<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 June 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)


                                      NONE
              (Former name, former address and former fiscal year,
                         if changed since last report.)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [ ] No [X]

Number of shares of common stock of registrant outstanding at August 10, 1999:
45,169,309



                                  Page 1 of 24
<PAGE>   2

                             INET TECHNOLOGIES, INC.
                                      INDEX



<TABLE>
<CAPTION>
                                                                                                    Page No.
                                                                                                    --------
<S>               <C>                                                                               <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 .....................................         23
         Item 4.  Submissions of Matters to a Vote of Security Holders ..........................         23
         Item 6.  Exhibits and Reports on Form 8-K...............................................         23
Signatures ......................................................................................         24
Exhibit 27        Financial Data Schedules (for SEC information only)
</TABLE>


                                  Page 2 of 24
<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>
                                                          June 30,    December 31,
                                                            1999          1998
                                                          --------    -----------
<S>                                                       <C>           <C>
ASSETS

Current assets
    Cash and cash equivalents                             $107,878      $ 21,914
    Trade accounts receivable (net of allowance
         for doubtful accounts of  $898 and $659
         at June 30, 1999 and December 31, 1998,
         respectively)                                      14,303        22,073
    Unbilled receivables                                     2,347         1,602
    Income tax receivable                                    1,229            --
    Inventories                                              7,375         7,592
    Deferred income taxes                                      957         2,568
    Other current assets                                     1,505         1,248
                                                          --------      --------
         Total current assets                              135,594        56,997


Property and equipment, net                                  8,953         8,394


Other assets                                                   270           117
                                                          --------      --------
                                                          $144,817      $ 65,508
                                                          ========      ========
</TABLE>


See accompanying notes to financial statements.


                                  Page 3 of 24
<PAGE>   4


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


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

Current liabilities
  Accounts payable                                            $   1,736      $   1,858
  Accrued compensation and benefits                               2,715          2,159
  Deferred revenue                                               26,671         13,073
  Income tax payable                                                 --            878
  Other accrued liabilities                                         847            716
                                                              ---------      ---------
      Total current liabilities                                  31,969         18,684

Deferred tax liabilities                                             --             11

Commitments

Stockholders' equity
  Common stock, $.001 par value:
     Authorized shares - 175,000,000
     Issued shares - 44,941,009 at June 30, 1999 and
     40,934,422 at December 31, 1998                                 45             41
   Additional paid-in capital                                    57,089          1,236
   Unearned compensation                                           (350)          (464)
   Retained earnings                                             56,064         46,217
   Treasury stock, no common shares at June 30,
     1999, and 38,842 at December 31, 1998, at cost                  --           (217)
                                                              ---------      ---------
        Total stockholders' equity                              112,848         46,813
                                                              ---------      ---------

                                                              $ 144,817      $  65,508
                                                              =========      =========
</TABLE>

See accompanying notes to financial statements.


                                  Page 4 of 24
<PAGE>   5

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


<TABLE>
<CAPTION>
                                                   Three months ended        Six months ended
                                                         June 30,                June 30,
                                                   -------------------     -------------------
                                                     1999        1998        1999        1998
                                                   -------     -------     -------     -------
<S>                                                <C>         <C>         <C>         <C>
Revenues                                           $25,776     $18,653     $49,015     $34,165
Cost of revenues                                     7,639       5,067      14,764       9,613
                                                   -------     -------     -------     -------

      Gross profit                                  18,137      13,586      34,251      24,552

Operating expenses:
   Selling and marketing                             2,835       2,118       5,793       3,792
   General and administrative                        2,123       1,613       4,153       3,257
   Research and development                          5,531       3,511      10,383       6,710
                                                   -------     -------     -------     -------
                                                    10,489       7,242      20,329      13,759
                                                   -------     -------     -------     -------

      Income from operations                         7,648       6,344      13,922      10,793

Other income                                           674         197         997         322
                                                   -------     -------     -------     -------

      Income before provision for income taxes       8,322       6,541      14,919      11,115

Provision for income taxes                           2,829       2,330       5,072       3,867
                                                   -------     -------     -------     -------

Net income                                         $ 5,493     $ 4,211     $ 9,847     $ 7,248
                                                   =======     =======     =======     =======

Basic net income per common share                  $  0.13     $  0.10     $  0.24     $  0.18
                                                   =======     =======     =======     =======

Diluted net income per common share                $  0.12     $  0.10     $  0.23     $  0.17
                                                   =======     =======     =======     =======

Weighted average shares outstanding
        Basic                                       42,389      40,874      41,646      40,868
                                                   =======     =======     =======     =======
        Diluted                                     44,126      42,277      43,401      42,276
                                                   =======     =======     =======     =======
</TABLE>


See accompanying notes to financial statements.


                                  Page 5 of 24
<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
  $1,211 .......................   3,802,637           4      55,731           --           --    (38,842)        217       55,952
     Issuance of common stock
  upon exercise of employee
  stock options ................     203,950          --         122           --           --         --          --          122
  Net income and
  comprehensive income .........          --          --          --           --        9,847         --          --        9,847
  Stock option compensation ....          --          --          --          114           --         --          --          114
                                  ----------  ----------  ----------    ---------   ----------  ---------  ----------   ----------
Balance at June 30, 1999 .......  44,941,009  $       45  $   57,089    $    (350)  $   56,064         --  $       --   $  112,848
                                  ==========  ==========  ==========    =========   ==========  =========  ==========   ==========
</TABLE>


See accompanying notes to financial statements.


                                  Page 6 of 24
<PAGE>   7

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

<TABLE>
<CAPTION>
                                                                 Six months ended
                                                                     June 30,
                                                            ------------------------
                                                               1999           1998
                                                            ---------      ---------
<S>                                                         <C>            <C>
Cash flows from operating activities:
   Net income                                               $   9,847      $   7,248
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation                                               1,941          1,139
     Deferred income taxes                                      1,508           (848)
     Stock option compensation expense                            114            112
     Changes in assets and liabilities:
       Decrease in trade accounts receivable                    7,770          4,394
       (Increase) decrease in unbilled receivables               (745)         3,147
       Increase in taxes receivable                            (1,229)            --
       (Increase) decrease in inventories                         217           (316)
       (Increase) decrease in other assets                       (318)           640
       Increase (decrease) in accounts payable                   (122)           485
       Increase (decrease) in accrued
         compensation and benefits                                556           (195)
       Decrease in taxes payable                                 (878)          (681)
       Increase in deferred revenue                            13,598          3,241
       Increase in accrued liabilities                            131            795
                                                            ---------      ---------
Net cash provided by operations                                32,390         19,161

Cash flows from investing activities:
   Purchases of property and equipment                         (2,500)        (2,171)
                                                            ---------      ---------
Net cash used by investing activities                          (2,500)        (2,171)

Cash flows from financing activities:
   Proceeds from issuance of common stock in
       initial public offering, net                            55,952             --
   Proceeds from issuance of common stock
       upon exercise of stock options                             122             --
   Proceeds from issuance of common stock                          --            106
                                                            ---------      ---------
Net cash provided by financing activities                      56,074            106
                                                            ---------      ---------

Net increase in cash and cash equivalents                      85,964         17,096
Cash and cash equivalents at beginning of period               21,914          3,386
                                                            ---------      ---------

Cash and cash equivalents at end of period                  $ 107,878      $  20,482
                                                            =========      =========

Supplemental disclosures:

Taxes paid                                                  $   6,087      $   4,320
</TABLE>


See accompanying notes to financial statements.



                                  Page 7 of 24
<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 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 with
             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 Form S-1 registration statement (Reg. No.
             333-59753). Operating results for the three- and six-month periods
             ended June 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 June
             30, 1999 and December 31, 1998, all cash equivalents were invested
             with a nationally recognized financial institution.

             Inventories

             Inventories are valued at the lower of standard cost, which
             approximates actual cost determined on a first-in, first-out basis,
             or market. At June 30, 1999 and December 31, 1998, inventories
             consisted of the following:

<TABLE>
<CAPTION>
                                                                                    June 30,        December 31,
                                                                                     1999               1998
                                                                                --------------     -------------
                                                                                         (in thousands)
<S>                                                                             <C>                <C>
               Raw materials..............................................      $        2,306     $       1,895
               Work-in progress...........................................                 996             2,289
               Finished goods.............................................               4,073             3,408
                                                                                --------------     -------------
                                                                                $        7,375     $       7,592
                                                                                ==============     =============
</TABLE>


                                  Page 8 of 24
<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
             services 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 generally consist of bug fixing and telephone
             access to the Company's technical personnel, but may also include
             the right to receive unspecified product updates, upgrades, and
             enhancements. Revenue from these services, including product
             support services included in initial licensing fees, is 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 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 $55.9 million.


                                  Page 9 of 24
<PAGE>   10

   Note 3 -  Earnings Per Share

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

<TABLE>
<CAPTION>
                                            Three months ended       Six months ended
                                                  June 30,                June 30,
                                            -------------------     -------------------
                                              1999        1998        1999        1998
                                            -------     -------     -------     -------
<S>                                         <C>         <C>         <C>         <C>
Numerator for basic and diluted
 earnings per share:
  Net income                                $ 5,493     $ 4,211     $ 9,847     $ 7,248
                                            =======     =======     =======     =======

Denominator:
  Denominator for basic earnings per
  weighted average share                     42,389      40,874      41,646      40,868

  Effect of dilutive securities:
    Employee stock options                    1,737       1,403       1,755       1,408
                                            -------     -------     -------     -------

Denominator for diluted earnings per
 share-adjusted weighted-average shares
 for assumed conversion                      44,126      42,277      43,401      42,276
                                            =======     =======     =======     =======

Basic earnings per share                    $  0.13     $  0.10     $  0.24     $  0.18
                                            =======     =======     =======     =======

Diluted earnings per share                  $  0.12     $  0.10     $  0.23     $  0.17
                                            =======     =======     =======     =======
</TABLE>



   Note 4 -  Comprehensive Income

             In June 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.


   Note 5 -  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       Six months ended
                                  June 30,               June 30,
                            ------------------      ------------------
                             1999        1998        1999       1998
                            ------      ------      ------      ------
<S>                         <C>         <C>         <C>         <C>
United States                 45.1%       62.3%       48.6%       50.5%
Export:
  Asia Pacific Region          3.0        11.3         3.9         9.1
  Europe                      47.3        23.5        42.8        34.9
  Other                        4.6         2.9         4.7         5.5
                            ------      ------      ------      ------
     Total export sales       54.9        37.7        51.4        49.5
                            ------      ------      ------      ------
                             100.0%      100.0%      100.0%      100.0%
                            ======      ======      ======      ======
</TABLE>

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


                                 Page 10 of 24
<PAGE>   11


   Note 6 -  New Accounting Standards

             In June 1998, the FASB issued Statement 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
             Statement of Financial Accounting Standards ("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 24
<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 27(A) of the Securities
             Act of 1933, as amended, and Section 21(E) 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 in the
             Company's 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,"
             "estimates," "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 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 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 and troubleshooting. GeoProbe's
             associated business applications provide fraud detection tools,
             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 24
<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.

             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. 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. 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 six months ended June 30, 1999 are not necessarily
             indicative of the results that may be expected for any future
             periods.

<TABLE>
<CAPTION>
                                              Three months ended       Six months ended
                                                  June 30,                 June 30,
                                              ------------------      -----------------
                                              1999        1998        1999        1998
                                              -----       -----       -----       -----
<S>                                           <C>         <C>         <C>         <C>
Revenues                                      100.0%      100.0%      100.0%      100.0%
Cost of revenues                               29.6        27.2        30.1        28.1
                                              -----       -----       -----       -----
   Gross profit                                70.4        72.8        69.9        71.9
                                              -----       -----       -----       -----
Operating expenses:
    Sales and marketing                        11.0        11.4        11.8        11.1
    General and administrative                  8.2         8.6         8.5         9.5
    Research and development                   21.5        18.8        21.2        19.7
                                              -----       -----       -----       -----
         Total operating expenses              40.7        38.8        41.5        40.3
                                              -----       -----       -----       -----
Income from operations                         29.7        34.0        28.4        31.6
Other income                                    2.6         1.1         2.0         0.9
                                              -----       -----       -----       -----
Income before provision for income taxes       32.3        35.1        30.4        32.5
Provision for income taxes                     11.0        12.5        10.3        11.3
                                              -----       -----       -----       -----
Net income                                     21.3%       22.6%       20.1%       21.2%
                                              =====       =====       =====       =====
</TABLE>


             REVENUES

             The Company's revenues were $25.8 million for the three months
             ended June 30, 1999, an increase of 38.2% over the $18.7 million
             reported for the three months ended June 30, 1998. For the six
             months ended June 30, 1999, revenues increased 43.5% to $49.0
             million from $34.2 million reported for the six months ended June
             30, 1998. The growth in revenues is primarily due to an increase in
             unit sales during the three- and six-months ended June 30, 1999.
             For the six months ended June 30, 1999 international revenues
             accounted for 51.4% of total revenues compared to 49.5% for the six
             months ended June 30, 1998. Revenues from sales other than Spectra
             and GeoProbe collectively accounted for less than 10% of total
             revenues in these periods. The Company anticipates revenues from
             GeoProbe and Spectra will comprise the majority of revenues for the
             remainder of 1999. The Company anticipates that in the future,
             individual, large sales may represent a large percentage of total
             revenues. Accordingly, the deferral or loss of one or more
             significant sales could materially adversely affect operating
             results in a period, particularly if there are significant sales
             and marketing expenses associated with the deferred or lost sales.



                                 Page 13 of 24
<PAGE>   14

             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 June
             30, 1999, cost of revenues increased 50.8% to $7.6 million from
             $5.1 million for the three months ended June 30, 1998. The increase
             in dollars resulted primarily from additional hardware of $700,000
             due to increased units sold, related installation expenses of
             $500,000 and additional support expenses of $700,000 related to
             servicing the Company's growing installed customer base. Cost of
             revenues represented 29.6% and 27.2% of revenues in the three
             months ended June 30, 1999 and 1998, respectively. The increase in
             cost of revenues as a percent of revenues was primarily due to the
             increase in support services expense.

             Cost of revenues of $14.8 million for the six months ended June 30,
             1999 increased 53.6% in comparison to $9.6 million for the six
             months ended June 30, 1998. The increase in dollars resulted
             primarily from additional hardware of $2.9 million due to increased
             units sold, related installation expenses of $500,000, and
             additional support expenses of $1.4 million. Costs of revenues
             represented 30.1% and 28.1% of revenues for the six months ended
             June 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 six months ended June 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 33.8% to $2.8 million in the three months ended
             June 30, 1999 from $2.1 million in the three months ended June 30,
             1998. The increase in dollars was primarily related to increased
             staffing and related costs of approximately $500,000. Sales and
             marketing expenses as a percentage of revenues were 11.0% and 11.4%
             in the three months ended June 30, 1999 and 1998, respectively.

             For the six months ended June 30, 1999, sales and marketing
             expenses were $5.8 million, an increase of 52.8% from $3.8 million
             for the comparable prior year period. The increase in dollars was
             primarily related to increased staffing and related costs of
             approximately $1.0 million and expenses of approximately $400,000
             associated with the expansion of international sales activities.
             Sales and marketing expenses as a percentage of revenues were 11.8%
             and 11.1% in the six months ended June 30, 1999 and 1998,
             respectively. The Company believes that sales and marketing
             expenses will increase in dollars for the remainder of 1999 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 31.6% to $2.1 million for the three months ended June 30,
             1999 from $1.6 million for the three months ended June 30, 1998.
             The increase in dollars was primarily related to increased staffing
             and related costs of approximately $600,000 associated with the
             growth of the Company's business. General and administrative
             expenses as a percentage of revenues were 8.2% and 8.6% in the
             three months ended June 30, 1999 and 1998, respectively.

             For the six months ended June 30, 1999, general and administrative
             expenses were $4.2 million, an increase of 27.5% from $3.3 million
             for the comparable prior year period. The increase in dollars was
             primarily related to increased staffing and related costs of
             approximately $900,000. General and administrative expenses as a
             percentage of revenues were 8.5% and 9.5% in the six months ended
             June


                                 Page 14 of 24
<PAGE>   15

             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 57.5% to $5.5
             million for the three months ended June 30, 1999 from $3.5 million
             for the three months ended June 30, 1998. The increase in dollars
             was primarily due to additional staffing and related personnel
             costs of $1.9 million. Research and development expenses as a
             percentage of revenues were 21.5% and 18.8% in the three months
             ended June 30, 1999 and 1998, respectively.

             For the six months ended June 30, 1999, research and development
             expenses were $10.4 million, an increase of 54.7% from $6.7 million
             for the comparable prior year period. The increase in dollars was
             primarily due to additional staffing and related personnel costs of
             $3.6 million. Research and development expenses as a percentage of
             revenues were 21.2% and 19.7% in the six months ended June 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 (EXPENSE)

             Other income increased to $674,000 for the three months ended June
             30, 1999 from $197,000 for the three months ended June 30, 1998.
             Other income increased to $997,000 for the six months ended June
             30, 1999 from $322,000 for the six months ended June 30, 1998. For
             both the three and six months ended June 30, 1999, the increase
             resulted from increased interest earned on higher balances of cash
             and cash equivalents resulting from increased cash flows from
             operations and the proceeds from the Company's initial public
             offering completed in June 1999. Proceeds from the offering were
             approximately $55.9 million in cash, net of underwriting discounts,
             commissions and other offering costs.

             PROVISION FOR INCOME TAXES

             The Company recorded income tax expense of $2.8 million and $2.3
             million in the three months ended June 30, 1999 and 1998,
             respectively. The Company's effective income tax rates were 34.0%
             and 35.6% for the three months ended June 30, 1999 and 1998,
             respectively. The Company recorded income tax expense of $5.1
             million and $3.9 million in the six months ended June 30, 1999 and
             1998, respectively. The Company's effective income tax rates were
             34.0% and 34.8% for the six months ended June 30, 1999 and 1998,
             respectively.

             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 of $16.00 per share. The Company received
             approximately $55.9 million in cash, net of underwriting discounts,
             commissions, and other offering costs. The Company had working
             capital of $103.6 million at June 30, 1999, compared with $38.3
             million at December 31, 1998. At June 30, 1999, the Company had
             $107.9


                                 Page 15 of 24
<PAGE>   16

             million in cash and cash equivalents, an increase of $86.0 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 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 June 30, 1999, no amounts were
             outstanding under the credit facility, and the amounts available to
             the Company, after considering outstanding letters of credit, were
             $9.97 million.

             Net cash provided by operating activities was $32.4 million for the
             six months ended June 30, 1999, compared to $19.2 million during
             the same period of 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 due to amounts billed to customers pursuant to
             terms specified in the contracts but for which revenues have not
             been recognized.

             Net cash used by investing activities was $2.5 million for the six
             months ended June 30, 1999, compared to $2.2 million during the
             same period of 1998. Net cash used by investing activities was
             primarily related to purchases of property and equipment.

             Net cash provided by financing activities was $56.1 million for the
             six months ended June 30, 1999, compared to $106,000 during the
             same period of 1998. The increase in net cash provided by financing
             activities resulted primarily from proceeds from the Company's
             initial public offering of 3,841,479 shares of its Common Stock for
             which the Company received approximately $55.9 million in cash, net
             of underwriting discounts, commissions and other offering costs.

             At June 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 acquisitions, 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



                                 Page 16 of 24
<PAGE>   17

             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 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 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 has been performed and the Company has
             determined that it will be required to upgrade certain portions of
             its computer hardware and software tools so that they will be Year
             2000 compliant. These upgrades are being and will continue to be
             made in conjunction with the Company's overall information systems
             initiatives. In addition, the Company is contacting 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 being
             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 is communicating 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 the Year 2000 project have not been, and are not
             expected to be, material to the Company's results of operations,
             financial position and 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



                                 Page 17 of 24
<PAGE>   18

             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 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, particularly if there
             are significant sales and marketing expenses associated with the
             deferred or lost sales.

             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 primarily 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


                                 Page 18 of 24
<PAGE>   19

             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.

             Lengthy Sales Cycle

             The sales cycle for the Company's products is long, typically
             ranging from six to 24 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 1996,
             1997, 1998 and the six months ended June 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.
             The Company's business, financial condition and results of
             operations would be materially adversely affected if the market for
             SS7 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. ("Tektronix"). 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 recently 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 $49.0
             million in the six months ended June 30, 1999. The number of its
             employees has increased from 116 at December 31, 1995 to 358 at
             December 31, 1998 and to 420 at June 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 19 of 24
<PAGE>   20

             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 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, 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 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
             49.4%, 52.6%, 52.2% and 51.4% of the Company's total revenues in
             1996, 1997, 1998 and the six months ended June 30, 1999,
             respectively. Inet


                                 Page 20 of 24
<PAGE>   21

             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 sales 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 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 acquired business 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 21 of 24
<PAGE>   22

             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
             designed 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 June 30, 1999, the
             Company had outstanding 44,941,009 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 the Company's
             stockholders and the Underwriters (the "Lock-Up Agreements"),
             beginning November 16, 1999, approximately 38 million shares held
             by certain stockholders of the Company will become eligible for
             sale pursuant to the volume, manner of sale and notice requirements
             of Rule 144 and approximately 1 million shares held by certain
             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 June 30, 1999,
             there were outstanding options to purchase an aggregate 1,912,200
             shares of Common Stock. Approximately 1 million shares underlying
             such options will become eligible for sale pursuant to Rule 701
             under the Securities Act beginning November 16, 1999, and the
             remaining 812,000 shares underlying such options will become
             eligible for sale pursuant to Rule 701 from time to time after
             November 16, 1999 as such options vest.


                                 Page 22 of 24
<PAGE>   23


Part II.    OTHER INFORMATION

Item 2.      Changes in Securities and Use of Proceeds

             (c)  From April 1 through June 30, 1999, the Company issued
                  approximately 200,000 shares of its common stock to employees
                  pursuant to exercises of stock options (with exercise prices
                  of $0.60 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 $1.2 million, were approximately
                  $55.9 million. As of June 30, 1999, the Company has used all
                  of the net offering proceeds for the purchase of temporary
                  investments consisting of cash, cash equivalents, and
                  short-term investments. The Company has not used any of the
                  net offering proceeds for construction of facilities,
                  purchases of real estate, or acquisition of other businesses.
                  None of the Company's net proceeds of the offering were paid
                  directly or indirectly to any director, officer of the Company
                  or their associates, persons owning 10% or more of any class
                  of equity securities of the Company, or an 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 4.      Submission of Matters to a Vote of Security Holders

             On May 26, 1999 by written consent in lieu of a meeting,
             stockholders holding an aggregate of 38,859,800 shares of the
             Company's common stock approved an amendment and restatement of the
             Company's Bylaws.

Item 6.      Exhibits and Reports on Form 8-K

             (a)  Exhibits

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

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

Item 3 of Part I and Items 1, 3, and 5 of Part II were not applicable and have
been omitted.


                                 Page 23 of 24
<PAGE>   24

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 TECHNOLGIES, 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:  August 12, 1999


                                 Page 24 of 24
<PAGE>   25

                               INDEX TO EXHIBITS

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