<PAGE>

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

                                    FORM 10-Q



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

                  For the quarterly period ended March 31, 2000

                                       OR

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

                         Commission File Number 0-24707

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

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


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


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


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

Yes  X   No
    ---      ----

Number of shares of common stock of registrant outstanding at May 10, 2000:
46,088,659

                                 Page 1 of 23
<PAGE>

                             INET TECHNOLOGIES, INC.
                                      INDEX

<TABLE>
<CAPTION>


                                                                                                   PAGE NO.
                                                                                                   --------
<S>      <C>                                                                                          <C>
Part I - Financial Information (Unaudited)
         Item 1.  Financial Statements
                  Consolidated Balance Sheets ...................................................     3
                  Consolidated Statements of Income .............................................     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.....................     21

Part II - Other Information

         Item 2.  Changes in Securities and Use of Proceeds .....................................     22

         Item 6.  Exhibits and Reports on Form 8-K...............................................     22
Signatures        ...............................................................................     22


</TABLE>

                                 Page 2 of 23
<PAGE>


PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                             INET TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)


<TABLE>
<CAPTION>

                                     ASSETS
                                                                                                   MARCH 31,        DECEMBER 31,
                                                                                                     2000               1999
                                                                                                  ------------      -------------
                                                                                                          (In thousands,
                                                                                                        except share data)
    <S>                                                                                           <C>                <C>
    Current assets:
      Cash and cash equivalents.............................................................      $    140,477       $   127,903
      Trade accounts receivable, net of allowance for doubtful accounts of $939 at March 31,
        2000 and December 31, 1999..........................................................            19,665            20,781
      Unbilled receivables..................................................................             4,091             2,196
      Inventories...........................................................................             6,113             5,893
      Deferred income taxes.................................................................             2,023             2,318
      Other current assets..................................................................             1,337             1,312
                                                                                                  ------------       -----------
              Total current assets..........................................................           173,706           160,403
    Property and equipment, net.............................................................             9,489             9,324
    Deferred income taxes...................................................................                35                 6
    Other assets............................................................................               190               184
                                                                                                  ------------       -----------
              Total assets..................................................................      $    183,420       $   169,917
                                                                                                  ============       ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Accounts payable......................................................................      $      1,947       $     2,599
      Accrued compensation and benefits.....................................................             3,586             5,252
      Deferred revenue......................................................................            27,806            26,432
      Taxes payable.........................................................................             4,149               213
      Other accrued liabilities.............................................................             1,933             1,998
                                                                                                  ------------       -----------
              Total current liabilities.....................................................            39,421            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 -- 46,080,659 at March 31, 2000 and
           45,312,759 at December 31, 1999..................................................                46                45
      Additional paid-in capital............................................................            59,521            57,693
      Unearned compensation.................................................................              (176)             (233)
      Retained earnings.....................................................................            84,608            75,918
                                                                                                  ------------       -----------
              Total stockholders' equity....................................................           143,999           133,423
                                                                                                  ------------       -----------
              Total liabilities and stockholders' equity....................................      $    183,420       $   169,917
                                                                                                  ============       ===========

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

                                 Page 3 of 23
<PAGE>

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

<TABLE>
<CAPTION>

                                                                                THREE MONTHS ENDED
                                                                                      MARCH 31,
                                                                             ------------------------
                                                                                 2000         1999
                                                                             ----------    ----------
                                                                                 (In thousands, except
                                                                                    per share data)
                      <S>                                                    <C>           <C>
                      Revenues..........................................     $   32,961    $   23,239
                      Cost of revenues..................................          7,759         7,125
                                                                              ---------     ---------
                                Gross profit............................         25,202        16,114
                      Operating expenses:
                        Research and development........................          7,103         4,852
                        Sales and marketing.............................          4,231         2,958
                        General and administrative......................          2,459         2,030
                                                                               --------    ----------
                                                                                 13,793         9,840
                                                                               --------    ----------
                                Income from operations..................         11,409         6,274
                      Other income (expense):
                        Interest income.................................          1,772           342
                        Other expense...................................            (14)          (19)
                                                                              ---------    ----------
                                                                                  1,758           323
                                                                              ---------     ---------
                                Income before provision for income
                                  taxes.................................         13,167         6,597
                      Provision for income taxes........................          4,477         2,243
                                                                             ----------    ----------
                                Net income..............................     $    8,690    $    4,354
                                                                             ==========    ==========

                      Earnings per common share:
                                Basic...................................     $     0.19    $     0.11
                                                                             ==========    ==========
                                Diluted.................................     $     0.19    $     0.10
                                                                             ==========    ==========

                      Weighted-average shares outstanding:
                                Basic...................................         45,895        40,896
                                                                             ==========    ==========
                                Diluted.................................         46,823        42,638
                                                                             ==========    ==========
</TABLE>

              See accompanying notes to consolidated financial statements.

                                 Page 4 of 23
<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              767,900       1          1,828           --            --        1,829
             purchase plans.............
           Net income...................             --       --             --           --         8,690        8,690
           Stock option compensation....             --       --             --           57            --           57
                                              ---------     ----        -------       ------       -------     -------
         Balance at March 31, 2000......      46,080,659    $ 46        $59,521       $ (176)      $84,608     $143,999
                                              ==========    ====        =======       ======       =======     ========

</TABLE>

          See accompanying notes to consolidated financial statements.

                                 Page 5 of 23
<PAGE>

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


<TABLE>
<CAPTION>

                                                                                  THREE MONTHS ENDED
                                                                                        MARCH 31,
                                                                                  ------------------
                                                                                    2000      1999
                                                                                  --------   ------
                                                                                    (In thousands)
                      <S>                                                         <C>        <C>
                      CASH FLOWS FROM OPERATING ACTIVITIES:
                      Net income..........................................        $  8,690   $ 4,354
                      Adjustments to reconcile net income to net cash
                      provided by operating activities:
                        Depreciation......................................           1,129       964
                        Deferred income taxes.............................             266        67
                        Issuance of common stock and stock options charged
                         to expense.......................................              57        57
                        Change in operating assets and liabilities:
                           Decrease in trade accounts receivable..........           1,116     7,278
                           Increase in unbilled receivables...............          (1,895)     (382)
                           Increase in inventories........................            (220)     (458)
                           Increase in other assets.......................             (31)     (208)
                           Increase (decrease) in accounts payable........            (652)      174
                           Increase in taxes payable......................           3,936     2,217
                           Decrease in accrued compensation and benefits..          (1,666)     (752)
                           Increase in deferred revenue...................           1,374     8,558
                           Increase (decrease) in other accrued liabilities            (65)      373
                                                                                  ---------  -------
                      Net cash provided by operating activities...........          12,039    22,242
                      CASH FLOWS FROM INVESTING ACTIVITIES:
                      Purchases of property and equipment.................          (1,294)     (993)
                                                                                  ---------  -------
                      Net cash used in investing activities...............          (1,294)     (993)
                      CASH FLOWS FROM FINANCING ACTIVITIES:
                      Proceeds from issuance of common stock upon exercise
                         of stock options and purchases under employee
                         stock purchase plan..............................           1,829        --
                                                                                  --------   -------
                      Net cash provided by financing activities...........           1,829        --
                                                                                  --------   -------
                      Net increase in cash and cash equivalents...........          12,574    21,249
                      Cash and cash equivalents at beginning of period....         127,903    21,914
                                                                                  --------   -------
                      Cash and cash equivalents at end of period..........        $140,477   $43,163
                                                                                  ========   =======
                      SUPPLEMENTAL DISCLOSURES:
                         Interest paid....................................      $       --   $      --
                                                                                ==========   =========
                         Income taxes paid................................      $       51   $      --
                                                                                ==========   =========

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

                                 Page 6 of 23
<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-month period ended March 31,
             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 March 31, 2000 and December 31, 1999, inventories
             consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                                                          MARCH 31,      DECEMBER 31,
                                                                            2000            1999
                                                                        ------------    -----------
                               <S>                                      <C>             <C>
                               Raw materials....................        $      2,329    $     1,791
                               Work-in-process..................                 429            241
                               Finished goods...................               3,355          3,861
                                                                        ------------    -----------
                                                                        $      6,113    $     5,893
                                                                        ============    ===========
</TABLE>

                                 Page 7 of 23
<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. Based on the
             guidance received to date, we believe our revenue recognition
             policies are in compliance with SAB 101.

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

             Product revenues are generally 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 by us. When we
             have significant obligations subsequent to shipment (for example,
             installation and system integration), revenues are not recognized
             prior to the time the product has been delivered and installed at
             the customer's premises and there are no significant unfulfilled
             obligations. Revenues from arrangements that include significant
             acceptance terms are not recognized until acceptance has occurred.

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

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

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

             ACCOUNTING ESTIMATES

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

   NOTE 2 -  RELATED PARTY TRANSACTION

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

                                 Page 8 of 23

<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
                                                                                     MARCH 31,
                                                                               ------------------
                                                                                  2000     1999
                                                                               --------  --------
                                 <S>                                          <C>         <C>
                                 Numerator:
                                   Net income for basic and diluted
                                     earnings per share...................    $  8,690    $  4,354
                                                                               =======    ========
                                 Denominator:
                                   Denominator for basic earnings per
                                    share -- weighted-average shares.......     45,895      40,896
                                  Effect of dilutive securities:
                                   Employee stock options and purchase
                                     rights................................        928       1,742
                                                                              --------    --------
                                  Dilutive potential common shares.........        928       1,742
                                                                              --------    --------
                                  Denominator for diluted earnings
                                   per share -- adjusted
                                   weighted-average shares.................     46,823      42,638
                                                                               =======    ========
                                 Basic earnings per common share...........   $   0.19     $  0.11
                                                                               =======    ========
                                 Diluted earnings per common share.........   $   0.19     $  0.10
                                                                               =======    ========
</TABLE>

   NOTE 4 -  COMPREHENSIVE INCOME

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

   NOTE 5 -  SEGMENT INFORMATION

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

<TABLE>
<CAPTION>

                                                                                THREE MONTHS ENDED
                                                                                     MARCH 31,
                                                                             ----------------------
                                                                                 2000          1999
                                                                             ----------   ---------
                               <S>                                              <C>          <C>
                               United States............................         60.6%         52.4%
                               Export:
                                 Asia/Pacific...........................          8.1           4.8
                                 Europe, Middle East and Africa.........         26.3          38.0
                                 Other..................................          5.0           4.7
                                                                               ------       -------
                                         Total export revenue                    39.4          47.6
                                                                               ------       -------
                                                                                100.0%        100.0%
                                                                               ======       =======
</TABLE>

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

                                 Page 9 of 23
<PAGE>





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

             FORWARD-LOOKING STATEMENTS

             THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING
             STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT
             OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
             OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN HISTORICAL OR
             CURRENT FACTS, INCLUDING, WITHOUT LIMITATION, STATEMENTS ABOUT OUR
             BUSINESS, FINANCIAL CONDITION, BUSINESS STRATEGY, PLANS AND
             OBJECTIVES OF MANAGEMENT AND OUR FUTURE PROSPECTS ARE
             FORWARD-LOOKING STATEMENTS. ALTHOUGH WE BELIEVE THAT THE
             EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
             REASONABLE, SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS
             AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
             MATERIALLY FROM THESE EXPECTATIONS. SUCH RISKS AND UNCERTAINTIES
             INCLUDE, WITHOUT LIMITATION, CHANGES IN PRODUCT DEMAND, THE
             AVAILABILITY OF PRODUCTS, CHANGES IN COMPETITION, FOREIGN RISKS,
             ECONOMIC CONDITIONS, CHANGES IN TAX RISKS, AND OTHER RISKS
             INDICATED BELOW UNDER THE CAPTION "RISK FACTORS" AND IN OUR OTHER
             FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE RISKS
             AND UNCERTAINTIES ARE BEYOND OUR CONTROL AND, IN MANY CASES, WE
             CANNOT PREDICT THE RISKS AND UNCERTAINTIES THAT COULD CAUSE
             OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE
             FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS QUARTERLY REPORT, THE
             WORDS "BELIEVES," "PLANS," "EXPECTS," "ANTICIPATES," "INTENDS,"
             "CONTINUE," "MAY," "WILL," "SHOULD" OR THE NEGATIVE OF SUCH TERMS
             AND SIMILAR EXPRESSIONS AS THEY RELATE TO US OR OUR MANAGEMENT ARE
             INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.

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

             OVERVIEW

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

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

             RESULTS OF OPERATIONS

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

                                 Page 10 of 23
<PAGE>

             ended March 31, 2000 are not necessarily indicative of the
             results that may be expected for any future periods.

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED
                                                                                            MARCH 31,
                                                                                     --------------------
                                                                                       2000          1999
                                                                                     --------    --------
                           <S>                                                         <C>          <C>
                           Revenues                                                    100.0%       100.0%
                           Cost of revenues                                             23.5         30.7
                                                                                     -------      -------
                             Gross profit                                               76.5         69.3
                                                                                     -------      -------
                           Operating expenses:
                             Research and development                                   21.6         20.9
                             Sales and marketing                                        12.8         12.7
                             General and administrative                                  7.5          8.7
                                                                                     -------      -------
                              Total operating expenses                                  41.9         42.3
                                                                                     -------      -------
                           Income from operations                                       34.6         27.0
                           Other income                                                  5.4          1.4
                                                                                     -------      -------
                           Income before provision for income taxes                     40.0         28.4
                           Provision for income taxes                                   13.6          9.7
                                                                                     -------      -------
                           Net income                                                   26.4%        18.7%
                                                                                     =======      =======
</TABLE>

             REVENUES

             Our revenues were $33.0 million for the three months ended March
             31, 2000, an increase of 41.8% over the $23.2 million reported for
             the three months ended March 31, 1999. The growth in revenues is
             primarily due to an increase in unit sales. For the three months
             ended March 31, 2000, international revenues accounted for 39.4% of
             total revenues compared to 47.6% for the three months ended March
             31, 1999. The decrease in international revenues as a percentage of
             total revenues was the result of several large, domestic GeoProbe
             deployments. In the three months ended March 31, 2000, we had two
             customers that each accounted for slightly more than 10% of total
             revenues. We anticipate that in the future, individual, large
             transactions may represent a large percentage of revenues,
             particularly on a quarterly basis.

             COST OF REVENUES

             Cost of revenues consists primarily of hardware expenses and
             personnel costs related to the manufacturing, installation and
             support of our products. For the three months ended March 31, 2000,
             cost of revenues increased to $7.8 million from $7.1 million for
             the three months ended March 31, 1999. The increase in dollars
             resulted primarily from additional installation expenses and
             support expenses related to servicing our growing installed
             customer base. Cost of revenues represented 23.5% and 30.7% of
             revenues in the three months ended March 31, 2000 and 1999,
             respectively. The decrease as a percentage of revenues was
             primarily attributable to a higher percentage of revenues being
             derived from expansions of existing systems versus new
             installations. Generally, expansions of existing systems have lower
             hardware costs than new installations on a per transaction basis.
             We believe that for the remainder of 2000, cost of revenues as a
             percentage of revenues will be higher than the level experienced in
             the three months ended March 31, 2000.

             OPERATING EXPENSES

                  RESEARCH AND DEVELOPMENT EXPENSES

             Research and development expenses consist primarily of salaries and
             other compensation expenses associated with our research and
             development activities. These expenses increased to $7.1 million
             for the three months ended March 31, 2000 from $4.9 million for the
             three months ended March 31, 1999. The increase was primarily due
             to increased staffing dedicated to research and development
             activities. Research and development expenses as a percentage of
             revenues were 21.6% and 20.9% in the three months ended March 31,
             2000 and 1999, respectively. We expect that research and
             development

                                 Page 11 of 23
<PAGE>

             expenses in future periods will increase in absolute dollars as
             these investments are crucial to our ability to evolve our
             technologies and expand our product offerings to meet our
             customers' needs.

             Software development costs are expensed as incurred until
             technological feasibility has been established, at which time
             subsequent costs are 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 $4.2 million in the three
             months ended March 31, 2000 from $3.0 million in the three months
             ended March 31, 1999. The increase was primarily related to
             continued expansion of our direct sales force, increased
             international sales activities and increased marketing and
             promotional activities. Sales and marketing expenses as a
             percentage of revenues were 12.8% and 12.7% in the three months
             ended March 31, 2000 and 1999, respectively. We believe that sales
             and marketing expenses will continue to increase in absolute
             dollars and as a percentage of revenues through 2000 due to planned
             expansion of our domestic and international sales efforts.

                  GENERAL AND ADMINISTRATIVE EXPENSES

             General and administrative expenses consist primarily of personnel,
             facilities and other costs of our finance, administrative and
             executive departments as well as fees and expenses associated with
             legal and accounting requirements. These expenses increased to $2.5
             million for the three months ended March 31, 2000 from $2.0 million
             for the three months ended March 31, 1999. The increase was
             primarily related to increased staffing levels associated with the
             growth of our business and increased costs related to being a
             public company. General and administrative expenses as a percentage
             of revenues were 7.5% and 8.7% in the three months ended March 31,
             2000 and 1999, respectively. We anticipate that general and
             administrative expenses will continue to increase in absolute
             dollars but decrease as a percentage of revenues.

             OTHER INCOME

             Other income is primarily interest income earned on our cash and
             cash equivalents. Other income was $1.8 million for the three
             months ended March 31, 2000 compared to $300,000 for the three
             months ended March 31, 1999. The increase was due to higher
             balances of cash and cash equivalents, which resulted from
             increased cash flows from operations and proceeds from our initial
             public offering completed in June 1999.

             PROVISION FOR INCOME TAXES

             We recorded income tax expense of $4.5 million and $2.2 million in
             the three months ended March 31, 2000 and 1999, respectively. Our
             effective income tax rate for each period was 34.0%.

             LIQUIDITY AND CAPITAL RESOURCES

             Since our inception, we have funded our operations and met our
             capital expenditure requirements primarily through cash flows from
             operations and bank borrowings. We had working capital of $134.3
             million at March 31, 2000, compared with $123.9 million at December
             31, 1999. At March 31, 2000, we had $140.5 million in cash and cash
             equivalents, an increase of $12.6 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, increased taxes payable, increased deferred
             revenue, and

                                 Page 12 of 23
<PAGE>


             proceeds from the issuance of common stock upon the
             exercise of stock options and employee stock purchases.

             We have a line of credit facility with a bank providing for
             borrowings of up to $10.0 million which expires June 15, 2000. 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 bear interest payable quarterly at
             LIBOR plus 1.5% and are collateralized by our accounts receivable,
             inventories, and property and equipment. The credit facility
             includes covenants requiring us to maintain certain financial
             ratios and restricts the payment of cash dividends without the
             bank's consent. At March 31, 2000, no amounts were outstanding
             under the credit facility, and the amount available to us, after
             considering outstanding letters of credit, was $9.8 million.

             Net cash provided by operating activities was $12.0 million for the
             three months ended March 31, 2000, compared to $22.2 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.

             Net cash used in investing activities was $1.3 million for the
             three months ended March 31, 2000, compared to $1.0 million during
             the same period in 1999. Net cash used in investing activities was
             related to purchases of property and equipment.

             Net cash provided by financing activities was $1.8 million for the
             three months ended March 31, 2000 and $0 for the same period in
             1999, and resulted from proceeds from the issuance of common stock
             upon the exercise of stock options and purchases under our employee
             stock purchase plan.

             In January 2000, we signed a ten-year lease agreement for office
             space. We estimate that our commitment for leasehold improvements
             for this office space 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
             acquisitions and joint ventures, we anticipate that current cash
             balances, potential cash flows from operations and available
             borrowings under our revolving credit facility will be sufficient
             to meet our anticipated cash needs for working capital, capital
             expenditures and other activities for at least the next 12 months.
             Thereafter, if current sources are not sufficient to meet our
             needs, we may seek additional equity or debt financing. In
             addition, any material acquisition of complementary businesses,
             products or technologies or material joint venture could require us
             to obtain additional equity or debt financing. There can be no
             assurance that additional financing would be available on
             acceptable terms, if at all.

             RISK FACTORS

             OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND ARE DIFFICULT TO
             PREDICT.

             Since our future operating results are likely to vary significantly
             from quarter to quarter, you should not rely on our results of
             operations during any particular quarter as an indication of our
             future performance in any fiscal year or quarter 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;

                                 Page 13 of 23
<PAGE>

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

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

                   -         the capital spending patterns of our customers;

                   -         the mix of domestic and international sales;

                   -         changes in the timing of and level of expenses;

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

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

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

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

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

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

                   -         defects and product quality problems;

                   -         intellectual property disputes;

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

                   -         changes in general economic conditions.

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

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

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

                                 Page 14 of 23
<PAGE>

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

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

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

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

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

             The sales cycle for our products is long, typically ranging from
             six to 12 months for GeoProbe sales (excluding the cycle for
             subsequent applications and enhancements, which varies widely) and
             up to six 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.

                                 Page 15 of 23
<PAGE>

             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, a subsidiary of
             Hewlett-Packard Company. Our diagnostic tools principally compete
             with products offered by Agilent Technologies, Tekelec and
             Tektronix, Inc. There have been new entrants in both the network
             optimization and diagnostic product areas, but to date they do not
             comprise a significant portion of the market. Some of our
             competitors have, in relation to our company, longer operating
             histories, larger installed customer bases, longer-standing
             relationships with customers, greater name recognition and
             significantly greater financial, technical, marketing, customer
             service, public relations, distribution and other resources.
             Additionally, it is possible that new competitors or alliances
             among competitors could emerge and rapidly acquire significant
             market share. As a result, these competitors may be able to more
             quickly develop or adapt to new or emerging technologies and
             changes in customer requirements, or devote greater resources to
             the development, promotion and sale of their products. Increased
             competition is likely to result in price reductions, reduced
             margins and loss of market share. The competitive pressures we face
             could harm our business, financial condition and results of
             operations.

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

             We have experienced rapid and significant growth that has placed,
             and is expected to continue to place, a significant strain on our
             management, information systems and operations. For example, our
             revenues have increased from $17.5 million in 1995 to $110.0
             million in 1999. The number of our employees has increased from 116
             at December 31, 1995 to 457 at December 31, 1999 and 475 at March
             31, 2000. Our ability to effectively manage significant additional
             growth will require us to improve our financial, operational and
             management information and control systems and procedures and to
             effectively attract, train, motivate and manage our employees. The
             failure to manage growth effectively could harm our business,
             financial condition and results of operations.

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

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

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

                                 Page 16 of 23
<PAGE>


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

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

                  -         enhance our network optimization and diagnostic
                            products;

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

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

                  -         achieve broad market acceptance for our products.

             We cannot assure you that we will achieve these objectives.

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

             Our future success will depend in part on our ability to develop
             solutions for networks based on emerging technologies and
             standards, such as ATM and Internet telephony, 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 39.4% of our total revenues for the
             three months ended March 31, 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 sales efforts in international markets. This expansion may be
             costly and time-consuming and may not generate returns for a
             significant period of time, if at all. The risks inherent in
             international operations include:

                  -         management of geographically dispersed operations;

                  -         longer accounts receivable payment cycles;

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

                  -         general economic conditions in each country;

                  -         currency controls and exchange rate fluctuations;

                  -         seasonal reductions in business activity
                            particular to certain markets;

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

                                 Page 17 of 23
<PAGE>

                  -         foreign taxes and the overlap of different tax
                            structures;

                  -         greater difficulty in safeguarding intellectual
                            property;

                  -         import and export licensing requirements;

                  -         trade restrictions; and

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

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

             To date, international sales have been denominated solely in U.S.
             dollars, and accordingly we have not been 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 portion of
             international sales may be denominated in currencies other than
             U.S. dollars, thereby exposing us to gains and losses on non-U.S.
             currency transactions. We may choose to limit such exposure by
             entering into various hedging strategies. We cannot be certain that
             any hedging strategies that we undertake would be successful in
             avoiding exchange-related losses.

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

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

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

             We rely exclusively upon third-party subcontractors to manufacture
             our subassemblies. We also have retained, from time to time,
             third-party design services in the development of
             application-specific integrated circuits. Our reliance on
             third-party subcontractors involves a number of risks, including
             the potential absence of adequate capacity, the unavailability of
             or interruption in access to certain process

                                 Page 18 of 23
<PAGE>


             technologies, and reduced control over product quality, delivery
             schedules, manufacturing yields and costs. Any disruption in our
             relationships with third-party subcontractors and our inability
             to develop alternative sources if and as required in the future
             could result in delays or reductions in product shipments or
             increases in product costs.

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

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

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

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

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

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

                                 Page 19 of 23
<PAGE>


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

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

             WE MAY FACE POTENTIAL LIABILITY FOR PRODUCT DEFECTS.

             Products as complex as those we offer may contain undetected
             defects or errors when first introduced or as enhancements are
             released that, despite our testing, are not discovered until after
             a product has been installed and used by customers, which could
             result in delayed market acceptance of the product or damage to our
             reputation and business. To date, we have not been materially
             adversely affected by products containing defects or errors. We
             attempt to include provisions in our agreements with customers that
             are intended to limit our exposure to potential liability for
             damages arising out of defects or errors in or the use of 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 80.9% OF OUR COMMON STOCK, WHICH ALLOWS THEM TO
             CONTROL THE MANAGEMENT AND AFFAIRS OF OUR COMPANY OR PREVENT A
             CHANGE OF CONTROL.

             As of March 31, 2000, our three founders, Samuel S. Simonian, Elie
             S. Akilian and Mark A. Weinzierl, beneficially owned approximately
             80.9% 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.

                                 Page 20 of 23
<PAGE>


             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 staggered three-year terms, our stockholders
             are unable to take action by written consent and our stockholders
             are limited in their ability to make proposals at stockholder
             meetings.

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

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

                  -         variations in our results of operations;

                  -         future sales of common stock;

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

                  -         market analysts' estimates of our performance; and

                  -         general market and economic conditions.

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

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

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

             We are exposed to immaterial levels of market risk.

                                 Page 21 of 23
<PAGE>


PART II.    OTHER INFORMATION

ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS

             From January 1, 2000, through March 31, 2000, we issued 678,000
             shares of our common stock to employees pursuant to exercises of
             stock options under our stock option plans (with exercise prices
             ranging from $0.60 to $15.00 per share) and 89,900 shares pursuant
             to employee stock purchases under our employee stock purchase
             plan. These issuances were deemed exempt from registration under
             Section 5 of the Securities Act of 1933 in reliance upon Rule 701
             thereunder.

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

             (a)      Exhibits

<TABLE>
<CAPTION>

                  Exhibit
                  Number       Exhibit
                  -------      -------
                  <S>          <C>

                  10.1         Executive Employment Agreement, dated August 30, 1999, between
                               the registrant and Luis Pajares.

                  10.2         Letter agreement, dated January 31, 2000, between the
                               registrant and Jeffrey A. Kupp.

                  27           Financial Data Schedule (for SEC information only)

</TABLE>

(b) There were no reports filed on Form 8-K during the first quarter of 2000.

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

                        INET TECHNOLOGIES, INC.


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



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


Date:     May 15, 2000


                                 Page 22 of 23
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

                    Exhibit
                     Number                        Description
                    --------                       -----------
                       <S>          <C>
                       10.1         Executive Employment Agreement, dated August
                                    30, 1999, between the registrant and Luis
                                    Pajares

                       10.2         Letter agreement, dated January 31, 2000,
                                    between the registrant and Jeffrey A. Kupp

                       27           Financial Data Schedule

</TABLE>


                                 Page 23 of 23