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

                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 December 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 February 5, 1999 was 21,492,515.

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This document consists of 15 pages of which this is page 1.


<PAGE>

                      NETWORK EQUIPMENT TECHNOLOGIES, INC.



                                      INDEX

                                                                           Page
                                                                          Number
                                                                          ------

PART I. Financial Information

   Item 1. Financial Statements

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

           Condensed Consolidated Statements of Operations - Quarter and
           Nine Months Ended December 27, 1998 and December 28, 1997 .......   4

           Condensed Consolidated Statements of Cash Flows - Nine Months
           Ended December 27, 1998 and December 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 5. Other Information................................................  14

   Item 6. Exhibits and Reports on Form 8-K ................................  14

SIGNATURES .................................................................  15

                                       2

<PAGE>

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



<TABLE>
<CAPTION>
                                                             December 27,   March 31,
                                                                 1998         1998
                                                                 ----         ----
                                                             (unaudited)
<S>                                                           <C>          <C>
Assets
Current assets:
       Cash and cash equivalents                              $  53,356    $  59,512
       Temporary cash investments                                97,976      101,990
       Accounts receivable, net of allowances of $3,784 at
             December 27 and $3,926 at March 31                  59,625       71,714
       Inventories                                               19,952       19,713
       Deferred income taxes                                     11,212        9,836
       Prepaid expenses and other assets                          6,957        7,254
                                                              ---------    ---------
             Total current assets                               249,078      270,019
Property and equipment, net                                      57,508       42,657
Software production costs, net                                    5,956        5,491
Other assets                                                     13,793       16,390
                                                              ---------    ---------
                                                              $ 326,335    $ 334,557
                                                              =========    =========

Liabilities and Stockholders' Equity
Current liabilities:
       Accounts payable                                       $  18,342    $  21,890
       Accrued liabilities                                       42,802       48,239
                                                              ---------    ---------
             Total current liabilities                           61,144       70,129
                                                              ---------    ---------

Deferred income taxes                                               924        1,954
7-1/4% convertible subordinated debentures                       24,706       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:  21,372,000 shares at December 27
               and 21,454,000 shares at March 31                    213          215
       Additional paid-in capital                               179,632      176,452
       Treasury stock                                            (5,848)      (1,430)
       Net unrealized gain on available-for-sale securities       2,023        3,759
       Cumulated translation adjustment                            (294)        (436)
       Retained earnings                                         63,835       58,093
                                                              ---------    ---------
             Total stockholders' equity                         239,561      236,653
                                                              ---------    ---------
                                                              $ 326,335    $ 334,557
                                                              =========    =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                       3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                             Quarter Ended                    Nine Months Ended
                                                                        ------------------------          -------------------------
                                                                        Dec. 27,        Dec. 28,          Dec. 27,         Dec. 28,
                                                                          1998            1997              1998             1997
                                                                        --------        --------          --------        ---------
<S>                                                                    <C>              <C>              <C>              <C>
Revenue:
       Product revenue                                                 $  39,981        $  45,154        $ 132,456        $ 148,720
       Service and other revenue                                          25,933           26,802           80,238           81,056
                                                                       ---------        ---------        ---------        ---------
             Total revenue                                                65,914           71,956          212,694          229,776
                                                                       ---------        ---------        ---------        ---------

Cost of sales:
       Cost of product revenue                                            15,031           17,943           50,929           57,734
       Cost of service and other revenue                                  16,873           16,649           50,250           50,185
                                                                       ---------        ---------        ---------        ---------
             Total cost of sales                                          31,904           34,592          101,179          107,919
                                                                       ---------        ---------        ---------        ---------

Gross margin                                                              34,010           37,364          111,515          121,857

Operating expenses:
       Sales and marketing                                                21,944           20,879           65,438           63,789
       Research and development                                           11,128           10,840           32,510           31,751
       General and administrative                                          2,956            3,083            9,417            8,826
                                                                       ---------        ---------        ---------        ---------
             Total operating expenses                                     36,028           34,802          107,365          104,366
                                                                       ---------        ---------        ---------        ---------

Income (loss) from operations                                             (2,018)           2,562            4,150           17,491

Other income (expense):
       Interest income                                                     1,459            1,776            4,824            4,921
       Interest expense                                                     (480)            (517)          (1,470)          (1,442)
       Other                                                                 (90)            (179)             564             (542)
                                                                       ---------        ---------        ---------        ---------

Income (loss) before income taxes                                         (1,129)           3,642            8,068           20,428

Income tax provision (benefit)                                              (338)           1,165            2,421            6,537
                                                                       ---------        ---------        ---------        ---------

Income (loss) before extraordinary gain                                     (791)           2,477            5,647           13,891

Extraordinary gain on repurchase of debentures                                56             --                 95             --
                                                                       ---------        ---------        ---------        ---------

Net income (loss)                                                      $    (735)       $   2,477        $   5,742        $  13,891
                                                                       =========        =========        =========        =========

Basic earnings (loss) per share:
       Income (loss) before extraordinary gain                         $    (.04)       $     .12        $     .26        $    . 66
                                                                       =========        =========        =========        =========
       Net income (loss)                                               $    (.03)       $     .12        $     .27        $    . 66
                                                                       =========        =========        =========        =========

Diluted earnings (loss) per share:
       Income (loss) before extraordinary gain                         $    (.04)       $     .11        $     .26        $     .63
                                                                       =========        =========        =========        =========
       Net income (loss)                                               $    (.03)       $     .11        $     .26        $     .63
                                                                       =========        =========        =========        =========

Shares used in computation:
       Basic                                                              21,345           21,313           21,515           21,191
                                                                       =========        =========        =========        =========
       Diluted                                                            21,345           22,084           22,019           22,070
                                                                       =========        =========        =========        =========
</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>
                                                                             Nine Months Ended
                                                                           --------------------
                                                                           Dec. 27,    Dec. 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                                                             5,742      13,891
       Adjustments to reconcile net income to cash
           provided by operations:
             Extraordinary credit--gain on repurchase of debentures             (95)       --
             Depreciation and amortization                                   15,976      13,975
             Restricted stock compensation                                      214         270
             Deferred income taxes                                           (1,376)       --
             Changes in assets and liabilities:
                    Accounts receivable                                      12,458       6,323
                    Inventories                                                (231)       (761)
                    Prepaid expenses and other assets                           343        (763)
                    Accounts payable                                         (3,579)     (7,647)
                    Accrued liabilities                                      (5,570)        979
                                                                           --------    --------
             Net cash provided by operations                                 23,882      26,267
                                                                           --------    --------

Cash Flows from Investing Activities:
       Purchases of temporary cash investments                              (67,940)    (68,828)
       Proceeds from maturities of temporary cash investments                72,131      63,032
       Purchases of property and equipment                                  (28,841)    (14,985)
       Additions to software production costs                                (2,421)     (2,544)
       Other                                                                   (370)     (2,134)
                                                                           --------    --------
             Net cash used for investing activities                         (27,441)    (25,459)
                                                                           --------    --------

Cash Flows from Financing Activities:
       Sale of common stock                                                   4,163       3,845
       Repurchase of common stock                                            (5,617)       --
       Repurchase of debentures                                                (955)       --
                                                                           --------    --------
             Net cash provided by (used for) financing activities            (2,409)      3,845
                                                                           --------    --------

Effect of exchange rate changes on cash                                        (188)         28
                                                                           --------    --------

                    Net increase (decrease) in cash and cash equivalents     (6,156)      4,681
                                                                           --------    --------

Cash and Cash Equivalents at End of Period                                 $ 53,356    $ 43,822
                                                                           ========    ========

Other Cash Flow Information:
       Cash paid for:
             Interest                                                      $  1,902    $  1,880
             Income taxes                                                  $   (471)   $  5,912
       Non-cash investing and financing activities:
             Income tax benefit arising from employee stock option plans   $    578    $    636
             Net unrealized gain (loss) on available-for-sale securities   $ (1,736)   $    221
</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 December 27, 1998, and the results of operations
     and cash flows for the quarter and nine months ended December 27, 1998 and
     December 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 nine months ended December 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):

                                                   December 27,        March 31,
                                                      1998               1998
                                                     -------           -------
                                                   (unaudited)
     Purchased components                            $ 3,300           $ 4,340
     Work-in-process                                  14,018            13,371
     Finished goods                                    2,634             2,002
                                                     -------           -------
                                                     $19,952           $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 169,000 and 771,000 for the three months ended December 27,
1998 and December 28, 1997, and 504,000 and 879,000 for the nine months ended
December 27, 1998 and December 28, 1997, respectively. The quarter ended
December 27, 1998 was a loss period, therefore common stock equivalents would be
anti-dilutive and were not included in the calculation of diluted net income
(loss) per share. At December 27, 1998, there were 2,580,000 options oustanding.

4.   Comprehensive Income (Loss)

     The Company adopted Statement of Financial Accounting Standards (SFAS) No.
     130, "Reporting Comprehensive Income", in the first quarter of fiscal 1999.
     Comprehensive income (loss) represents net income (loss) 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
     $(1,185,000) and $2,619,000 for the three months ended December 27, 1998
     and December 28, 1997, and $4,148,000 and $14,279,000, for the nine months
     ended December 27, 1998 and December 28, 1997, respectively.

                                       6

<PAGE>

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

5.   Recently Issued Accounting Standard

     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.


                                       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:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                                               Quarter Ended     Nine Months Ended
                                               -------------     -----------------
                                             Dec. 27,  Dec. 28,  Dec. 27,  Dec. 28,
Percent of Revenue                             1998      1997      1998     1997
-----------------------------------------------------------------------------------
<S>                                             <C>      <C>       <C>      <C>
Product revenue                                 60.7     62.8      62.3     64.7
Service and other revenue                       39.3     37.2      37.7     35.3
                                               -----    -----     -----    -----
      Total revenue                            100.0    100.0     100.0    100.0
                                               -----    -----     -----    -----

Product gross margin                            62.4     60.3      61.6     61.2
Service and other revenue gross margin          34.9     37.9      37.4     38.1
                                               -----    -----     -----    -----
      Total gross margin                        51.6     51.9      52.4     53.0
                                               -----    -----     -----    -----

Sales and marketing                             33.3     29.0      30.8     27.8
Research and development                        16.9     15.1      15.3     13.8
General and administrative                       4.5      4.3       4.4      3.8
                                               -----    -----     -----    -----
      Total operating expenses                  54.7     48.4      50.5     45.4
                                               -----    -----     -----    -----
Income (loss) from operations                   (3.1)     3.5       1.9      7.6
                                               -----    -----     -----    -----

Net income (loss)                               (1.1)     3.4       2.7      6.0
                                               =====    =====     =====    =====
-----------------------------------------------------------------------------------
</TABLE>

Revenue

Total revenue for the third quarter of fiscal 1999 decreased $6.0 million, or
8.4%, from the third quarter of fiscal 1998, and decreased $17.1 million, or
7.4%, on a year-to-date basis. Product revenue for the third quarter of fiscal
1999 decreased $5.2 million, or 11.5%, and decreased on a year-to-date basis
$16.3 million, or 10.9%, from the comparable periods of the prior year.
Decreases in product sales in fiscal 1999 through the Asia Pacific/Latin
American and European channels impacted both the quarter and year-to-date
periods. Partially offsetting this decline was an increase in fiscal 1999
product sales through the North American channel for both periods.

In the third quarter and first nine months of fiscal 1999, the Company's new
Promina(TM) product line represented $34.9 million and $101.9 million, or 87.3%
and 76.9%, of product sales, respectively. A significant portion of these
Promina sales is related to the upgrading of the Company's installed base.

Service and other revenue for the third quarter and first nine months of fiscal
1999 decreased $.9 million and $.8 million, respectively, from the comparable
periods of fiscal 1998. The decrease in the quarter-over-quarter revenue was
attributable to decreases in service revenue in the North American channel and
the systems integration services in support of product sales to the U.S.
government, partially offset by an

                                       8


<PAGE>

increase in service revenue in the Federal channel. The decrease in service and
other revenue for the first nine months of fiscal 1999 was due to a decrease in
the North American channel service revenue partially offset by an increase in
the Federal channel service revenue.

Gross Margin

Total gross margin as a percentage of total revenue decreased to 51.6% and 52.4%
for the third quarter and first nine months of fiscal 1999 from 51.9% and 53.0%,
respectively, for the comparable periods of fiscal 1998. The slight decrease in
the third quarter of fiscal 1999 was the result of lower gross margins on the
service and other revenue as well as these revenues, which have lower gross
margins than product, being a larger percentage of total revenue. The first nine
months of fiscal 1999 were also negatively impacted by these revenues being a
larger percentage of total revenue. Product margins increased to 62.4% and 61.6%
for the third quarter and first nine months of fiscal 1999 from 60.3% and 61.2%,
respectively, in the comparable periods of the prior year. The increase in
product gross margins in the third quarter and first nine months of fiscal 1999
was primarily the result of a favorable channel mix, as an increased percentage
of the quarter's revenue represented sales through the North American 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 a favorable product mix and negatively impacted by unfavorable
manufacturing volume variances.

Service and other gross margin was 34.9% and 37.4% in the third quarter and
first nine months of fiscal 1999 compared to 37.9% and 38.1%, respectively, in
the comparable periods of fiscal 1998. Contributing to the decrease in these
margins in the third quarter were increased costs in North American field
service related to increased Promina upgrade costs as well as increased third
party service costs. In addition, there were lower margins on systems
integration services in support of product sales to the U.S. government. Service
and other gross margin in the first nine months of fiscal 1999 compared to the
same period in fiscal 1998 were down slightly due to decreased gross margin in
the systems integration services.

Management expects total gross margin as a percentage of total revenue to
decrease slightly in the fourth quarter of fiscal 1999.

Operating Expenses

Operating expenses in the third quarter and first nine months of fiscal 1999
increased $1.2 million and $3.0 million, respectively, from the comparable
periods of fiscal 1998, and increased as a percentage of total revenue to 54.7%
from 48.4% quarter-over-quarter and 50.5% from 45.4% year-over-year as a result
of higher expenses and lower revenues. Management expects operating expenses to
increase slightly in the fourth quarter of fiscal 1999.

Sales and marketing expense increased $1.1 million and $1.6 million in the third
quarter and first nine months of fiscal 1999, respectively, from the comparable
periods of fiscal 1998. This expense increased as a percentage of total revenue
to 33.3% from 29.0% quarter-over-quarter and to 30.8% from 27.8% year-over-year.
The increase in spending quarter-over-quarter and year-over-year is primarily a
result of the increased headcount and its related expenses in the various field
sales organizations. Management expects sales and marketing spending to increase
slightly in the fourth quarter of fiscal 1999.

Research and development expense increased $.3 million and $.8 million in the
third quarter and first nine months of fiscal 1999, respectively, from the
comparable periods of fiscal 1998. This expense increased as a percentage of
total revenue to 16.9% from 15.1% quarter-over-quarter and to 15.3% from 13.8%
year-over-year. The increase in spending quarter-over-quarter and year-over-year
is the result of increased headcount and capital to support the ATM product
development. Management plans to continue funding research and development
efforts at levels necessary to advance product programs and expects research and
development spending to increase slightly in the fourth quarter of fiscal 1999.

                                       9

<PAGE>

General and administrative expense decreased $.1 million and increased $.6
million in the third quarter and first nine months of fiscal 1999, respectively,
from the comparable periods of fiscal 1998. This expense increased as a
percentage of total revenue to 4.5% from 4.3% quarter-over-quarter and to 4.4%
from 3.8% 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 in the fourth
quarter of fiscal 1999 to remain relatively flat with the expense in the third
quarter.

Non-Operating Items

Interest income for the third quarter and first nine months of fiscal 1999
decreased slightly due to a higher proportion of the investment portfolio being
invested in lower yield tax-free municipals.

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

Other income for the third quarter of fiscal 1999 remained flat with the
comparable period in fiscal 1998. In the first nine months of fiscal 1999, other
income increased $1.1 million compared to the first nine months of fiscal 1998
as a result of a gain of $1.0 million in the second quarter of fiscal 1999 on
the sale of a portion of equity securities held in a publicly traded company.

The third quarter of fiscal 1999 included a tax benefit of $.3 million and the
first nine months of fiscal 1999 included a provision for income tax expense of
$2.4 million, at an effective rate of 30%. In the third quarter and first nine
months of fiscal 1998, the tax provisions were $1.2 million and $6.5 million,
respectively, at an effective rate of 32%.

The results for the first nine months of fiscal 1999 also included an
extraordinary gain of $.1 million arising from the repurchases of $1.0 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:

"In early 1997, the Company established a Year 2000 compliance team 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 compliance team is in
the process of assessing the impact of the advent of the Year 2000 on the
Company's products, customers, internal systems, both information and
non-information systems, third party suppliers, and sales."

Products

The Company has completed an evaluation of all its current product offerings to
determine Year 2000 compliance. The majority of the products sold currently by
the Company are Year 2000 compliant. While there are a few products still being
sold that are not compliant, these products are not a major source of Company
revenue and are planned for obsolescence by April 30, 1999. Non-compliant
products are identified in the N.E.T. Products Year 2000 Compliance Program
posted on the Company's web site (www.net.com). There can be no assurances,
however, that certain previous releases of the Company's products that are no
longer under support will prove to be Year 2000 compliant with customer's
systems or with existing networks.

                                       10

<PAGE>

Customers

After substantial completion of its product evaluation, 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 to posting on the
web, in late 1997, the Company mailed the then current Compliance Program
information to the majority of its customers. Not all customers, however,
especially those in locations outside the United States, have undertaken Year
2000 compliance programs. Issues with the Company's products' ability to handle
the transition to the year 2000 could result in increased warranty costs,
customer satisfaction issues, potential lawsuits and other material costs and
liabilities.

Internal Systems

The Year 2000 compliance team has been and is evaluating Year 2000 issues
related to the Company's internal systems, both information and non-information,
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. The
Company is identifying and testing its mission critical systems to identify Year
2000 problems, if any, and is in the process of developing plans to remediate
any identified Year 2000 problems. The Company expects Year 2000 internal
testing to be completed by March 31, 1999. Although the Company has not yet
determined whether all of the Company's internal systems are fully Year 2000
compliant, based upon the testing and evaluation to date, the Company believes
that the costs associated with remedying any Year 2000 problems will not be
material to the Company's operating results or financial position. The inability
to remedy a Year 2000 problem and the consequent failure of any internal
systems, however, could cause a material disruption in the Company's operation.
The Company is currently preparing a contingency plan to address possible risks
to its internal systems from any Year 2000 failure. 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.

Third Party Suppliers

The Company is in the process of reviewing its third party suppliers to
determine the suppliers' Year 2000 compliance as it impacts the services and
products supplied to the Company. The third party supplier reviews to date have
not uncovered any material Year 2000 problems although most suppliers are
currently still in the process of evaluating their internal systems for Year
2000 compliance. In the event any supplier is not Year 2000 compliant, the
Company is in the process of developing contingency plans to ensure that any
potential business interruption caused by Year 2000 problems are mitigated. The
costs of these contingency plans are still being evaluated and these costs may
have an adverse effect on the Company's financial position or results of
operation. Third party supplier Year 2000 failures remain a possibility and
could have an adverse impact on the Company's operation and financial results.

Sales

The Company's revenue may be adversely impacted if current and prospective
customers devote a substantial portion of their information systems spending to
evaluation and remediation of Year 2000 issues that could divert money away from
spending on networking solutions. This diversion could have a material adverse
impact on the Company's future sales volume.

The Company cannot predict the ultimate outcome of its Year 2000 Compliance
Program. If its Year 2000 Compliance Program is not successful in identifying
and remediating Year 2000 problems or if suppliers of customers material to the
Company experience Year 2000 failures, the Company's business, financial
condition or results of operation may be materially adversely affected.

                                       11

<PAGE>

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 third party 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.

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

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<PAGE>

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 December 27, 1998, the Company had cash, cash equivalents and temporary
cash investments of $151.3 million, as compared to $161.5 million as of March
31, 1998. Cash provided by operations was $23.9 million during the first nine
months of fiscal 1999, which was a $2.4 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 which was partially
offset by a decrease in accounts receivable during the first nine months of
fiscal 1999.

Net cash used for investing activities of $27.4 million for the first nine
months of fiscal 1999 consisted primarily of purchases of property and equipment
of $28.8 million, of which $11.7 million was related to the new corporate
headquarters, and additions to software production costs of $2.4 million.

Net cash used for financing activities of $2.4 million for the first nine 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 $1.0 million partially offset by $4.2 million received from the
issuance of Common Stock relating to the employee stock benefit plans.

As of December 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 December 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 $12.5 million, net of
landlord contributions, in the first nine months of fiscal 1999, most of which
has been capitalized. The Company estimates that additional capital expenditures
related to this facility will be insignificant 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.

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<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 5.   Other Information

          On January 22, 1999, the Company announced that effective March 31,
          1999, or until a successor is name, whichever occurs first, Joseph J.
          Francesconi was resigning as President and Chief Executive Officer.

          Effective January 4, 1999, James B. De Golia resigned as Vice
          President, General Counsel and Assistant Secretary of the Company.

          Effective January 1, 1999, the Company appointed Robert P. Bowe as
          Acting Chief Financial Officer.

          Effective January 1, 1999, the Company appointed Robert T. Warstler as
          Senior Vice President, North America.

          Effective December 22, 1998, the Company appointed Roger A. Barney as
          Assistant Corporate Secretary.

Item 6.  Exhibits and Reports on Form 8-K

          (a)  Exhibits

               Exhibit 27.0 Financial Data Schedule for the nine months ended
               December 27, 1998.

          (b)  Reports on Form 8-K

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

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<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:  February 9, 1999                           /s/ Roger A. Barney
                                                  ------------------------------
                                                  Roger A. Barney
                                                  Senior Vice President,
                                                  Corporate Services and
                                                  Assistant Corporate Secretary



                                                  /s/ Robert P. Bowe
                                                  ------------------------------
                                                  Robert P. Bowe
                                                  Acting Chief Financial Officer
                                                  and Corporate Controller
                                                  (Principal Financial and
                                                  Accounting Officer)

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