employees
                  and former employees pursuant to exercises of stock options
                  (with exercise prices ranging from $0.60 to $16.00 per share)
                  under the Company's stock plans. These issuances were deemed
                  exempt from registration under Section 5 of the Securities Act
                  of 1933 in reliance upon Rule 701 thereunder.

             (d)  The Company's registration statement (Registration No.
                  333-59753) under the Securities Act of 1933, as amended, for
                  its initial public offering became effective on May 26, 1999.
                  A total of 6,612,500 shares of common Stock were registered
                  and 3,841,479 shares of the Company's common stock were sold
                  by the Company to an underwriting syndicate. Goldman, Sachs &
                  Co., Dain Rauscher Wessels, and Hambrecht & Quist LLC were the
                  managing underwriters of the offering. An additional 1,983,130
                  shares of common stock were sold on behalf of selling
                  stockholders as part of the same offering. All shares were
                  sold to the public at a price of $16.00 per share. In
                  connection with the offering, the Company paid approximately
                  $4.3 million in underwriting discounts and commissions to the
                  underwriters. Offering proceeds, net of aggregate expenses to
                  the Company of approximately $1.5 million, were approximately
                  $55.7 million. As of September 30, 1999, the Company has used
                  all of the net offering proceeds for the purchase of temporary
                  investments consisting of cash and cash equivalents. The
                  Company has not used any of the net offering proceeds for
                  construction of facilities, purchases of real estate or
                  acquisitions of other businesses. None of the Company's net
                  proceeds of the offering were paid directly or indirectly to
                  any director or officer of the Company or their associates,
                  person owning 10% or more of any class of equity securities of
                  the Company, or affiliate of the Company. The Company
                  currently intends to use the net proceeds of the offering for
                  working capital and general corporate purposes, including
                  financing accounts receivable and capital expenditures made in
                  the ordinary course of its business. The Company may also
                  apply a portion of the proceeds of the offering to acquire
                  businesses, products and technologies, or enter into joint
                  venture arrangements, that are complementary to the Company's
                  business and product offerings.

Item 6.      Exhibits and Reports on Form 8-K

             (a)  Exhibits

<TABLE>
<CAPTION>
                  Exhibit
                  Number         Exhibit
                  -------        -------
<S>                              <C>
                  27             Financial Data Schedule (for SEC information only)
</TABLE>

             (b)  There were no reports filed on Form 8-K during the third
                  quarter of 1999.



                                 Page 24 of 25
<PAGE>   25

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
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/ William H. Mina
                              --------------------------------------------------
                              William H. Mina
                              Senior Vice President - Finance and Administration
                                 and Director (chief accounting officer)


Date: November 12, 1999


                                 Page 25 of 25
<PAGE>   26

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                  Exhibit
                  Number         Description
                  -------        -----------
<S>                              <C>
                  27             Financial Data Schedule (for SEC information only)
</TABLE>