================================================================================

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

                                    FORM 10-Q

(Mark One)
_X_  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the quarterly period ended September 27, 1998

                                       OR

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

For the transition period ended ______________________ or ______________________

Commission File Number 0-15323

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

             Delaware                                          94-2904044
    (State or other jurisdiction                           (I.R.S. Employer
         of incorporation or                            Identification Number)
            organization)

                            6500 Paseo Padre Parkway
                                Fremont, CA 94555
                                 (510) 713-7300
               (Address, including zip code, and telephone number
                      including area code, of registrant's
                          principal executive offices)

     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___

     The number of shares outstanding of the registrant's Common Stock, $.01 par
value, on September 27, 1998 was 21,341,167.

================================================================================

This document consists of 14 pages of which this is page 1.

<PAGE>


                      NETWORK EQUIPMENT TECHNOLOGIES, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                     Number
                                                                                     ------
<S>                                                                                    <C>
PART I.        FINANCIAL INFORMATION

     Item 1.   Consolidated Financial Statements

               Condensed Consolidated Balance Sheets -
               September 27, 1998 and March 31, 1998 .............................      3

               Condensed Consolidated Statements of Income - Quarter and
               Six Months ended September 27, 1998 and September 28, 1997 ........      4

               Condensed Consolidated Statements of Cash Flows - Six Months
               Ended September 27, 1998 and September 28, 1997 ...................      5

               Notes to Condensed Consolidated Financial Statements ..............      6

     Item 2.   Management's Discussion and Analysis of
               Results of Operations and Financial Condition .....................      8

PART II.       OTHER INFORMATION

     Item 4.   Submission of Matters to a Vote of Security Holders ...............     13

     Item 5.   Other Information .................................................     13

     Item 6.   Exhibits and Reports on Form 8-K ..................................     13

SIGNATURE.........................................................................     14
</TABLE>

                                       2.

<PAGE>


                      NETWORK EQUIPMENT TECHNOLOGIES, INC.
                      Condensed Consolidated Balance Sheets
                             (dollars in thousands)

<TABLE>
                                                                   September 27,      March 31,
                                                                       1998             1998
                                                                   -------------      ---------
                                                                    (unaudited)
<S>                                                                  <C>              <C>      
Assets
Current assets:
      Cash and cash equivalents                                      $  60,084        $  59,512
      Temporary cash investments                                        93,454          101,990
      Accounts receivable, net of allowances of $4,015 at
            September 27 and $3,926 at March 31                         64,085           71,714
      Inventories                                                       19,564           19,713
      Deferred income taxes                                              9,836            9,836
      Prepaid expenses and other assets                                  7,225            7,254
                                                                     ---------        ---------
      Total current assets                                             254,248          270,019
Property and equipment, net                                             56,196           42,657
Software production costs, net                                           5,984            5,491
Other assets                                                            13,664           16,390
                                                                     ---------        ---------
                                                                     $ 330,092        $ 334,557
                                                                     =========        =========

Liabilities and Stockholders' Equity
Current liabilities:
      Accounts payable                                               $  18,481        $  21,890
      Accrued liabilities                                               44,836           48,239
                                                                     ---------        ---------
           Total current liabilities                                    63,317           70,129
                                                                     ---------        ---------

Deferred income taxes                                                    1,200            1,954
7-1/4% convertible subordinated debentures                              25,186           25,821
Stockholders' equity:
      Preferred stock, $.01 par value
           Authorized:  5,000,000 shares,
           Outstanding:  none                                             --               --
      Common stock, $.01 par value
           Authorized:  50,000,000 shares
           Outstanding:  21,341,000 shares at September 27
             and 21,454,000 shares at March 31                             213              215
      Additional paid-in capital                                       179,276          176,452
      Treasury stock                                                    (5,849)          (1,430)
      Net unrealized gain on available-for-sale securities               2,439            3,759
      Cumulated translation adjustment                                    (260)            (436)
      Retained earnings                                                 64,570           58,093
                                                                     ---------        ---------
           Total stockholders' equity                                  240,389          236,653
                                                                     ---------        ---------
                                                                     $ 330,092        $ 334,557
                                                                     =========        =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                       3.

<PAGE>


                      NETWORK EQUIPMENT TECHNOLOGIES, INC.
                   Condensed Consolidated Statements of Income
              (in thousands, except per share amounts - unaudited)

<TABLE>
<CAPTION>
                                                        Quarter Ended                Six Months Ended
                                                  -------------------------      ------------------------
                                                  Sept. 27,       Sept. 28,      Sept. 27,      Sept. 28,
                                                    1998            1997           1998           1997
                                                  ---------       ---------      ---------      ---------
<S>                                               <C>             <C>            <C>            <C>      
Revenue:
     Product revenue                              $  46,813       $  50,049      $  92,475      $ 103,566
     Service and other revenue                       28,541          27,798         54,305         54,254
                                                  ---------       ---------      ---------      ---------
          Total revenue                              75,354          77,847        146,780        157,820
                                                  ---------       ---------      ---------      ---------

Cost of sales:
     Cost of product revenue                         17,265          19,363         35,898         39,791
     Cost of service and other revenue               18,531          16,466         33,377         33,536
                                                  ---------       ---------      ---------      ---------
          Total cost of sales                        35,796          35,829         69,275         73,327
                                                  ---------       ---------      ---------      ---------

Gross margin                                         39,558          42,018         77,505         84,493

Operating expenses:
     Sales and marketing                             21,886          20,704         43,494         42,910
     Research and development                        11,099          10,760         21,382         20,911
     General and administrative                       3,573           2,959          6,461          5,743
                                                  ---------       ---------      ---------      ---------
          Total operating expenses                   36,558          34,423         71,337         69,564
                                                  ---------       ---------      ---------      ---------

Income from operations                                3,000           7,595          6,168         14,929

Other income (expense):
     Interest income                                  1,705           1,522          3,365          3,145
     Interest expense                                  (482)           (449)          (990)          (925)
     Other                                              780            (198)           654           (363)
                                                  ---------       ---------      ---------      ---------

Income before income taxes                            5,003           8,470          9,197         16,786

Income tax provision                                  1,513           2,711          2,759          5,372
                                                  ---------       ---------      ---------      ---------

Income before extraordinary gain                      3,490           5,759          6,438         11,414

Extraordinary gain on repurchase
  of debentures                                          39              --             39             --
                                                  ---------       ---------      ---------      ---------

Net income                                        $   3,529       $   5,759      $   6,477      $  11,414
                                                  =========       =========      =========      =========

Basic earnings per share:
     Income before extraordinary item             $     .16       $     .27      $     .30      $     .54
                                                  =========       =========      =========      =========

     Net income                                   $     .16       $     .27      $     .30      $     .54
                                                  =========       =========      =========      =========

Diluted earnings per share:
     Income before extraordinary item             $     .16       $     .26      $     .29      $     .52
                                                  =========       =========      =========      =========

     Net income                                   $     .16       $     .26      $     .29      $     .52
                                                  =========       =========      =========      =========

Shares used in per share computation:
     Basic                                           21,625          21,196         21,599         21,130
                                                  =========       =========      =========      =========
     Diluted                                         21,952          22,208         22,203         21,981
                                                  =========       =========      =========      =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                       4.

<PAGE>


                      NETWORK EQUIPMENT TECHNOLOGIES, INC.
                 Condensed Consolidated Statements of Cash Flows
                           (in thousands - unaudited)

<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                  ----------------------------
                                                                                  Sept. 27,           Sept. 28,
                                                                                    1998                1997
                                                                                  --------            --------
<S>                                                                               <C>                 <C>     
Cash and Cash Equivalents at Beginning of Period                                  $ 59,512            $ 39,141
                                                                                  --------            --------
Net Cash Flows from Operating Activities:
     Net income                                                                      6,477              11,414
     Adjustments to reconcile net income to cash
        provided by operations:
          Extraordinary gain on repurchase of debentures                               (39)               --
          Depreciation and amortization                                              9,931               9,149
          Restricted stock compensation                                                163                 180
          Changes in assets and liabilities:
               Accounts receivable                                                   8,668               3,665
               Inventories                                                             158                 784
               Prepaid expenses and other assets                                        80              (1,104)
               Accounts payable                                                     (3,480)             (4,766)
               Accrued liabilities                                                  (4,099)              2,264
                                                                                  --------            --------
          Net cash provided by operations                                           17,859              21,586
                                                                                  --------            --------

Cash Flows from Investing Activities:
     Purchases of temporary cash investments                                       (40,431)            (47,277)
     Proceeds from maturities of temporary cash investments                         49,046              50,533
     Purchases of property and equipment                                           (22,279)            (11,139)
     Additions to software production costs                                         (1,692)             (2,216)
     Other                                                                             581              (2,194)
                                                                                  --------            --------
          Net cash used for investing activities                                   (14,775)            (12,293)
                                                                                  --------            --------

Cash Flows from Financing Activities:
     Sale of Common Stock                                                            3,857               2,759
     Purchase of Common Stock                                                       (5,617)               --
     Repurchase of convertible subordinated debentures                                (565)               --   
                                                                                  --------            --------
     Net cash provided by (used for) financing activities                           (2,325)              2,759
                                                                                  --------            --------

Effect of exchange rate changes on cash                                               (187)                117
                                                                                  --------            --------
          Net increase in cash and cash equivalents                                    572              12,169
                                                                                  --------            --------

Cash and Cash Equivalents at End of Period                                        $ 60,084            $ 51,310
                                                                                  ========            ========
Other Cash Flow Information:
     Cash paid (refunded) during the period for:
          Interest                                                                $    989            $    943
          Income taxes                                                            $   (417)           $ 12,487
      Non-cash investing and financing activities:
          Net unrealized gain (loss) on available-for-sale securities             $ (1,320)           $    246
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                       5.

<PAGE>


                      NETWORK EQUIPMENT TECHNOLOGIES, INC.
              Notes to Condensed Consolidated Financial Statements


1.   Basis of Presentation

     The consolidated financial statements include the accounts of the Company
     and its subsidiaries. Intercompany accounts and transactions have been
     eliminated.

     In the opinion of management, the accompanying unaudited condensed
     consolidated financial statements contain all adjustments (consisting only
     of normal recurring adjustments) considered necessary to present fairly the
     financial position as of September 27, 1998, and the results of operations
     and cash flows for the quarter and six months ended September 27, 1998 and
     September 28, 1997. These financial statements should be read in
     conjunction with the March 31, 1998 audited consolidated financial
     statements and notes thereto. The results of operations for the six months
     ended September 27, 1998 are not necessarily indicative of the results to
     be expected for the fiscal year ending March 31, 1999.

2.   Inventories

     Inventories consist of (in thousands):

                                      September 27,       March 31,
                                          1998              1998
                                      ------------        --------
                                      (unaudited)

     Purchased components               $ 3,569           $ 4,370
     Work-in-process                     14,601            13,371
     Finished goods                       1,394             2,002
                                        -------           -------
                                        $19,564           $19,713
                                        =======           =======

3.   Earnings Per Share

     Basic earnings per share has been computed based upon the weighted average
     number of common shares outstanding for the periods presented. For diluted
     earnings per share, shares used in the per share computation include
     weighted average common and potentially dilutive shares outstanding.
     Potentially dilutive shares consist of shares issuable upon assumed
     exercise of dilutive stock options and totaled 327,000 and 1,012,000 for
     the three months ended September 27, 1998 and September 28, 1997, and
     604,000 and 851,000 for the six months ended September 27, 1998 and
     September 28, 1997, respectively.

4.   Comprehensive Income

     The Company adopted Statement of Financial Accounting Standards (SFAS) No.
     130, "Reporting Comprehensive Income", in the first quarter of fiscal 1999.
     Comprehensive income represents net income for the period, as adjusted for
     the net unrealized gain (loss) on available-for-sale securities and the
     cumulative translation adjustment, net of taxes, and was $1,353,000 and
     $5,710,000 for the three months ended September 27, 1998 and September 28,
     1997, and $5,333,000 and $11,488,000, for the six months ended September
     27, 1998 and September 28, 1997, respectively.

                                       6.

<PAGE>


                      NETWORK EQUIPMENT TECHNOLOGIES, INC.
              Notes to Condensed Consolidated Financial Statements


5.   Recently Issued Accounting Standards

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
     "Disclosures About Segments of an Enterprise and Related Information",
     which establishes annual and interim reporting standards for a Company's
     business segments and related disclosures about its products, services,
     geographic areas, and major customers. The Company has not yet identified
     its SFAS reporting segments. Adoption of this standard will not impact the
     Company's consolidated financial position, results of operations or cash
     flows. The standard is effective for the Company for fiscal year 1999.

6.   Subsequent Event

     Subsequent to the quarter ended September 27, 1998, the Company's Board of
     Directors approved a cancellation and new grant of stock options for all
     holders of outstanding options issued from July 25, 1996 to October 8, 1998
     with exercise prices in excess of the closing price per share on October
     16, 1998. Approximately 1,720,000 old options were canceled and an equal
     number of new options were granted at an exercise price of $10.25 per
     share, the fair market value of the Company's Common Stock on October 16,
     1998, the effective date of the new option. The new option has terms
     equivalent to the terms in effect under the old option to which such new
     option relates, except that the new option becomes exercisable under a new
     four-year vesting schedule, beginning on October 16, 1998. The new grant
     offer was made to all employees of the Company.

                                       7.

<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION


This  discussion and analysis  should be read in conjunction  with  Management's
Discussion and Analysis in the Company's 1998 Annual Report to Shareholders  and
Part I of the Company's Form 10-K for the fiscal year ended March 31, 1998.

RESULTS OF OPERATIONS

The following table depicts selected data derived from the Company's
Consolidated Statements of Income expressed as a percentage of revenue for the
periods presented:

--------------------------------------------------------------------------------

                                           Quarter Ended      Six Months Ended
                                        -------------------  -------------------
                                        Sept. 27, Sept. 28,  Sept. 27, Sept. 28,
Percent of Revenue                        1998      1997       1998      1997 
--------------------------------------------------------------------------------
Product revenue                            62.1%     64.3%      63.0%     65.6%
Service and other revenue                  37.9      35.7       37.0      34.4
                                         ------    ------     ------    ------
     Total revenue                        100.0     100.0      100.0     100.0
                                         ------    ------     ------    ------
Product gross margin                       63.1      61.3       61.2      61.6
Service and other revenue gross margin     35.1      40.8       38.5      38.2
                                         ------    ------     ------    ------
     Total gross margin                    52.5      54.0       52.8      53.5
                                         ------    ------     ------    ------
Sales and marketing                        29.1      26.6       29.6      27.2
Research and development                   14.7      13.8       14.6      13.2
General and administrative                  4.7       3.8        4.4       3.6
                                         ------    ------     ------    ------
     Total operating expenses              48.5      44.2       48.6      44.0
                                         ------    ------     ------    ------
Income from operations                      4.0       9.8        4.2       9.5
                                         ------    ------     ------    ------
Net income                                  4.7%      7.4%       4.4%      7.2%
                                         ======    ======     ======    ======

--------------------------------------------------------------------------------

Revenue

Total revenue for the second quarter of fiscal 1999 decreased $2.5 million, or
3.2% from the second quarter of fiscal 1998, and decreased $11.0 million, or
7.0% on a year-to-date basis. Similarly, product revenue for the second quarter
of fiscal 1999 decreased $3.2 million, or 6.5%, and decreased on a year-to-date
basis $11.1 million, or 10.7% from the comparable periods of the prior year. A
decrease in sales in fiscal 1999 through the Asia Pacific/Latin American channel
impacted both the quarter and year-to-date periods. Partially offsetting this
decline was an increase in product sales through the North American channel for
both periods.

In the second quarter and for the first six months of fiscal 1999, the Company's
new Promina(TM) product line represented $34.7 million and $66.6 million, or
74.1% and 72.0% of product sales, respectively. A significant portion of these
Promina sales are related to the upgrading of the Company's installed base.

Service and other revenue for the second quarter and first six months of fiscal
1999 increased $.7 million and $.1 million, respectively, from the comparable
periods of fiscal 1998. This increase was attributable to an increase in revenue
from systems integration services in support of product sales to the U.S.
government, partially offset by a decrease in service revenue in the North
American channel.

                                       8.

<PAGE>


Gross Margin

Total gross margin as a percentage of total revenue decreased to 52.5% and 52.8%
for the second quarter and first six months of fiscal 1999 from 54.0% and 53.5%,
respectively, for the comparable periods of fiscal 1998. The decrease in the
second quarter of fiscal 1999 was the result of lower gross margins on the
service and other revenue coupled with these revenues being a larger percentage
of total revenue. The first six months of fiscal 1999 was also negatively
impacted by these revenues being a larger percentage of total revenue. Product
margins were 63.1% and 61.2% for the second quarter and first six months of
fiscal 1999, respectively, and 61.3% and 61.6% in the comparable periods of the
prior year. The quarter-over-quarter increase primarily resulted from a
favorable channel mix, as an increased percentage of the quarter's revenue
represented sales through the North American and U.S. Federal channel and a
decreased percentage through the Asia Pacific/Latin American channel.
Additionally, both the quarter and year-to-date product margins were positively
impacted by favorable product manufacturing variances and product mix.

Service and other gross margin was 35.1% and 38.5% in the second quarter and
first six months of fiscal 1999 compared to 40.8% and 38.2%, respectively, in
the comparable periods of fiscal 1998. Contributing to the decrease in these
margins in the second quarter were increased personnel costs in service and a
lower margin on systems integration services in support of product sales to the
U.S. government. The gross margins were also negatively impacted in the second
quarter of fiscal 1999 by the increase in system integration service revenue
which have lower margins. Service and other gross margin in the first six months
of fiscal 1999 compared to the same period in fiscal 1998 were relatively flat
due to increased gross margins in the first quarter of fiscal 1999 as a result
of lower service costs.

Due to planned shifts in product and channel mix, management expects total gross
margin as a percentage of total revenue to decrease slightly during the
remainder of fiscal 1999.

Operating Expenses

Operating expenses in the second quarter and first six months of fiscal 1999
increased $2.1 million and $1.8 million from the comparable periods of fiscal
1998, and increased as a percentage of total revenue to 48.5% from 44.2%
quarter-over-quarter and 48.6% from 44.0% year-over-year. Management expects
operating expenses to increase slightly during the remainder of fiscal 1999.

Sales and marketing expense increased $1.2 million and $.6 million in the second
quarter and first six months of fiscal 1999, respectively, from the comparable
periods of fiscal 1998. This expense increased as a percentage of total revenue
to 29.1% from 26.6% quarter-over-quarter and to 29.6% from 27.2% year-over-year.
The increase in spending quarter-over-quarter and year-over-year is primarily a
result of the increased headcount in the various field sales organizations.
Management expects sales and marketing spending to increase during the remainder
of fiscal 1999, while decreasing as a percentage of revenue.

Research and development expense increased $.3 million and $.5 million in the
second quarter and first six months of fiscal 1999, respectively, from the
comparable periods of fiscal 1998. This expense increased as a percentage of
total revenue to 14.7% from 13.8% quarter-over-quarter and to 14.6% from 13.2%
year-over-year. Management plans to continue funding research and development
efforts at levels necessary to advance product programs and expects research and
development spending to increase during the remainder of fiscal 1999, while
decreasing as a percentage of revenue.

General and administrative expense increased $.6 million and $.7 million in the
second quarter and first six months of fiscal 1999, respectively, from the
comparable periods of fiscal 1998. This expense increased as a percentage of
total revenue to 4.7% from 3.8% quarter-over-quarter and to 4.4% from 3.6%
year-over-year. In the second quarter of fiscal 1999, $.3 million of costs
related to the facility move, were included in general and administrative
expenses. Management expects general and administrative expense to increase for
the remainder of fiscal 1999 as a result of increased bad debt exposure in the
Company's leasing program with emerging growth carriers.

                                       9.

<PAGE>


Non-Operating Items

Interest income for the second quarter and first six months of fiscal 1999
increased slightly due to higher cash balances.

Interest expense for the second quarter and the first six months of fiscal 1999
remained relatively flat with the comparable periods of the prior year.

Other income in the second quarter of fiscal 1999 included a gain of $1.0
million on the sale of a portion of equity securities held in a publicly traded
company.

The second quarter and first six months of fiscal 1999 included a provision for
income tax expense of $1.5 million and $2.8 million, respectively, at an
effective rate of 30% as compared to $2.7 million and $5.4 million at an
effective rate of 32% in the second quarter and first six months of fiscal 1998.

The results for the second quarter of fiscal 1999 also included an extraordinary
gain of $.04 million arising from the repurchase of $.6 million of convertible
subordinated debentures.

Year 2000 Readiness Disclosure

The Company's Annual Report and its Form 10-K for the fiscal year ended March
31, 1998 (at pages 22 and 9, respectively), contained the following statement,
which is being designated as a "Year 2000 Readiness Disclosure" and should be
read in conjunction with the Business Environment and Risk Factors portion of
this Form 10-Q:

"The Company established a Year 2000 compliance team in early 1997 to identify
and take reasonable steps to minimize the effect of Year 2000 issues that may
impact the Company's products and business operations. The Company developed its
N.E.T. Products Year 2000 Compliance Program, which is posted on the Company's
Web site (www.net.com). This Compliance Program provides N.E.T. customers and
partners with information on the Year 2000 compliance status of N.E.T. products
and identifies solutions for achieving network system and application compliance
prior to the year 2000. In addition, the Year 2000 compliance team has been and
is evaluating Year 2000 issues relating to the Company's internal systems and
third-party capabilities upon which the Company relies in conducting its
business, including financial systems, manufacturing applications, customer
service and support, desktop applications and infrastructure such as networks,
telecommunications products, banking and financial services, service providers
and security systems. Although the Company has not yet determined whether all of
the foregoing systems and applications are fully Year 2000 compliant, based upon
the information currently available, the Company believes that the costs
associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results or financial condition."

In addition to the foregoing, the current status of the compliance team's
assessment and remediation plans indicates that the costs of year 2000 readiness
will not have a material impact on the Company's business, operating results or
financial condition. The Company has a limited number of key systems and
suppliers and expects assessment and any necessary remediation to be completed
by mid-1999. As the Company's Year 2000 compliance team continues its work, it
may discover Year 2000 problems, may not be able to develop and implement
remediation or contingency plans, or may find that the costs of these activities
exceed current expectations and become material. The Company is relying in many
cases on assurances from suppliers that information systems and other products
will be Year 2000 compliant. The Company plans to test certain third-party
products, but cannot be sure that its tests will be adequate or that, if
problems are identified, they will be addressed by the supplier in a timely and
satisfactory way.

The Company uses a variety of information systems and has additional systems
embedded in its operations and infrastructure. The Company cannot be sure that
all of its systems will work together in a Year 2000-compliant fashion.
Furthermore, the Company cannot be sure that it will not suffer business
interruptions, either because of its own Year 2000 problems or those of its
customers or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the Company. If the Company
fails to satisfactorily resolve Year 2000 issues related to its products or its
infrastructure in a timely manner, it could be exposed to liability to third
parties.

                                       10.

<PAGE>


The Company is continuing to evaluate Year 2000-related risks and corrective
actions. However, the risks associated with the Year 2000 problem are pervasive
and complex, they can be difficult to identify and to address, and could result
in material adverse consequences to the Company. Even if the Company, in a
timely manner, completes all of its assessments, identifies and tests
remediation plans believed to be adequate, and develops contingency plans
believed to be adequate, some problems may not be identified or corrected in
time to prevent material adverse consequences to the Company.

BUSINESS ENVIRONMENT AND RISK FACTORS

All statements in this 10-Q that are not historical are forward-looking
statements that involve risks and uncertainties including, but not limited to,
the risks and uncertainties detailed in the Company's filings with the
Securities and Exchange Commission. Actual results may differ materially from
those projected.

Historically, the majority of the Company's revenue in each quarter results from
orders received and shipped in that quarter. Because of these ordering patterns
and potential delivery schedule changes, the Company does not believe that
backlog is indicative of future revenue levels. In addition, because a large
portion of the Company's orders historically have been received and filled in
the last month of the quarter, forecasting sales during a quarter is difficult,
and there is a significant risk of excessive or inadequate inventory if orders
do not match forecast. Furthermore, if large orders do not close when forecasted
or if near-term demand weakens for the products the Company has available to
ship, the Company's operating results for that or subsequent quarters would be
adversely affected.

The Company recently initiated new marketing and leasing programs targeted at
increasing its share of the rapidly growing emerging carrier market. 
Enterprises in this market typically do not have either long operating histories
or significant capitalization.  The Company's programs targeting this market
have the potential to significantly impact both revenue and expense.

Expense levels are relatively fixed and are set based on expectations regarding
future revenue and margin levels. These expectations derive from making
judgments on issues such as planned revenue, future technology trends,
competitive products and services, pricing and customer requirements, a process
that involves evaluation of information that is often unclear and in conflict.
All markets for the Company's products are very competitive and dynamic and many
are susceptible to changing regulations and political conditions. The Company
has limited visibility into factors that could influence its revenue, mix of
product orders and other revenue sources and margins, particularly in
international markets that are served primarily by non-exclusive resellers.

The Company's products incorporate intellectual property and technology owned by
the Company or licensed from third parties. The Company's ability to maintain
and enhance the value of its intellectual property and technology and third
party licenses will affect future product and service offerings. Moreover, the
Company believes that operating results will depend on successful development
and introduction of new products and enhancements to existing products and
service offerings. There can be no assurance that the Company will succeed in
such efforts or that customers will accept new, enhanced and existing products
and services in quantities and at prices and margins that are consistent with
the Company's expectations. The Company's success also depends on its ability to
attract and retain employees necessary to support planned development and
growth.

The Company's products include components, assemblies and subassemblies that are
currently available from single sources and, in some cases, are in short supply.
Testing and manufacturing of products designed by N.E.T. are performed at the
Company's Fremont, California, facility. Pursuant to several types of
agreements, the Company also resells products designed or manufactured by third
parties for order fulfillment, quality control and support of their products.
Such products are generally available to end users from sources other than the
Company, and are generally sold or licensed by the Company at gross margins that
are lower than products designed and manufactured by the Company. There can be
no assurance that these third-party manufacturers will be able to meet the
Company's future requirements for these products, that the quality control and
support provided by these manufacturers will be adequate, or that the Company's
gross margins on these products will not be lowered further. Product
availability limitations, price increases or business interruptions could
adversely impact revenue, margins and earnings.

                                       11.

<PAGE>


The Company has distribution, product and technology relationships with a number
of significant customers and entities that are considered by the Company to be
strategic. Most of the Company's competitors have similar relationships with
their respective customers and other parties. Changes in the Company's
relationships or changes in similar relationships among competitors could have a
material impact on competitive and other factors described above, including the
Company's operating results. Also, litigation or other claims based on
securities, intellectual property, patent, product, regulatory or other issues
or factors could materially adversely affect the Company's business, operating
results and finances.

A significant portion of the Company's revenue comes from contracts with the
U.S. government, most of which do not include purchase commitments. There can be
no assurance that orders from the U.S. government, or from other customers, will
continue at historical levels, or that the Company will be able to obtain orders
from new customers.

Because of the factors described above, as well as others that may affect the
Company's operating results, past financial results may not be an accurate
indicator of future performance.

LIQUIDITY AND CAPITAL RESOURCES

As of September 27, 1998, the Company had cash, cash equivalents and temporary
cash investments of $153.5 million, as compared to $161.5 million as of March
31, 1998. Cash provided by operations was $17.9 million during the first six
months of fiscal 1999, which was a $3.7 million decrease from the cash provided
by operations from the comparable period of the prior year. This decrease in
cash was principally the result of a decrease in net income partially offset by
a decrease in accounts receivable during the first six months of fiscal 1999.

Net cash used for investing activities of $14.8 million for the first six months
of fiscal 1999 consisted primarily of purchases of property and equipment of
$22.3 million, of which $11.6 million was related to the new facility, and
additions to software production costs of $1.7 million.

Net cash used for financing activities of $2.3 million for the first six months
of fiscal 1999 pertains to the purchase of 500,000 shares of the Company's
Common Stock for $5.6 million and the repurchase of convertible subordinated
debentures for $.6 million partially offset by $3.9 million received from the
issuance of Common Stock relating to the employee stock benefit plans.

As of September 27, 1998, the Company had available an unsecured $10.0 million
line of credit. Borrowings under this committed facility are available through
May 1999 and would bear interest at the bank's base rate (which approximates
prime). At September 27, 1998, there were no outstanding borrowings under this
facility.

In April 1997, the Company entered into a 12-year operating lease agreement
pursuant to which a new corporate headquarters facility has been built in
Fremont, California. In conjunction with the project management and design and
construction of the new facility, the Company has expended $12.4 million, net of
landlord contributions, in the first six months of fiscal 1999, most of which
has been capitalized. The Company estimates that $.5 million of additional
capital expenditures related to this facility will be made over the remainder of
fiscal 1999.

The Company believes that current cash and cash equivalents, temporary cash
investments and cash flows from operations will be sufficient to fund
operations, purchases of capital equipment and research and development programs
currently planned at least through the next twelve months.

                                       12.

<PAGE>


                                     PART II

                                OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders

          On August 11, 1998, the Company held its Annual Meeting of
          Stockholders. At this meeting, the stockholders voted to elect Dixon
          R. Doll and Hans A. Wolf as directors. Dixon R. Doll received
          18,810,276 votes in favor and 238,220 votes against and Hans A. Wolf
          received 18,806,972 votes in favor and 247,248 votes against.
          Continuing as directors are James K. Dutton, Joseph J. Francesconi,
          Walter J. Gill, and George M. Scalise. At the meeting, the
          stockholders also voted to ratify the appointment of Deloitte &
          Touche LLP as independent public accountants of the Company for the
          fiscal year ending March 31, 1999 as follows: 19,015,346 votes in
          favor, 33,998 votes against, and 29,721 votes abstaining.

Item 5.   Other Information

          On September 8, 1998, the Company announced that effective December
          31, 1998, Craig M. Gentner was resigning as Senior Vice President,
          Chief Financial Officer and Corporate Secretary.

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Reports on Form 8-K

               No report on Form 8-K was filed by the Company during its fiscal
               quarter ended September 27, 1998.

                                       13.

<PAGE>

                                    SIGNATURE

     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.


                                          NETWORK EQUIPMENT
                                           TECHNOLOGIES, INC.


Dated:  November 10, 1998                 /s/ Craig M. Gentner
                                          --------------------------------------
                                          Craig M. Gentner
                                          Senior Vice President, Chief Financial
                                          Officer and Corporate Secretary
                                          (Principal Financial and Accounting
                                          Officer)

                                       14.