<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q



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

                For the quarterly period ended September 30, 2000

                                       OR

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

                         Commission File Number 0-24707

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

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


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



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



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.   Yes _X_    No __


Number of shares of common stock outstanding at November 6, 2000: 46,313,008


                                  Page 1 of 24

<PAGE>

                             INET TECHNOLOGIES, INC.
                                      INDEX

<TABLE>
<CAPTION>

                                                                                                    Page No.
                                                                                                    --------
<S>                                                                                                 <C>

Part I - Financial Information (Unaudited)

         Item 1.  Financial Statements

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

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

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

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

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

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

         Item 3.  Quantitative and Qualitative Disclosures about Market Risk.....................         23

Part II - Other Information

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

         Item 6.  Exhibits and Reports on Form 8-K...............................................         23

Signatures        ...............................................................................         24

</TABLE>



                                                 Page 2 of 24

<PAGE>

PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                             INET TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                                  SEPTEMBER 30,       DECEMBER 31,
                                                                                                      2000                1999
                                                                                                  -------------       ------------
                                                                                                          (In thousands)
    <S>                                                                                           <C>                   <C>

    Current assets:
      Cash and cash equivalents.............................................................      $    142,442        $   127,903
      Trade accounts receivable, net of allowance for doubtful accounts of $932 and $938 at
        September 30, 2000 and December 31, 1999, respectively..............................            25,889             20,781
      Unbilled receivables..................................................................             3,294              2,196
      Inventories...........................................................................             9,549              5,893
      Deferred income taxes.................................................................             2,022              2,318
      Other current assets..................................................................             4,315              1,312
                                                                                                  ------------        -----------
              Total current assets..........................................................           187,511            160,403
    Property and equipment, net.............................................................            15,449              9,324
    Deferred income taxes...................................................................                35                  6
    Other assets............................................................................               282                184
                                                                                                  ------------        -----------
              Total assets..................................................................      $    203,277        $   169,917
                                                                                                  ============        ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Accounts payable......................................................................      $      4,479        $     2,599
      Accrued compensation and benefits.....................................................             7,141              5,252
      Deferred revenue......................................................................            22,323             26,432
      Taxes payable.........................................................................                --                213
      Other accrued liabilities.............................................................             4,027              1,998
                                                                                                  ------------        -----------
              Total current liabilities.....................................................            37,970             36,494
    Commitments and contingencies
    Stockholders' equity:
      Preferred stock, $.001 par value:
         Authorized shares -- 25,000,000
         Issued shares -- None..............................................................                --                 --
      Common stock, $.001 par value:
         Authorized shares -- 175,000,000
         Issued shares -- 46,266,708 at September 30, 2000
           and 45,312,759 at December 31, 1999..............................................                46                 45
      Additional paid-in capital............................................................            61,024             57,693
      Unearned compensation.................................................................               (60)              (233)
      Retained earnings.....................................................................           104,297             75,918
                                                                                                  ------------        -----------
              Total stockholders' equity....................................................           165,307            133,423
                                                                                                  ------------        -----------
              Total liabilities and stockholders' equity....................................      $    203,277        $   169,917
                                                                                                  ============        ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                                       Page 3 of 24
<PAGE>


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

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED           NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                SEPTEMBER 30,
                                                             ------------------------    ------------------------
                                                                2000          1999          2000          1999
                                                             ----------    ----------    ----------    ----------
                                                                      (In thousands, except per share data)
      <S>                                                    <C>           <C>           <C>           <C>

      Revenues:
        Product and license fees........................     $   36,410    $   26,375    $   98,893    $   70,770
        Services........................................          5,015         2,635        12,321         7,255
                                                             ----------    ----------    ----------    ----------
             Total revenues.............................         41,425        29,010       111,214        78,025

      Cost of revenues:
        Product and license fees........................          8,017         6,450        21,537        18,066
        Services........................................          2,429         1,904         6,300         5,052
                                                             ----------    ----------    ----------    ----------
             Total cost of revenues.....................         10,446         8,354        27,837        23,118
                                                             ----------    ----------    ----------    ----------

                 Gross profit...........................         30,979        20,656        83,377        54,907
      Operating expenses:
        Research and development........................          9,194         5,805        24,115        16,188
        Sales and marketing.............................          5,420         3,001        13,634         8,794
        General and administrative......................          3,356         2,376         8,847         6,529
                                                             ----------    ----------    ----------    ----------
                                                                 17,970        11,182        46,596        31,511
                                                             ----------    ----------    ----------    ----------
                Income from operations..................         13,009         9,474        36,781        23,396
      Other income (expense):
        Gain on sale of assets..........................             15         5,985            --         5,960
        Interest income.................................          2,157         1,363         6,043         2,390
        Other expense...................................            (48)           (1)          (55)           (6)
                                                             ----------    ----------    ----------    ----------
                                                                  2,124         7,347         5,988         8,344
                                                             ----------    ----------    ----------    ----------
                Income before provision for income
                  taxes.................................         15,133        16,821        42,769        31,740
      Provision for income taxes........................          4,994         5,847        14,390        10,919
                                                             ----------    ----------    ----------    ----------
                Net income..............................     $   10,139    $   10,974    $   28,379    $   20,821
                                                             ==========    ==========    ==========    ==========

      Earnings per common share:
                Basic...................................     $     0.22    $     0.24    $     0.62    $     0.49
                                                             ==========    ==========    ==========    ==========
                Diluted.................................     $     0.22    $     0.24    $     0.61    $     0.47
                                                             ==========    ==========    ==========    ==========

      Weighted-average shares outstanding:
                Basic...................................         46,205        45,146        46,063        42,826
                                                             ==========    ==========    ==========    ==========
                Diluted.................................         46,864        46,589        46,840        44,473
                                                             ==========    ==========    ==========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                                Page 4 of 24
<PAGE>


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

<TABLE>
<CAPTION>
                                                  COMMON STOCK        ADDITIONAL                                 TOTAL
                                              -------------------      PAID-IN       UNEARNED      RETAINED   STOCKHOLDERS'
                                                SHARES     AMOUNT      CAPITAL     COMPENSATION    EARNINGS      EQUITY
                                              ----------   ------     ----------   ------------    --------   -------------
                                                                   (In thousands, except share data)

         <S>                                  <C>          <C>        <C>          <C>            <C>         <C>
         Balance at December 31, 1999...      45,312,759    $ 45        $57,693       $ (233)      $ 75,918      $133,423
           Issuance of common stock under
             stock option and stock              953,949       1          3,331           --             --         3,332
             purchase plans.............
           Net income...................              --      --             --           --         28,379        28,379
           Stock option compensation....              --      --             --          173             --           173
                                              ----------    ----        -------       ------       --------      --------
         Balance at September 30, 2000..      46,266,708    $ 46        $61,024       $  (60)      $104,297      $165,307
                                              ==========    ====        =======       ======       ========      ========
</TABLE>


          See accompanying notes to consolidated financial statements.
























                                                 Page 5 of 24
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                  NINE MONTHS ENDED
                                                                                     SEPTEMBER 30,
                                                                                ----------------------
                                                                                   2000         1999
                                                                                ----------   ---------
                                                                                    (In thousands)

                      <S>                                                       <C>          <C>
                      CASH FLOWS FROM OPERATING ACTIVITIES:
                      Net income..........................................      $   28,379   $  20,821
                      Adjustments to reconcile net income to net cash
                      provided by operating activities:
                        Depreciation......................................           3,615       2,985
                        Gain on sale of assets............................              --      (5,960)
                        Deferred income taxes.............................             267       1,646
                        Issuance of common stock and stock options charged
                         to expense.......................................             173         173
                        Change in operating assets and liabilities:
                           Decrease (increase) in trade accounts receivable         (5,108)      8,630
                           Increase in unbilled receivables...............          (1,098)     (1,054)
                           Increase in tax refunds receivable.............            (847)         --
                           Decrease (increase) in inventories.............          (3,656)      1,483
                           Increase in other assets.......................          (2,254)       (659)
                           Increase (decrease) in accounts payable........           1,880        (429)
                           Increase (decrease) in taxes payable...........            (213)      2,091
                           Increase in accrued compensation and benefits..           1,889         455
                           Increase (decrease) in deferred revenue........          (4,109)      9,835
                           Increase in other accrued liabilities..........           2,029         167
                                                                                ----------   ---------
                      Net cash provided by operating activities...........          20,947      40,184
                      CASH FLOWS FROM INVESTING ACTIVITIES:
                      Purchases of property and equipment.................          (9,740)     (3,347)
                      Proceeds from sale of assets........................              --       7,000
                                                                                ----------   ---------
                      Net cash provided by (used in) investing activities.          (9,740)      3,653
                      CASH FLOWS FROM FINANCING ACTIVITIES:
                      Proceeds from issuance of common stock in initial
                         public offering, net.............................              --      55,699
                      Proceeds from issuance of common stock upon exercise
                         of stock options and purchases under employee stock
                         purchase plan....................................           3,332         342
                                                                                ----------   ---------
                      Net cash provided by financing activities...........           3,332      56,041
                                                                                ----------   ---------

                      Net increase in cash and cash equivalents...........          14,539      99,878
                      Cash and cash equivalents at beginning of period....         127,903      21,914
                                                                                ----------   ---------
                      Cash and cash equivalents at end of period..........      $  142,442   $ 121,792
                                                                                ==========   =========

                      SUPPLEMENTAL DISCLOSURES:
                         Interest paid....................................      $       --   $      --
                                                                                ==========   =========
                         Income taxes paid................................      $   15,172   $   8,840
                                                                                ==========   =========
</TABLE>


          See accompanying notes to consolidated financial statements.





                                              Page 6 of 24
<PAGE>

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

   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             THE COMPANY

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

             CONSOLIDATION

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

             UNAUDITED INTERIM FINANCIAL STATEMENTS

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

             CASH AND CASH EQUIVALENTS

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

             INVENTORIES

             Inventories are valued at the lower of standard cost, which
             approximates actual cost determined on a first-in, first-out basis,
             or market. At September 30, 2000 and December 31, 1999, inventories
             consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                         SEPTEMBER 30,          DECEMBER 31,
                                                                              2000                   1999
                                                                       ------------------      ---------------
                               <S>                                     <C>                     <C>

                               Raw materials....................        $          3,227       $         1,791
                               Work-in-process..................                     469                   241
                               Finished goods...................                   5,853                 3,861
                                                                        ----------------       ---------------
                                                                        $          9,549       $         5,893
                                                                        ================       ===============
</TABLE>


                                  Page 7 of 24

<PAGE>

             REVENUE RECOGNITION

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

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

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

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

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

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

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

             ACCOUNTING ESTIMATES

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

   NOTE 2 -  RELATED PARTY TRANSACTION

             On January 1, 2000, we sold our membership interest in Inet Global
             Research, L.L.C., to an entity controlled by a related party for a
             cash purchase price of $82,000. No gain or loss was recorded for
             the sale. This entity is currently performing services for us.



                                  Page 8 of 24

<PAGE>

   NOTE 3 -  EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED           NINE MONTHS ENDED
                                                                         SEPTEMBER 30,                SEPTEMBER 30,
                                                                   -------------------------    -----------------------
                                                                       2000          1999          2000          1999
                                                                   ------------   ----------    ---------     ---------
                  <S>                                              <C>            <C>           <C>           <C>

                  Numerator:
                    Net income for basic and diluted
                      earnings per share...................        $     10,139   $   10,974    $  28,379     $  20,821
                                                                   ============   ==========    =========     =========
                  Denominator:
                    Denominator for basic earnings per
                      share -- weighted-average shares.....              46,205       45,146       46,063        42,826
                    Effect of dilutive securities:
                      Employee stock options and purchase
                        rights.............................                 659        1,443          777         1,647
                                                                   ------------   ----------    ---------     ---------
                    Potentially dilutive common shares.....                 659        1,443          777         1,647
                                                                   ------------   ----------    ---------     ---------
                    Denominator for diluted earnings
                      per share -- adjusted
                      weighted-average shares..............              46,864       46,589       46,840        44,473
                                                                   ============   ==========    =========     =========

                 Basic earnings per common share...........        $       0.22   $     0.24    $    0.62     $    0.49
                                                                   ============   ==========    =========     =========

                 Diluted earnings per common share.........        $       0.22   $     0.24    $    0.61     $    0.47
                                                                   ============   ==========    =========     =========
</TABLE>

   NOTE 4 -  COMPREHENSIVE INCOME

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

   NOTE 5 -  SEGMENT INFORMATION

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

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                         SEPTEMBER 30,               SEPTEMBER 30,
                                                                   -------------------------   -----------------------
                                                                       2000          1999         2000          1999
                                                                   ------------   ----------   ---------     ---------
                   <S>                                             <C>            <C>          <C>           <C>

                   United States............................           48.3%         49.8%        48.0%         49.0%
                   Export:
                     Asia/Pacific...........................            3.7          11.9          5.4           6.9
                     Europe, Middle East and Africa.........           40.4          18.4         41.4          33.8
                     Other..................................            7.6          19.9          5.2          10.3
                                                                     ------        ------       ------        ------
                             Total export revenue                      51.7          50.2         52.0          51.0
                                                                     ------        ------       ------        ------
                                                                      100.0%        100.0%       100.0%        100.0%
                                                                     ======        ======       ======        ======
</TABLE>

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



                                                   Page 9 of 24
<PAGE>





NOTE 6 -     RECENT ACCOUNTING PRONOUNCEMENTS

             In June 1998, the Financial Accounting Standards Board issued
             Statement of Financial Accounting Standards, or SFAS, No. 133,
             ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS
             133 establishes new standards of accounting and reporting for
             derivative instruments and hedging activities. SFAS 133 requires
             that all derivatives be recognized at fair value on the balance
             sheet, and that the corresponding gains or losses be included in
             comprehensive income, depending on the type of hedging relationship
             that exists. SFAS 133 will be effective for fiscal years beginning
             after June 15, 2000. Currently, we believe that SFAS 133 will not
             have a material effect on our financial position and results of
             operations when adopted.

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

             FORWARD-LOOKING STATEMENTS

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

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

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

                  -        ANY REDUCTION IN DEMAND FOR OUR GEOPROBE OR SPECTRA
                           PRODUCTS COULD HAVE A MATERIAL ADVERSE EFFECT ON US;

                  -        WE COULD BE MATERIALLY AND ADVERSELY AFFECTED IF THE
                           MARKET FOR SS7 AND CONVERGING NETWORK SOLUTIONS FAILS
                           TO GROW AS WE CURRENTLY ANTICIPATE;

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

             OTHER RISKS INDICATED BELOW UNDER THE CAPTION "RISK FACTORS" AND IN
             OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
             THESE RISKS AND UNCERTAINTIES ARE BEYOND OUR CONTROL AND, IN MANY
             CASES, WE CANNOT PREDICT THE RISKS AND UNCERTAINTIES THAT COULD
             CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED
             BY THE FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS QUARTERLY
             REPORT, THE WORDS "BELIEVES," "PLANS," "EXPECTS," "ANTICIPATES,"
             "INTENDS," "CONTINUE," "MAY," "WILL," "SHOULD" OR THE NEGATIVE OF
             SUCH TERMS AND SIMILAR EXPRESSIONS AS THEY RELATE TO US OR OUR
             MANAGEMENT ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.

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


                                  Page 10 of 24
<PAGE>

             OVERVIEW

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

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

             RESULTS OF OPERATIONS

             The following table sets forth, for the periods presented, certain
             data derived from our unaudited consolidated statements of income
             as a percentage of total revenues. The operating results for the
             three and nine months ended September 30, 2000 are not necessarily
             indicative of the results that may be expected for any future
             periods.

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED         NINE MONTHS ENDED
                                                                              SEPTEMBER 30,             SEPTEMBER 30,
                                                                           -------------------       -------------------
                                                                            2000         1999         2000         1999
                                                                           ------       ------       ------       ------
                <S>                                                        <C>          <C>          <C>          <C>

                Revenues:
                  Product and license fees                                   87.9%        90.9%        88.9%        90.7%
                  Services                                                   12.1          9.1         11.1          9.3
                                                                           ------       ------       ------       ------
                    Total revenues                                          100.0        100.0        100.0        100.0
                Cost of revenues:
                  Product and license fees                                   19.3         22.2         19.4         23.1
                  Services                                                    5.9          6.6          5.6          6.5
                                                                           ------       ------       ------       ------
                    Total cost of revenues                                   25.2         28.8         25.0         29.6
                                                                           ------       ------       ------       ------
                Gross profit                                                 74.8         71.2         75.0         70.4
                Operating expenses:
                  Research and development                                   22.2         20.0         21.7         20.7
                  Sales and marketing                                        13.1         10.3         12.3         11.3
                  General and administrative                                  8.1          8.2          7.9          8.4
                                                                           ------       ------       ------       ------
                    Total operating expenses                                 43.4         38.5         41.9         40.4
                                                                          -------      -------      -------      -------
                Income from operations                                       31.4         32.7         33.1         30.0
                Other income                                                  5.1         25.3*         5.4         10.7*
                                                                          -------      -------      -------      -------
                Income before provision for income taxes                     36.5         58.0         38.5         40.7
                Provision for income taxes                                   12.0         20.2         13.0         14.0
                                                                          -------      -------      -------      -------
                Net income                                                   24.5%        37.8%        25.5%        26.7%
                                                                          =======      =======      ========     =======

                * includes one-time gain from sale of wireless data assets in September 1999

</TABLE>
                                                      Page 11 of 24
<PAGE>

             REVENUES

             PRODUCT AND LICENSE FEES. Revenues from product and license fees
             increased 38.0% to $36.4 million for the three months ended
             September 30, 2000 from $26.4 million for the three months ended
             September 30, 1999. For the nine months ended September 30, 2000,
             revenues from product and license fees increased 39.7% to $98.9
             million from $70.8 million for the nine months ended September 30,
             1999. The growth in revenues from product and license fees is
             primarily due to an increase in unit sales during the three and
             nine months ended September 30, 2000.

             SERVICES. Revenues from services increased 90.3% to $5.0 million
             for the three months ended September 30, 2000 from $2.6 million for
             the three months ended September 30, 1999. For the nine months
             ended September 30, 2000, revenues from services increased 69.8% to
             $12.3 million from $7.3 million for the nine months ended September
             30, 1999. The increase in services revenues is primarily related to
             product support services associated with a larger installed
             customer base.

             CONCENTRATION OF REVENUES. For the three months ended September 30,
             2000, we had one customer that accounted for more than 10% of total
             revenues. For the nine months ended September 30, 2000, we had two
             customers that each accounted for more than 10% of total revenues.

             INTERNATIONAL REVENUES. For the three months ended September 30,
             2000, international revenues accounted for 51.7% of total revenues
             compared to 50.2% of total revenues for the three months ended
             September 30, 1999. For the nine months ended September 30, 2000,
             international revenues accounted for 52.0% of total revenues
             compared to 51.0% of total revenues for the nine months ended
             September 30, 1999.

             COST OF REVENUES

             PRODUCT AND LICENSE FEES. Cost of product and license fees consists
             primarily of hardware expenses and personnel costs related to the
             manufacturing, integration and installation of our products. Cost
             of product and license fees was $8.0 million and $6.5 million,
             representing 22.0% and 24.5% of product and license fee revenues,
             for the three months ended September 30, 2000 and 1999,
             respectively. For the nine months ended September 30, 2000 and
             1999, cost of product and license fees was $21.5 million and $18.1
             million, representing 21.8% and 25.5% of product and license fee
             revenues, respectively. The increase in dollar amounts for both the
             three and nine months ended September 30, 2000 resulted primarily
             from additional material costs associated with higher unit sales.
             The decrease as a percentage of product and license fee revenues
             was primarily attributable to a higher percentage of revenues being
             derived from more profitable expansions of existing systems versus
             new system installations, as well as scale efficiencies achieved in
             production and implementation activities.

             SERVICES. Cost of services consists of expenses, primarily
             personnel costs, related to product support, training, and warranty
             and non-warranty work. Cost of services was $2.4 million and $1.9
             million, representing 48.4% and 72.3% of services revenues, for the
             three months ended September 30, 2000 and 1999, respectively. For
             the nine months ended September 30, 2000 and 1999, cost of services
             was $6.3 million and $5.1 million, representing 51.1% and 69.6% of
             services revenues, respectively.

             OPERATING EXPENSES

                  RESEARCH AND DEVELOPMENT EXPENSES

             Research and development expenses consist primarily of personnel
             costs, including contract labor, travel and facilities expenses,
             and other compensation expenses associated with our research and
             development activities. These expenses increased to $9.2 million
             for the three months ended September 30, 2000 from $5.8 million for
             the three months ended September 30, 1999. The increase was
             primarily due to increased staffing dedicated to research and
             development activities. Research and development expenses as a
             percentage of total revenues were 22.2% and 20.0% for the three
             months ended September 30, 2000 and 1999, respectively.


                                  Page 12 of 24
<PAGE>

             For the nine months ended September 30, 2000, research and
             development expenses increased to $24.1 million from $16.2 million
             for the comparable prior-year period, primarily due to additional
             staffing and related personnel costs. Research and development
             expenses as a percentage of total revenues were 21.7% and 20.7% for
             the nine months ended September 30, 2000 and 1999, respectively.

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

                  SALES AND MARKETING EXPENSES

             Sales and marketing expenses consist primarily of personnel, travel
             and facilities expenses related to sales and marketing activities,
             distributor commissions, and expenses for trade shows and
             advertising. These expenses increased to $5.4 million for the three
             months ended September 30, 2000 from $3.0 million for the three
             months ended September 30, 1999. The increase was primarily related
             to continued expansion of our direct sales force, increased
             commissions and increased international sales activities. Sales and
             marketing expenses as a percentage of total revenues were 13.1% and
             10.3% for the three months ended September 30, 2000 and 1999,
             respectively.

             Sales and marketing expenses increased to $13.6 million for the
             nine months ended September 30, 2000 from $8.8 million for the nine
             months ended September 30, 1999. The increase was primarily related
             to the expansion of our direct sales force, increased commissions
             and increased international sales activities. Sales and marketing
             expenses as a percentage of total revenues were 12.3% and 11.3% for
             the nine months ended September 30, 2000 and 1999, respectively.

                  GENERAL AND ADMINISTRATIVE EXPENSES

             General and administrative expenses consist primarily of personnel,
             facilities and other costs of our finance, administrative and
             executive departments, as well as fees and expenses associated with
             legal and accounting requirements. These expenses increased to $3.4
             million for the three months ended September 30, 2000 from $2.4
             million for the three months ended September 30, 1999. The increase
             was primarily related to increased staffing levels and facilities
             expansion efforts associated with the growth of our business.
             General and administrative expenses as a percentage of total
             revenues were 8.1% and 8.2% for the three months ended September
             30, 2000 and 1999, respectively.

             General and administrative expenses increased to $8.8 million for
             the nine months ended September 30, 2000 from $6.5 million for the
             nine months ended September 30, 1999. The increase was primarily
             related to increased staffing levels and facilities expansion
             efforts associated with the growth of our business, and increased
             administrative costs related to being a public company. General and
             administrative expenses as a percentage of total revenues were 7.9%
             and 8.4% for the nine months ended September 30, 2000 and 1999,
             respectively.

             OTHER INCOME

             Other income is primarily interest income earned on our cash and
             cash equivalents. Other income was $2.1 million for the three
             months ended September 30, 2000 compared to $7.3 million for the
             three months ended September 30, 1999. Other income was $6.0
             million for the nine months ended September 30, 2000 compared to
             $8.3 million for the nine months ended September 30, 1999. For both
             the three and nine months ended September 30, 2000, the decrease
             resulted from a $6.0 million gain on the sale of our wireless data
             assets realized in the third quarter of 1999. Excluding this
             one-time gain, the increase in other income for the three months
             ended September 30, 2000, was from increased interest earned on
             higher balances of cash and cash equivalents, which resulted from
             proceeds from the issuance of stock under our employee stock option
             and stock purchase plans and increased income from operations.


                                  Page 13 of 24
<PAGE>

             Excluding this one-time gain, the increase in other income for the
             nine months ended September 30, 2000, was from increased interest
             earned on higher balances of cash and cash equivalents, which
             resulted from proceeds from our initial public offering completed
             in June 1999, proceeds from issuance of stock under our employee
             stock option and stock purchase plans and increased income from
             operations.

             PROVISION FOR INCOME TAXES

             The effective income tax rate for the three months ended September
             30, 2000 was 33.0% compared to 34.8% for the three months ended
             September 30, 1999. The effective income tax rate for the nine
             months ended September 30, 2000 was 33.7% compared to 34.4% for the
             nine months ended September 30, 1999. The slight decrease in our
             effective tax rate was due to changes in the estimated impact on
             our effective rate of the major components of our tax provision,
             including the benefits we receive from our foreign sales
             corporation and research and development credits, and the impact of
             state income and other tax items.

             LIQUIDITY AND CAPITAL RESOURCES

             Since our inception, we have funded our operations and met our
             capital expenditure requirements primarily through cash flows from
             operations and bank borrowings. We had working capital of $149.5
             million at September 30, 2000, compared with $123.9 million at
             December 31, 1999. At September 30, 2000, we had $142.4 million in
             cash and cash equivalents, an increase of $14.5 million from $127.9
             million in cash and cash equivalents at December 31, 1999. The
             increase in cash and cash equivalents is attributable to higher
             levels of income from operations and proceeds from the issuance of
             common stock upon the exercise of stock options and purchases under
             our employee stock purchase plan.

             We have a credit facility with a bank providing for borrowings of
             up to $10.0 million. This credit facility will expire on June 15,
             2001. Up to $5.0 million may be utilized to support letters of
             credit. The per annum usage fee on unused portions of the line is
             0.125%. Borrowings under this facility are collateralized by our
             accounts receivable, inventories and property and equipment and
             bear interest payable quarterly at LIBOR plus a margin, determined
             by our level of indebtedness, ranging from 0.25% to 0.5% for United
             States dollar borrowings and 1.25% to 1.5% for Eurodollar
             borrowings. The credit facility includes covenants requiring us to
             maintain certain financial ratios and restricts the payment of cash
             dividends without the bank's consent. At September 30, 2000, no
             amounts were outstanding under the credit facility, and the amount
             available to us, after considering outstanding letters of credit,
             was $9.8 million.

             Net cash provided by operating activities was $20.9 million for the
             nine months ended September 30, 2000, compared to $40.2 million
             during the same period in 1999. Net cash provided by operating
             activities resulted primarily from net income and changes in
             components of working capital. The decline in cash provided by
             operating activities for the nine months ended September 30, 2000,
             compared to the nine months ended September 30, 1999, was
             attributable to changes in working capital accounts, including the
             increase in accounts receivable, the increase in inventory and the
             decrease in deferred revenue. The increase in accounts receivable
             is due to the overall growth in the business and is reflected by
             the increased revenues. The increase in inventory also reflects the
             higher level of business. The change in deferred revenue is a
             function of the timing of and the magnitude of the billing
             milestones on specific contracts.

             Net cash used in investing activities was $9.7 million for the nine
             months ended September 30, 2000 compared to net cash provided by
             investing activities of $3.7 million during the same period in
             1999. Net cash used in investing activities for the nine months
             ended September 30, 2000 related to purchases of property and
             equipment. Net cash provided by investing activities for the nine
             months ended September 30, 1999 resulted from proceeds from the
             sale of our wireless data assets of $7.0 million less cash used to
             purchase property and equipment of $3.3 million.

             Net cash provided by financing activities was $3.3 million for the
             nine months ended September 30, 2000, resulting from proceeds from
             the issuance of common stock upon the exercise of stock options and


                                  Page 14 of 24
<PAGE>

             purchases under our employee stock purchase plan. Net cash provided
             by financing activities was $56.0 for the same period in 1999,
             resulting from proceeds from the issuance of common stock in our
             initial public offering and from proceeds from the issuance of
             common stock upon the exercise of stock options.

             In January 2000, we signed a ten-year lease agreement for our
             primary company facilities in Richardson, Texas. We estimate that
             our remaining commitment for leasehold improvements for this office
             space, as well as new expansions to additional floors, is between
             $5.0 million and $6.0 million. Our current cash balances are
             sufficient to cover these estimated capital expenditures.

             Any material acquisition or joint venture could result in a
             decrease in our working capital, depending on the amount, timing
             and nature of the consideration to be paid. Absent any such
             acquisition or joint venture, we anticipate that current cash
             balances, potential cash flows from operations and available
             borrowings under our revolving credit facility will be sufficient
             to meet our anticipated cash needs for working capital, capital
             expenditures and other activities for at least the next 12 months.
             Thereafter, if current sources are not sufficient to meet our
             needs, we may seek additional equity or debt financing. In
             addition, any material acquisition of complementary businesses,
             products or technologies or material joint venture could require us
             to obtain additional equity or debt financing. There can be no
             assurance that additional financing would be available on
             acceptable terms, if at all.

             RISK FACTORS

             OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND ARE DIFFICULT TO
             PREDICT.

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

                  -        the size and timing of specific orders by customers;

                  -        competition;

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

                  -        the mix of products and services sold by us;

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

                  -        in limited circumstances, the timing of customer
                           acceptance of products we deliver to them;

                  -        the capital spending patterns of our customers;

                  -        the mix of domestic and international sales;

                  -        the mix of new installations and system expansions;

                  -        changes in the timing of and level of expenses;

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

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

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


                                  Page 15 of 24
<PAGE>

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

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

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

                  -        defects and product quality problems;

                  -        intellectual property disputes;

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

                  -        changes in general economic conditions.

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

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

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

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

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

             We have derived substantially all of our revenues from sales of
             products and related services to the telecommunications industry.
             The telecommunications industry has undergone a period of rapid
             growth and consolidation during the past few years. Our business,
             financial condition and results of operations could be materially
             and adversely affected in the event of a significant slowdown in
             the growth of this industry. Further, consolidations of our current
             or prospective customers may delay or cause cancellations of
             significant sales of our products, which could harm our operating
             results in a particular period.

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

             Future growth in the markets for our products will depend in part
             on privatization, deregulation and the restructuring of
             telecommunications markets worldwide. Any reversal or slowdown in
             the pace of this


                                  Page 16 of 24
<PAGE>

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

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

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

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

             Our two principal products, GeoProbe and Spectra, generate
             substantially all of our revenues and are expected to continue to
             account for a substantial majority of our revenues for the
             foreseeable future. Any downturn in the demand for either or both
             of these products could have a material adverse effect on our
             business, financial condition and results of operations. Moreover,
             we cannot assure you that we will be successful in developing any
             other products or taking any other steps to reduce the risk
             associated with any slowdown in demand for GeoProbe and Spectra.

             IF THE MARKET FOR SS7 AND CONVERGING NETWORK SOLUTIONS FAILS TO
             GROW OR GROWS MORE SLOWLY THAN WE ANTICIPATE, OUR OPERATING RESULTS
             COULD BE HARMED.

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

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

             The market for signaling-based communications network management
             applications is relatively new, intensely competitive, both in the
             U.S. and internationally, and subject to rapid technological
             change, evolving industry standards and regulatory developments.
             Competition is expected to persist, intensify and increase in the
             future. We compete with a number of U.S. and international
             suppliers that vary in size and in the scope and breadth of the
             products and services offered. GeoProbe principally competes with
             products offered by Agilent Technologies. Our diagnostic tools
             principally compete with products offered by Agilent Technologies,
             Tekelec and Tektronix, Inc. Some of our competitors have, in
             relation to our company, longer operating histories, larger
             installed customer bases, longer-standing relationships with
             customers, greater name recognition and significantly greater
             financial, technical, marketing, customer service, public
             relations, distribution and other resources. Additionally, it is
             possible that new competitors or alliances among competitors could
             emerge and rapidly acquire significant market share. As a result,
             these competitors may be able to more quickly develop or adapt to
             new or emerging technologies and changes in customer requirements,
             or devote greater resources to the development, promotion and sale
             of their products. Increased competition is likely to result in
             price reductions, reduced margins and loss of


                                  Page 17 of 24
<PAGE>

             market share. The competitive pressures we face could harm our
             business, financial condition and results of operations.

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

             We have experienced rapid and significant growth that has placed,
             and is expected to continue to place, a significant strain on our
             management, information systems and operations. For example, our
             revenues have increased from $17.5 million in 1995 to $110.0
             million in 1999 and $111.2 million for the nine months ended
             September 30, 2000. The number of our employees has increased from
             116 at December 31, 1995 to 457 at December 31, 1999 and 594 at
             September 30, 2000. Our ability to effectively manage significant
             additional growth will require us to improve our financial,
             operational and management information and control systems and
             procedures and to effectively attract, train, motivate and manage
             our employees. The failure to manage growth effectively could harm
             our business, financial condition and results of operations.

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

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

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

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

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

                  -        enhance our network optimization and diagnostic
                           products;

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

                  -        address evolving industry protocol standards and
                           changing customer needs; and

                  -        achieve broad market acceptance for our products.


                                  Page 18 of 24
<PAGE>

             We cannot assure you that we will achieve these objectives.

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

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

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

             Our international operations are subject to the risks inherent in
             international business activities. Revenues from customers located
             outside of the U.S. represented 52.0% of our total revenues for the
             nine months ended September 30, 2000 and 51.7%, 52.2% and 52.6% of
             our total revenues in 1999, 1998 and 1997, respectively. We believe
             that continued growth and profitability will require expansion of
             our efforts in international markets. This expansion may be costly
             and time-consuming and may not generate returns for a significant
             period of time, if at all. The risks inherent in international
             operations include:

                  -        management of geographically dispersed operations;

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

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

                  -        general economic conditions in each country;

                  -        currency controls and exchange rate fluctuations;

                  -        seasonal reductions in business activity specific to
                           certain markets;

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

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

                  -        greater difficulty in safeguarding intellectual
                           property;

                  -        import and export licensing requirements;

                  -        trade restrictions; and

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

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


                                  Page 19 of 24
<PAGE>

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

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

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

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

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

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

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


                                  Page 20 of 24
<PAGE>

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

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

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

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

             OUR LIMITED ABILITY OR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY
             MAY ADVERSELY AFFECT OUR ABILITY TO COMPETE.

             Our continued success is dependent in part upon our proprietary
             technology. To protect our proprietary technology, we rely on a
             combination of technical innovation, trade secret, copyright and
             trademark laws, non-disclosure agreements and, to a lesser extent,
             patents, each of which affords only limited protection. In
             addition, the laws of some foreign countries do not protect our
             proprietary rights in the products to the same extent as do the
             laws of the U.S. Despite the measures taken by us, it may be
             possible for a third party to copy or otherwise obtain and use our
             proprietary technology and information without authorization.
             Policing unauthorized use of our products is difficult, and
             litigation may be necessary in the future to enforce our
             intellectual property rights. Any litigation could be time
             consuming and expensive to prosecute or resolve, result in
             substantial diversion of management resources, and have a material
             adverse effect on our business, financial condition and results of
             operations. We cannot assure you that we will be successful in
             protecting our proprietary technology or that our proprietary
             rights will provide us a meaningful competitive advantage.

             WE MAY FACE POTENTIAL LIABILITY FOR PRODUCT DEFECTS.

             Products as complex as those we offer may contain undetected
             defects or errors when first introduced or as enhancements are
             released that, despite our testing, are not discovered until after
             a product has been


                                  Page 21 of 24
<PAGE>

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

             OUR PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS OWN
             APPROXIMATELY 80% OF OUR COMMON STOCK, WHICH ALLOWS THEM TO CONTROL
             THE MANAGEMENT AND AFFAIRS OF OUR COMPANY OR PREVENT A CHANGE OF
             CONTROL.

             As of September 30, 2000, our three founders, Samuel S. Simonian,
             Elie S. Akilian and Mark A. Weinzierl, beneficially owned
             approximately 80% of the outstanding shares of our common stock.
             Consequently, two or more of these individuals, acting together,
             could control the outcome of all matters submitted for stockholder
             action, including the election of our board of directors and the
             approval of significant corporate transactions, and could
             effectively control the management and affairs of our company,
             which could have the effect of delaying or preventing a change in
             control of our company. In addition, Messrs. Simonian, Akilian and
             Weinzierl constitute three of the six members of our board of
             directors and could have significant influence in directing the
             actions taken by our board.

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

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

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

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

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

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

                  -        variations in our results of operations;

                  -        future sales of common stock;

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


                                  Page 22 of 24
<PAGE>

                  -        market analysts' estimates of our performance

                  -        general market and economic conditions; and

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

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

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

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

             We are exposed to immaterial levels of market risk. Revenues from
             customers located outside of the U.S. represented 52.0% of our
             total revenues for the nine months ended September 30, 2000 and
             51.7%, 52.2% and 52.6% of our total revenues in 1999, 1998 and
             1997, respectively. To date, a very high percentage of
             international revenues have been denominated in U.S. dollars, and
             accordingly, we have not been significantly exposed to fluctuations
             in currency exchange rates.

             Our international business is subject to the typical risks of any
             international business, including, but not limited to, the risks
             described in Item 2 - Management's Discussion and Analysis of
             Financial Condition and Results of Operations - Risk Factors.
             Accordingly, our future results could be materially adversely
             impacted by changes in these or other factors.

             Currently, our cash is currently solely invested in money market
             funds denominated in U.S. dollars. We account for these investments
             in accordance with SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
             IN DEBT AND EQUITY SECURITIES. These cash equivalents are treated
             as available-for-sale under SFAS No. 115.

PART II.     OTHER INFORMATION

ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS

             As of September 30, 2000, we have used all of the net offering
             proceeds for the purchase of temporary investments, consisting of
             cash, cash equivalents, and short-term investments. We currently
             intend 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. We also may 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 our
             business and product offerings; however, at this time we have not
             identified a specific acquisition or joint venture or allocated a
             specific amount for this purpose.

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

             (a)  Exhibits

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

                   27.0            Financial Data Schedule (for SEC information
                                   only)

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


                                  Page 23 of 24
<PAGE>

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

                      INET TECHNOLOGIES, INC.


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


Date:  November 7, 2000




























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