<PAGE>

                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 29, 2000

                                       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)

                            6530 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, par
value $.01, on December 29, 2000 was 21,839,677.

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


This document consists of 22 pages of which this is page 1.
<PAGE>

                      NETWORK EQUIPMENT TECHNOLOGIES, INC.

                                      INDEX

                                                                           Page
                                                                          Number
                                                                          ------

PART I.         FINANCIAL INFORMATION

        Item 1. Condensed Consolidated Financial Statements

                Condensed Consolidated Balance Sheets -
                December 29, 2000 and March 31, 2000                          3

                Condensed Consolidated Statements of Operations and
                Statements of Comprehensive Income (Loss)- Three and
                Nine Months ended December 29, 2000 and December 26, 1999     4

                Condensed Consolidated Statements of Cash Flows -
                Nine Months ended September 29, 2000 and September 26, 1999   5

                Notes to Condensed Consolidated Financial Statements          6

        Item 2. Management's Discussion and Analysis of
                Results of Operations and Financial Condition                 9

        Item 3. Quantitative and Qualitative Disclosures About Market Risk   20

PART II.        OTHER INFORMATION

        Item 5  Other Information                                            21

        Item 6  Exhibits and Reports on Form 8-K                             21

SIGNATURES                                                                   22


                                       2.
<PAGE>

                                     Part I
                              Financial Information

Item 1.

                      NETWORK EQUIPMENT TECHNOLOGIES, INC.
                      Condensed Consolidated Balance Sheets
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                December 29,       March 31,
                                                                                        2000            2000
------------------------------------------------------------------------------------------------------------
                                                                                 (unaudited)             (1)
<S>                                                                                <C>             <C>
Assets
    Current assets:
        Cash and cash equivalents, $830 restricted at December 29, 2000
           and $13,144 restricted at March 31, 2000                                $  13,743       $  28,024
        Short term investments                                                       134,262          96,902
        Accounts receivable, net of allowances of $5,261 at December 29, 2000
            and $5,350 at March 31, 2000                                              22,647          39,317
        Inventories                                                                   19,284          17,691
        Prepaid expenses and other current assets                                      9,335           6,087
------------------------------------------------------------------------------------------------------------
            Total current assets                                                     199,271         188,021
------------------------------------------------------------------------------------------------------------
    Property and equipment, net                                                       32,826          41,621
    Software production costs, net                                                     2,642           4,821
    Goodwill and other intangible assets, net                                         13,897          15,220
    Other assets                                                                       2,798          10,311
------------------------------------------------------------------------------------------------------------
                                                                                   $ 251,434       $ 259,994
============================================================================================================
Liabilities and Stockholders' Equity
    Current liabilities:
        Accounts payable                                                           $   9,490       $   9,009
        Accrued and other current liabilities                                         36,137          40,119
------------------------------------------------------------------------------------------------------------
            Total current liabilities                                                 45,627          49,128
------------------------------------------------------------------------------------------------------------
    Long-term liabilities:
        Capital leases                                                                   141             186
        Long term accrued liabilities                                                     28              --
        71/4% redeemable convertible subordinated debentures                          24,706          24,706
------------------------------------------------------------------------------------------------------------
            Total long term liabilities                                               24,875          24,892
------------------------------------------------------------------------------------------------------------
    Stockholders' equity:
        Preferred stock, par value $.01
            Authorized: 5,000,000 shares
            Outstanding: none                                                             --              --
        Common stock, par value $.01
            Authorized: 50,000,000 shares
            Outstanding: 21,839,677 shares at December 29, 2000
                and 21,602,000 at March 31, 2000                                         218             216
        Additional paid in capital                                                   182,305         181,683
        Treasury stock                                                                (4,768)         (5,640)
        Retained earnings                                                              3,596          11,064
        Accumulative other comprehensive loss                                           (879)         (1,349)
        Accumulated other comprehensive loss                                            (419)         (1,349)
------------------------------------------------------------------------------------------------------------
            Total stockholders' equity                                               180,932         185,974
------------------------------------------------------------------------------------------------------------
                                                                                   $ 251,434       $ 259,994
============================================================================================================
</TABLE>

See Accompanying Notes to Condensed Consolidated Financial Statements
(1) Derived from the March 31, 2000 audited consolidated financial statements


                                       3.
<PAGE>

                      NETWORK EQUIPMENT TECHNOLOGIES, INC.
               Condensed Consolidated Statements of Operations and
                    Statements of Comprehensive Income (Loss)
                (in thousands, except per share data - unaudited)

<TABLE>
<CAPTION>
                                                                         Three Months ended              Nine Months ended
                                                                       ----------------------         ----------------------
                                                                       Dec. 29,      Dec. 26,         Dec. 29,      Dec. 26,
                                                                         2000          1999             2000          1999
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>            <C>             <C>
Revenue:
    Product revenue                                                   $ 15,509       $ 27,507       $  58,644       $ 107,116
    Service and other revenue                                           15,777         23,735          58,602          71,469
-----------------------------------------------------------------------------------------------------------------------------
        Total revenue                                                   31,286         51,242         117,246         178,585
-----------------------------------------------------------------------------------------------------------------------------
    Cost of product revenue                                              9,726         13,815          32,887          50,890
    Cost of service and other revenue                                   10,963         14,654          38,341          44,382
-----------------------------------------------------------------------------------------------------------------------------
        Total cost of revenue                                           20,689         28,469          71,228          95,272
-----------------------------------------------------------------------------------------------------------------------------
Gross margin                                                            10,597         22,773          46,018          83,313
Operating expenses:
    Sales and marketing                                                 10,864         17,208          33,989          53,849
    Research and development                                             9,092          9,679          28,873          31,931
    General and administrative                                           3,030          3,847           9,608          11,020
    Restructure cost                                                        --             --            (158)          3,383
    In process research and development                                     --            879              --             879
    Amortization of goodwill and other intangible assets                   861             --           2,523              --
-----------------------------------------------------------------------------------------------------------------------------
        Total operating expenses                                        23,847         31,613          74,835         101,062
-----------------------------------------------------------------------------------------------------------------------------
           Loss from operations                                        (13,250)        (8,840)        (28,817)        (17,749)

Interest income                                                          2,081          2,064           5,896           5,217
Interest expense                                                          (442)          (445)         (1,556)         (1,400)
Other income (expenses)                                                 14,770           (198)         14,760           7,263
-----------------------------------------------------------------------------------------------------------------------------
           Income (loss) before income taxes                             3,159         (7,419)         (9,717)         (6,669)

Income tax provision (benefit)                                          (2,276)        12,583          (2,252)         12,771
-----------------------------------------------------------------------------------------------------------------------------
           Net income (loss)                                          $  5,435       $(20,002)      $  (7,465)      $ (19,440)
=============================================================================================================================
Earnings (loss) per share:

    Basic                                                             $   0.25       $  (0.93)      $   (0.34)      $   (0.91)

    Diluted                                                           $   0.25       $  (0.93)      $   (0.34)      $   (0.91)
=============================================================================================================================
Shares used in per share computation:

    Basic                                                               21,738         21,406          21,685          21,375

    Diluted                                                             21,773         21,406          21,685          21,375
=============================================================================================================================

Condensed Consolidated Statements of Comprehensive Income (Loss)
-----------------------------------------------------------------------------------------------------------------------------

Net income (loss)                                                     $  5,435       $(20,002)      $  (7,465)      $ (19,440)

Other comprehensive income (loss), net of tax:

    Cumulative translation gains                                            37            (52)             27              38
    Net unrealized gains (losses) on securities, net of taxes              423           (214)            844          (7,195)
    Less reclassification adjustment for gains
        included in net income                                              13            (68)             86           7,445
-----------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                           $  5,908       $(20,336)      $  (6,508)      $ (19,152)
=============================================================================================================================
</TABLE>

See Accompanying 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. 29,       Dec. 26,
                                                                           2000           1999
------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>
Cash and cash equivalents at beginning of year                          $ 28,024       $  13,720
------------------------------------------------------------------------------------------------
Cash flows from operating activities:
    Net income (loss)                                                     (7,465)        (19,440)
    Adjustments required to reconcile net income (loss) to net
        cash used in operations:
           Depreciation and amortization                                  12,360          17,154
           Amortization of goodwill and intangibles                        2,523              --
           Restructure liability                                           4,404           2,985
           Gain on sale of federal services business                     (14,920)             --
           Restricted stock compensation                                      --               7
           Deferred income taxes                                              --          10,943
           Loss on disposition of property and equipment                     526             471
           Changes in assets and liabilities:
               Accounts receivable                                         7,237           4,834
               Inventories                                                (1,599)          3,109
               Prepaid expenses and other current assets                  (1,898)         (2,915)
               Accounts payable                                            1,638          (5,992)
               Accrued liabilities                                       (12,492)            323
------------------------------------------------------------------------------------------------
    Net cash provided by (used in) operations                             (9,686)         11,479
------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Purchases of temporary cash investments                              (84,810)        (90,958)
    Maturities of short term investments                                  48,294         116,083
    Purchases of property and equipment                                   (6,604)         (4,719)
    Additions to software production costs                                    --          (1,630)
    Cash paid for Convergence assets acquisition                          (1,500)             --
    Acquisition of company (net of cash acquired)                             --         (14,460)
    Sale of federal services business                                     24,900
    Other                                                                  3,481             599
------------------------------------------------------------------------------------------------
        Net cash provided by (used in) investing activities              (16,239)          4,915
------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Sale of common stock                                                   2,909           2,805
    Repurchase of common stock                                            (1,413)         (3,775)
    Insurance settlement proceeds                                         10,000              --
------------------------------------------------------------------------------------------------
        Net cash provided by (used in) financing activities               11,496            (970)
------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                                      148             196
------------------------------------------------------------------------------------------------
        Net increase (decrease) in cash and cash equivalents             (14,281)         15,620
------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                $ 13,743       $  29,340
================================================================================================
Other cash flow information: Cash paid (refunded) during the year:
        Interest                                                        $  1,806       $   1,839
        Income taxes                                                          22          (6,338)
    Non-cash investing and financing activities:
        Unrealized gain (loss) on available-for-sale securities         $    844       $  (7,195)
</TABLE>

See Accompanying Notes to Condensed Consolidated Financial Statements


                                       5.
<PAGE>

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

1. Basis of Presentation

The condensed consolidated financial statements include the accounts of Network
Equipment Technologies, Inc. doing business as net.com ("net.com") and its
subsidiaries. Intercompany accounts and transactions have been eliminated.

Beginning fiscal year 2001, net.com began using a fiscal year consisting of four
13 week quarters. In all previous years we used a modified four 13 week quarter
fiscal year that resulted in the first quarter of the fiscal year being shorter
than 13 weeks and the fourth quarter being longer than 13 weeks due to quarter
ending dates. The new fiscal year period being used is intended to better
reflect quarter over quarter performance.

We have reclassified certain general and administrative expenses in the prior
year's Condensed Consolidated Statement of Operations. These reclassifications
had no effect on Stockholders' Equity, Net income/loss or Net comprehensive
losses. This is intended to better reflect year over year comparisons of
operating results.

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 29, 2000, and the results of operations and cash flows
for the quarters ended December 29, 2000 and December 26, 1999. These financial
statements should be read in conjunction with the March 31, 2000 audited
consolidated financial statements and notes thereto. The results of operations
for the quarter ended December 29, 2000 are not necessarily indicative of the
results to be expected for the fiscal year ending March 31, 2001.

2. Inventories

Inventories are stated at lower of cost (first-in, first-out) or market and
include material, labor and manufacturing overhead costs. Inventories at
December 29, 2000 and March 31, 2000 consisted of the following:

(Dollars in thousands)                     December 29, 2000      March 31, 2000
--------------------------------------------------------------------------------

Purchased components                                 $ 4,637             $ 2,866
Work-in-process                                       13,699              13,868
Finished goods                                           948                 957
--------------------------------------------------------------------------------
                                                     $19,284             $17,691
================================================================================

3. Earnings (Loss) Per Share

Basic earnings (loss) per share have 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 the assumed exercise of dilutive
stock options. These shares totaled 36,000 and 441,000 for the quarters ended
December 29, 2000 and December 26, 1999, respectively. The shares for the
quarter ended December 26, 1999 were excluded from the per share computation.
Additionally, there were 784,000 shares of Common Stock issuable upon conversion
of debentures. These shares, and the related effect of the accrued interest on
the debentures, were not included in the calculation of diluted earnings per
share for the periods ended December 29, 2000 or December 26, 1999, as their
inclusion would have been antidilutive in both periods.

4. Comprehensive Income

Accumulated other comprehensive income (loss) at December 29, 2000 and March 31,
2000 is comprised of cumulative foreign translation adjustments of ($716,000)
and ($802,000), respectively, and cumulative net unrealized gains (losses) on
available-for-sale securities of $297,000 and ($547,000), respectively.

5. Restructure Costs

Fourth Quarter Fiscal Year 1999 Restructuring

The Consolidated Statements of Operations for fiscal 1999 included a charge of
$4.7 million, consisting of $4.6 million for employee severance and other
related costs and $135,000 for office closures. A restructuring accrual of
$724,000 remains as of December 29, 2000. We expect that the accrual will be
paid in its entirety by the end of fiscal 2003.


                                       6.
<PAGE>

                                     Restructure             Paid      Remaining
                                          Charge          To Date        Accrual

Compensation                              $3,964            3,240            724
Outplacement                                 597              597             --
Office closures                              135              135             --
--------------------------------------------------------------------------------
      Totals                              $4,696           $3,972           $724
================================================================================

Second Quarter Fiscal Year 2000 Restructuring

The Condensed Consolidated Statements of Operations for fiscal 2000 included a
charge of $3.4 million taken in the second quarter of fiscal year 2000,
consisting of $3.2 million for employee severance and other related costs and
$174,000 for office closures. A restructuring accrual of $110,000 remains as of
December 29, 2000. We expect that the accrual will be paid in its entirety by
the end of fiscal 2003.

                                     Restructure             Paid      Remaining
                                          Charge          To Date        Accrual

Compensation                              $2,912           $2,802           $110
Outplacement                                 266              266             --
Office closures                              174              174             --
--------------------------------------------------------------------------------
      Totals                              $3,352           $3,242           $110
================================================================================

Fourth Quarter Fiscal Year 2000 Restructuring

The Condensed Consolidated Statements of Operations for fiscal 2000 included a
charge of $12.2 million taken in the fourth quarter of fiscal 2000 consisting of
$7.3 million for employee severance and other related costs and $4.9 million for
office closures and related costs. A restructuring accrual of $4.2 million
remains as of December 29, 2000. We expect that the accrual will be
substantially paid during fiscal 2001.

                                   Restructure             Paid        Remaining
                                        Charge          To Date          Accrual

Compensation                           $ 6,710            6,241              469
Outplacement                               636              538               98
Office closures                          4,869            1,197            3,672
--------------------------------------------------------------------------------
      Totals                           $12,215           $7,976           $4,239
================================================================================

Accrual Evaluation

In the quarter ended September 29, 2000 we evaluated the adequacy of the
remaining accruals for the fourth quarter fiscal year 1999 restructuring and
second quarter fiscal year 2000 restructuring. This evaluation resulted in a
$158,000 credit due to actual expenditures being slightly less than the original
estimate.

6. Recently Issued Accounting Standards

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, establishes
accounting and reporting standards for derivative instruments. Adoption of this
statement will not materially impact our consolidated financial condition,
results of operations or cash flows. This statement is effective for us
beginning April 1, 2001.

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements" which summarizes certain of the
SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We believe that our revenue
recognition policy complies with the provisions of SAB No. 101.

7. Assets Acquisition

In the first quarter of fiscal 2001, we acquired the assets of privately held
Convergence Equipment Company ("Convergence") from Global Communication
Technologies, Inc. for $1.5 million in cash. Convergence designs and


                                       7.
<PAGE>

manufactures next generation IP (internet protocol) telephony platforms. The
acquisition was accounted for as a purchase. Included in the transaction is
property, plant and equipment valued at $300,000 and the Convergence engineering
team, intellectual property, and a full-featured IP voice switch valued at $1.2
million. The $1.2 million is classified as an intangible asset and will be
amortized over 5 years. The operating results for Convergence have been included
in the consolidated statements of operations for net.com effective May 4, 2000,
the date of the acquisition.

8. Employee Stock Purchase Plan Share Issuance

Under net.com's 1998 Employee Stock Purchase Plan ("ESPP"), net.com's employees,
subject to certain restrictions, may purchase shares of net.com Common Stock at
a price equal to at least 85% of the lower of the market value of the Common
Stock at the beginning of the offering period or at the end of each four month
purchase period. In the first fiscal quarter of fiscal year 2001 net.com
discovered that for the April 28, 2000 ESPP purchase date, it had inadvertently
failed to register 49,343 shares of the total 78,461 shares issued under the
ESPP. net.com notified those employees who received the unregistered shares of
their right to seek recission of their purchase of these shares by requesting
that net.com repurchase the unregistered shares at the original price paid by
the employee plus interest at the legal rate. All shares were sold at $6.80 per
share for a total aggregate repurchase price of $335,532 plus interest. To date,
no employees have exercised their right of recission. They have, however,
approximately eight months remaining in which to exercise this right.

9. Sale of N.E.T. Federal, Inc.'s Professional Service Business

On December 1, 2000, we sold the assets of our federal services business
("F.S.B.") to CACI International, Inc. ("CACI") for a cash consideration of up
to $40.0 million. The assets sold are comprised mainly of federal government
service contracts, accounts receivable, spares inventory and fixed assets. The
purchase price is expected to be paid out over time beginning with $24.9 million
paid at the closing, $1.0 million six months after closing and $1.0 million held
in escrow and payable one year after closing (if no successful indemnification
claims are made). The remaining $13.0 million is payable contingent upon
transfer to CACI of work performed under certain net.com federal contracts. The
net gain on the sale to date is $14.9 million. Additionally CACI and net.com
have entered into a royalty agreement whereby net.com and CACI will share in the
increase in maintenance revenue above an agreed upon base amount on net.com
products.

The operating results of the F.S.B. has been excluded from the consolidated
statements of operations since the date of sale. Had the sale taken place at the
beginning of fiscal year 2000, the unaudited pro forma results of operations
would have been as follows for the nine months ended December 29, 2000 and
December 26, 1999 (in thousands except for per share data):

                                                    Nine Months ended
                                            Dec. 29, 2000       Dec. 26, 1999
                                            ---------------------------------
    Net revenues                             $     84,256        $    142,239
    Net  loss                                $    (34,872)       $    (33,193)
    Basic and diluted loss per share         $      (1.61)       $      (1.55)

The pro forma results of operations give effect to certain adjustments,
including adding back the effect of fixed corporate allocations.

In determining the allocation of certain revenues and expenses, management has
made estimates and assumptions that affect the reported amount of F.S.B.
revenues and expenses. Actual results could differ from these amounts.

10. Income Tax Benefit

During the quarter ended December 29, 2000 we reevaluated the adequacy of our
tax liability reserves taking into account the statute of limitations on
previuosly filed tax returns as well as our expected fiscal year 2001 net
losses. The result of this reevaluation was to reduce the amount of necessary
reserves and to record a tax benefit of $2.2 million.


                                       8.
<PAGE>

Item 2.

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

This discussion and analysis should be read in conjunction with Part I of the
Company's Form 10-K for the fiscal year ended March 31, 2000.

Statements made in this Management's Discussion and Analysis or elsewhere in
this quarterly report or other communications (including press releases and
analyst calls) contain forward-looking statements that involve risk and
uncertainty. These statements relate to future events or to our future financial
results. Forward-looking statements can often be identified by words such as
"may", "will", "should", "expect", "anticipate", "believe", "estimate" or words
of similar import. Our actual results may differ significantly from those
anticipated by any forward-looking statement as a result of a number of factors,
trends, and risks - many beyond our control. These factors and risks are
discussed further in the Business Environment and Risk Factors below and in the
Company's Form 10-K for the year ending March 31, 2000. We do not undertake an
obligation to update these forward-looking statements or risk factors to
reflect future events or circumstances.

Sale of N.E.T. Federal, Inc.'s Professional Service Business

On December 1, 2000, we sold the assets of our federal services business
("F.S.B.") to CACI International, Inc. ("CACI") for a cash consideration of up
to $40.0 million. The assets sold are comprised mainly of federal government
service contracts, accounts receivable, spares inventory and fixed assets. The
purchase price is expected to be paid out over time beginning with $24.9 million
paid at the closing, $1.0 million six months after closing and $1.0 million held
in escrow and payable one year after closing (if no successful indemnification
claims are made). The remaining $13.0 million is payable contingent upon
transfer to CACI of work performed under certain net.com federal contracts. The
net gain on the sale to date is $14.9 million. Additionally CACI and net.com
have entered into a royalty agreement whereby net.com and CACI will share in the
increase in maintenance revenue above an agreed upon base amount on net.com
products.

Results of Operations

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

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                           Three Months Ended       Nine Months Ended
                                           --------------------    --------------------
                                           Dec. 29,    Dec. 26,    Dec. 29,    Dec. 26,
Percent of Revenue                           2000        1999        2000        1999
---------------------------------------------------------------------------------------
<S>                                         <C>         <C>         <C>         <C>
Product revenue                              49.6        53.7        50.0        60.0
Service and other revenue                    50.4        46.3        50.0        40.0
                                            -----       -----       -----       -----
     Total revenue                          100.0       100.0       100.0       100.0
                                            -----       -----       -----       -----

Product gross margin                         37.3        49.8        43.9        52.5
Service and other revenue gross margin       30.5        38.3        34.6        37.9
                                            -----       -----       -----       -----
     Total gross margin                      33.9        44.4        39.3        46.7
                                            -----       -----       -----       -----

Sales and marketing                          34.7        33.6        29.0        30.2
Research and development                     29.1        18.9        24.6        17.9
General and administrative                    9.7         7.5         8.2         6.2
Amortization of intangibles                   0.3         0.0         0.2         0.0
In Process R&D                                0.0         1.7         0.0         0.5
Reorganization expense                       (0.0)        0.0        (0.0)        1.9
                                            -----       -----       -----       -----
     Total operating expenses                76.2        61.7        63.8        56.6
                                            -----       -----       -----       -----

Income (loss) from operations               (42.3)       17.3)      (24.6)       (9.9)
                                            -----       -----       -----       -----

Net income (loss)                            17.4       (39.0)       (6.4)      (10.9)
                                            =====       =====       =====       =====
---------------------------------------------------------------------------------------
</TABLE>


                                       9.
<PAGE>

Revenue

Total revenue for the third quarter of fiscal 2001 decreased $20.0 million to
$31.3 million, or 38.9% from the third quarter of fiscal 2000, and decreased
$61.3 million to $117.2 million, or 34.3%, on a year-to-date basis. Similarly,
product revenue for the third quarter of fiscal 2001 decreased $12.0 million to
$15.5 million, or 43.6% from the third quarter of fiscal 2000, and decreased
$48.5 million to $58.6 million, or 45.3%, on a year-to-date basis. During the
third quarter and the first nine months of fiscal 2001, product revenue declined
in all of our sales channels, North America, Federal, Europe, and Asia
Pacific/Latin America compared to both these prior periods. The decrease in
product revenue was primarily due to a decline in sales of our circuit switched
or "narrowband" product line Promina(R), which accounts for the majority of our
product sales. The market for narrowband products is declining as the market for
packet switched or "broadband" products is increasing. Net.com is currently
developing new products for the broadband equipment market, which are intended
to offset the decline in revenue of our Promina product line. In addition, sales
of new voice-over-IP product ("VOIP"), SHOUTip, have not begun to contribute
materially to our business due to extended selling cycles. Although we have
begun shipping limited quantities of both of our new broadband and voice-over-IP
products in fiscal 2001, we do not expect significant revenue from these
products until fiscal 2002.

Service and other revenue for the third quarter and first nine months of fiscal
2001 decreased $8.0 million to $15.8 million or 33.5%, from the third quarter of
fiscal 2000, and decreased $12.9 million to $58.6 million, or 18.0%, on a
year-to date basis. The decrease in service and other revenue in the third
quarter of fiscal year 2001 is primarily the result of our sale of the F.S.B to
CACI International, which accounted for $5.6 million of the decline. In
addition, the decrease in service and other revenue is a result of a decline in
the installed base of equipment that requires ongoing service support. We expect
service and other revenue to continue to decline as a result of the sale of the
F.S.B. and the installed base of narrowband equipment that requires service
declines.

Gross Margin

Total gross margin, comprised of product and service margin, decreased as a
percentage of total revenue to 33.9% and 39.3% in the third quarter and first
nine months of fiscal 2001, respectively, compared to 44.4% and 46.7% for both
comparable periods in fiscal 2000. Total gross margins declined as a result of
both lower product revenues and lower service and other revenues. Product
revenue gross margins declined to 37.3% and 43.9% in the third quarter and first
nine months of fiscal 2001, respectively, compared to 49.8% and 52.5% for both
comparable periods in fiscal 2000. The decline in product gross margins was
caused primarily by unfavorable manufacturing variances that resulted from
relatively fixed manufacturing overhead on lower volume. In addition, direct
material cost for the Promina product line, increased approximately 10% in the
third quarter of fiscal 2001.

Service and other revenue gross margin decreased to 30.5% and 34.6% in the third
quarter and first nine months of fiscal 2001, respectively, compared to 38.3%
and 37.9% for both comparable periods in fiscal 2000. The decrease in gross
margin was the result of lower service contract revenue and relatively fixed
service support expenses. The sale of the Federal Services Business is expected
to lower service and other revenue gross margins in the fourth quarter of fiscal
2001 and in other future periods. We are in the process of consolidating the
number of third party service providers with whom we contract to provide service
to customers in North America in order to reduce costs which is expected to have
a favorable impact on service margins and improve the quality of service.

Operating Expenses

Operating expenses in the third quarter and the nine six months of fiscal 2001
decreased $7.8 million to $23.8 million, and $26.2 million to $74.8 million,
respectively, from the comparable periods of fiscal 2000. Operating expenses as
a percentage of total revenue increased to 76.2% from 61.7% quarter-over-quarter
and 63.8% from 56.6% year-over-year. The decrease in operating expenses is
primarily due to lower headcount resulting from the restructuring that occurred
in the fourth quarter of fiscal 2000 and other expense reduction efforts. The
increase in operating expenses as a percentage of total revenue resulted
primarily from the lower revenues in the third quarter and first nine months of
fiscal 2001 compared to both these prior periods. We continue to focus on cost
control and expect operating expenses to remain relatively constant for the
remainder of the fiscal year.

Sales and marketing expense decreased $6.3 million to $10.9 million and $19.9
million to $34.0 million in the third quarter and first nine months of fiscal
2001, respectively, from the comparable periods of fiscal 2000. Sales and
marketing expense as a percentage of total revenue increased to 34.7% from 33.6%
quarter-over quarter and was relatively constant on a year-over-year comparison.
The decrease in spending is primarily the result of lower compensation related
costs as a result of reduced headcount and reduced product revenues. We expect
sales and marketing expenses to remain approximately flat for the remainder of
the fiscal year.


                                      10.
<PAGE>

Research and development expense decreased $587,000 to $9.1 million and $3.1
million to $28.9 million in the third quarter and first nine months of fiscal
2001, respectively, from the comparable periods of fiscal 2000. The decrease in
spending is primarily the result of lower compensation related costs on reduced
headcount. In addition, consulting expense was lower in the third quarter and
first nine months of fiscal 2001 from the comparable periods in fiscal 2000.
Research and development expenses as a percentage of total revenue increased to
29.1% from 18.9% quarter-over-quarter and to 24.6% from 17.9% year-over-year.
The increase in research and development spending as a percentage of total
revenue is principally the result of lower revenue. We intend to focus research
and development resources on development and release of new broadband product
offerings and as a result, we expect spending to remain constant or increase
slightly for the remainder of fiscal 2001.

General and administrative expense decreased $817,000 to $3.0 million and $1.4
million to $9.6 million in the third quarter and first nine months of fiscal
2001, respectively, from the comparable periods of fiscal 2000. The decrease in
spending is primarily the result of lower consulting expenses. General and
administrative expense as a percentage of total revenue increased to 9.7% from
7.5% quarter-over-quarter and to 8.2% from 6.2% year-over year. The increase in
general and administrative spending as a percentage of total revenue is
principally the result of lower revenue. We expect general and administrative
expenses to remain constant or decline slightly for the remainder of the fiscal
year as a result of a decline in consulting expenses.

Amortization of goodwill and other intangible assets was $861,000 and $2.5
million in the third quarter and first nine months of fiscal 2001, respectively.
The amortization is a result of two recent acquisitions, FlowWise Networks Inc.
in the third quarter of fiscal 2000 and Convergence Equipment Company in the
first quarter of fiscal 2001. Goodwill and other intangibles will be amortized
on a straight-line basis over five years.

Other operating expense for the first nine months of fiscal 2001 includes a
credit for $158,000 in the second quarter of fiscal 2001. The credit resulted
from a change in estimates for a restructuring charge accrued in fiscal 2000.

Non-Operating Items

Interest income, primarily related to short term investments, was flat in the
third quarter of fiscal 2001 compared to the comparable period in fiscal 2000
and increased $679,000 to $5.9 million on a year-to-date basis. The increase is
primarily the result of higher yields from our investment portfolio for the
first nine months of fiscal 2001 compared the first nine months of fiscal 2000.

Interest expense was flat quarter over quarter and increased $156,000 for the
first nine months of fiscal 2001 from the comparable period of fiscal 2000.
Interest expense is comprised primarily of the expense related to the 7 1/4%
convertible debentures. The increase is primarily related to debt obligations
assumed as part of the acquisition of FlowWise Networks, Inc. in the third
quarter of fiscal 2000.

Other income in the third quarter of fiscal 2001 included a net gain of $14.9
million from the sale of the Federal Services Business. Other expense, primarily
related to currency gain or loss was relatively constant in the third quarter of
fiscal 2001 compared to the comparable period in fiscal 2000. Other income in
the first nine months of fiscal 2000 included a net gain $7.5 million from the
sale of all of the equity securities held in a publicly traded company.

LIQUIDITY AND CAPITAL RESOURCES

As of December 29, 2000, the Company had cash and cash equivalents of $13.7
million and short term investments of $134.3 million for a total of $148.0
million, as compared to a total of $124.9 million as of March 31, 2000. The
increase in a cash and cash equivalents is primarily the cash received from the
sale of the Federal Services Business. Cash and cash equivalents decreased $14.3
million and short term investments increased $37.4 million in the first nine
months of fiscal 2001 as compared to March 31, 2000. The net operating losses
and the related effect on cash in fiscal 2001 was offset by the $24.9 million in
cash received from the sale of the Federal Services Business and insurance
proceeds of $10.0 million received in the first quarter of fiscal 2001 as
discussed below.

Cash used by operations was $9.7 million during the first nine months of fiscal
2001, compared to cash provided by operations of $11.5 million in the comparable
period from the prior year. The net decrease of $21.2 million year-over year
resulted primarily from a reduction in accrued liabilities of $12.5 million, a
reduction in depreciation and amortization expense of $4.8 million, and an
increase in accounts payable of $1.7 million.

Net cash used by investing activities in the first nine months of fiscal 2001
was $16.2 million compared to net cash provided by investment activities of $4.9
million in the first nine months of fiscal 2000. Net cash used for investing


                                       11.
<PAGE>

activities in the first nine months of fiscal 2001 consisted primarily of
purchases of short term investments of $84.8 million partially offset by net
cash provided from investing activities of $48.3 million from proceeds from
maturities of short term investments and the $24.9 million cash received from
the sale of the Federal Services Business. Net cash provided by investing
activities in the first nine months of fiscal 2000 consisted primarily of
proceeds from maturities of short term investments of $116.1 million, partially
offset by net cash used for investing activities of $91.0 million from purchases
of short term investments and $14.5 million for the acquisition of Flow Wise
Networks.

Net cash provided by financing activities in the first nine months of fiscal
2001 was $11.5 million compared to net cash used for financing activities of
$1.0 million in the first nine months of fiscal 2000. The $12.5 million increase
was primarily related to insurance proceeds of $10.0 million, the first payment
associated with the settlement of construction defects at our Fremont campus.
Pursuant to our settlement agreement, we will be eligible to receive additional
insurance proceeds as a function of the costs incurred for moving and
replacement of tenant improvements. In addition, cash provided by financing
activities in the first nine months of fiscal 2001 included $2.9 million from
the sale of common stock partially offset by the net cash used by investment
activities of $1.4 million from the repurchase of common stock.

The Board of Directors re-authorized a share repurchase program in October of
1999. During the first six months of fiscal 2001, 170,800 common shares at an
average price of $8.27 per common share were repurchased. We intend to continue
the share repurchase program in fiscal 2001 and from time to time will reenter
the market to repurchase shares.

We believe that we will be able to continue to fund operations, purchases of
capital equipment and research and development programs currently planned at
least through the next 12 months.

BUSINESS ENVIRONMENT AND RISK FACTORS

net.com's business is subject to the risks below. Although we have tried to
identify the material risks to our business, this is not an all-inclusive list.
There may be additional risks not listed because either they have not yet been
identified or they are not material now, although they could become material in
the future. Any one of the risks identified below could materially impact our
business, results of operation or financial condition.

net.com has lost money in Fiscal Year 2000 and 2001 to date and expects to incur
losses in future quarters

While we have been profitable in the past, for the past six quarters, excluding
the gain on the sale of the F.S.B., and for eight out of the last nine quarters
we have had losses. We will continue to incur large research and development,
marketing and sales expenses to release our new SCREAM(TM) product line.
Although we have taken a number of measures to reduce expenditures, our SCREAM
expenditures mean we need to generate significant revenues to achieve
profitability. Since we do not foresee revenue growth from our existing Promina
product line, profitability will need to come from the growth in revenue
associated with the introduction of new products including those recently
acquired. Even if we do achieve profitability in a future quarter, we cannot
guarantee that that profitability will be sustainable.

Cash reserves may decrease if losses continue

Until we become profitable the risk of our cash reserves declining is
significant. Depletion of our cash reserves could negatively affect our stock
price.

A continuation of the down turn in the national economy could materially impact
our revenue and as a result, earnings and our stock price

Growth in the U.S. economy slowed significantly in the third quarter. Companies
in many different market sectors have been impacted by the slow down.
Telecommunications and other technology related markets in particular have seen
growth slow significantly. This slow growth has led to decreased revenue or
earnings, which in turn has led to declines in the stock price for the
technology sector as a whole. Net.com has seen its stock price decrease along
with its competitors and others in technology. Should the U.S. economy continue
its slow down, net.com's revenues, earnings and ultimately its stock price could
be materially affected.


                                      12.
<PAGE>

Our operating results are likely to fluctuate thereby affecting our stock price

Our operating results may be subject to quarterly fluctuations as a result of
many different factors. Some of those factors include:

1) General economic conditions in the United States and abroad that can affect
capital spending decisions of our customers.

2) Decreased demand for our Promina circuit switched products due to a decline
in the markets for our technologies. We expect that in the future, net sales of
our Promina products will remain below what we experienced in previous years.
The market for circuit switched networking products appears to be decreasing,
possibly substantially, as commercial customers in the United States initially
and worldwide thereafter increasingly adopt packet or "broadband" technologies.
We cannot predict the speed at which the transition from circuit to packet
technologies will occur. The transition may occur more rapidly than we have
anticipated, which would cause quarterly fluctuations in product sales to
increase and could have other adverse effects on our financial results.

3) Market conditions including increased competition from our competitors' new
or enhanced products or the entry of new competitors in the markets we target.

4) At the current revenue levels our operating expenses are too high to enable
us to be profitable. Most of our expenses are fixed, rather than variable,
making it more difficult to reduce expenses rapidly. As a result, any shortfall
in revenue for a quarter may materially impact our financial condition and
results of operations.

5) Delays in introducing our new products to the market.

6) Our inability to ship products as ordered. This could be due to many factors
such as a shortage or delay in receiving component parts or other failures by
third party suppliers, or customers canceling orders or postponing shipments.
Our customers, including resellers, have the contractual right to delay
scheduled order delivery dates with minimal penalties and to cancel orders
within specified time frames with no penalty. Delays or cancellations make it
difficult to predict when an order may actually ship.

7) Our lack of backlogged product orders at the beginning of each quarter.
Historically, the majority of our revenue in each quarter has resulted from
orders received and shipped in that quarter. Neither in the fiscal year to date
or in the last fiscal year have we started a quarter with a sufficient amount of
backlogged orders to meet the sales forecast for that quarter. Because many
smaller networking equipment companies have the same ordering patterns yet still
see increased revenue growth, we do not believe that backlog is necessarily
indicative of future revenue levels. Without a backlog, we have been forced to
schedule production and commit to certain expenses based more upon forecasts of
sales, which are difficult to predict. Forecasting sales during a quarter is
difficult in part because a large portion of our orders historically have been
received and filled in the last month of the quarter. This ordering pattern
creates a significant risk of carrying too much or too little 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 we have available to
ship, our operating results for that or subsequent quarters would be adversely
affected.

While it would be extremely difficult to list all the factors that can affect
revenues in a quarter or a fiscal year, the factors listed above can have a
significant effect. Because of possible fluctuations resulting from these
various factors, results of operations in any one-quarter do not necessarily
indicate what results can be expected in future quarters. Future declines in
networking product sales for any reason could have a material adverse effect on
our business, financial condition or results of operations. Additionally, to the
extent that we do not achieve profitability in any given quarter or that our
forecasted revenue is below the expectations of the publicly traded markets, the
price of our common stock could fall, perhaps by a significant amount.

We expect gross margins to decline over future periods

Due to increases in competition, material and labor costs, subcontractor costs
and changes in the mix of products we sell, we expect that our gross margins
could decrease in future quarters. Some of our more recent new products may have
lower gross margins than our Promina product line, however we expect new product
offerings early next fiscal year to have similar or higher gross margins. In
addition, if product sales continue to decrease so that service revenue becomes
a larger part of overall revenue, overall margin may decrease as service
products traditionally have lower margins. Further, to the extent we expand our
sales through product resellers and strategic partnerships, reseller and partner
sales generally result in lower gross margins because of the need to build in a
margin for the


                                      13.
<PAGE>

reseller or partner. Recently our subcontractor manufacturer increased our
material costs by 10% due to increased demand and an overall shortage of
capacity in the semiconductor and other component industries. The current
economic slowdown may help alleviate some of the pricing pressure on component
parts, although the effect on the prices we pay for components is unclear. Any
one of these factors or all of them in combination may decrease our product
margins or our margins overall.

Our need to obsolete our STM product line could impact revenue in future periods

Due to an inability to find parts needed to manufacture our STM product line, we
will be working with our customers to end of life this product line effective at
the end of fiscal year 2001. In the third quarter of fiscal 2001, STM accounted
for 13.9% of our product revenue. We are not planning on replacing the STM with
another product line for that market. If revenue generated from our new products
is not sufficient to compensate for revenues lost from STM product sales, the
phase out of the STM product could impact our results of operations and
financial condition in future periods.

The recent declines in purchases by telecommunications service providers and the
overall decline of product sales in this market could impact sales of both our
narrowband and broadband product lines over the next several quarters

Beginning last quarter, the financial health of many of the newly emerging
telecommunications service providers, including many of the companies classified
as Competitive Local Exchange Carriers or "CLECs" began to deteriorate. In
addition other more established service providers may be cutting back on
equipment purchases as part of an overall slow down in the larger national
economy. We believe that many telecommunications equipment companies, including
net.com, were impacted by this decline. Should service providers continue to
reduce their equipment purchases, this could have a material impact on our
results of operations and financial conditions in future periods. In addition,
it could have a material impact on sales of our SCREAM product as this family of
products is targeted at the service provider market.

We are dependent in large part on the Promina product line until introduction of
net.com's SCREAM product line in full

Currently, we derive the majority of our product revenue from our Promina
product line, a circuit-based technology that we believe will eventually be
replaced entirely by our packet based product line, net.com's SCREAM. We believe
that circuit-based technology generally is becoming obsolete, but we cannot
foresee when this obsolescence will become complete. While we work to develop
our SCREAM product line, we are dependent upon our Promina products to generate
the bulk of our revenue. Upon introduction of SCREAM, it will take time to
develop the market for this product. Our ability to complete development of
net.com's SCREAM product line and to successfully introduce that product to the
market could materially affect our financial condition and results of operation.

The move from circuit to packet based products appears to be happening more
quickly in the commercial markets in the United States than elsewhere in the
world. Up until last fiscal year, our largest market was traditionally the
United States. This is where we have seen the largest drop-off in commercial
product sales. Consequently, international sales will continue to account for a
significant portion of our Promina sales in future periods. International sales
tend to have risks that are difficult to foresee and plan for including
political and economic stability, regulatory changes, currency exchange rates,
tax rates and structures, and collection of accounts receivable. Unforeseen
events in various areas of the globe may have an adverse impact on us. Further,
our international markets are served primarily by non-exclusive resellers who
themselves may be severely impacted by economic or market changes within a
particular country or region. Unforeseen or unpredictable changes in
international markets could have an adverse effect on our business, results of
operations and financial condition.

Our SHOUTip product line may not generate sufficient revenue in the near future

Our SHOUTip product is a voice over ip product that we obtained from our
purchase of Convergence Technologies in May 2000. The SHOUTip product has not
yet generated significant sales. While we continue to believe that the SHOUTip
product brings needed features and functionality to the voice-over-ip market, it
may take longer than originally projected for SHOUTip to generate significant
product revenue. Until this revenue, along with additional SCREAM revenue, is
generated, we will continue to rely on our Promina product line for most of our
product sales revenue.


                                      14.
<PAGE>

Growth in revenue is predicated upon timely release and market acceptance of our
SCREAM broadband product line

Although we believe the circuit switched product market to be declining, we
believe there is significant opportunity for growth in the packet switched
product market. That is why we have focused our research and development
activities on our new SCREAM broadband product line. We cannot guarantee,
however, that broadband product markets will grow as fast as we expect nor can
we guarantee that the market will readily adopt our product. If we fail to
release our broadband products on time, if our products do not have the features
and capabilities that the broadband market is looking for, or if our products
can not be competitively priced then our broadband product line may not generate
the revenue that we currently expect. That failure could materially adversely
affect our business, results of operations and financial condition.

For our SCREAM product line to be successful, service providers at all levels
must focus on service creation and the importance of delivering new and better
services to their customers

net.com's new SCREAM product focuses on enabling the rapid creation and delivery
of services by service providers to their customers. Service creation is a new
concept for service providers. While early indications are that the carriers
view this as a significant product capability, if service providers are slow to
adopt the service creation model or if service creation is ultimately rejected
as a business model, then our SCREAM product may not be accepted or may be
accepted slowly by the service provider market. In either case, a lack of
acceptance or a slower than anticipated acceptance could impact our forecasted
revenue.

To successfully market SCREAM, we will need to sign up significant new strategic
partners who can help sell our products into the service provider market

In order to successfully market our SCREAM product, we will need to sign up both
software application partners and product OEM or resale partners. The importance
of the software application partners is that they provide critical functions
such as billing, provisioning and configuration that are needed to create a
total service creation solution for our customers. Product OEM or resale
partners will be needed to supplement and enhance our existing direct sales
force both in the US and overseas. While we have begun in earnest the process of
identifying and signing both software application and OEM or resale partners,
more partners in all these areas are needed for us to be successful. In
particular, we need to find strategic partners to assist us with sales into the
service provider market, the targeted market for SCREAM. If we are unable to
sign the needed partners because they do not accept service creation for any
other reasons, this could impact the overall success of SCREAM.

Sales of net.com's SCREAM product depends upon continued growth of the Internet

We expect our broadband product sales will grow in large part due to increasing
growth of the Internet. In addition, our SCREAM product is targeted at certain
markets, such as internet and application service providers, whose business
relies predominantly on the growth of the Internet. Given the recent changes in
market prospects for many of the companies serving the Internet market, it is
difficult to predict how fast the Internet will grow. Growth could slow
significantly for a short or long period of time. If the Internet does not
continue to grow, it could directly impact the market for broadband networking
equipment like SCREAM.

In the future, it is possible that there will be problems with the performance
of Internet communications due to capacity limitations and equipment or software
failures. Should any of these failures be associated with net.com equipment, our
reputation as a supplier of reliable equipment would be tarnished, whether
justified or not. That could undermine our ability to sell products into
targeted markets.

A significant portion of our revenue is generated from sales to the Federal
government

A significant portion of our revenue from product sales comes from contracts
with the U.S. government, most of which do not include purchase commitments.
While the transition from circuit to packet technology is slower in the Federal
market than in the commercial market, orders from the U.S. government may not
continue at historical


                                      15.
<PAGE>

levels. The Federal market is characterized by rapid consolidation of companies
serving this market. As our federal contracts come up for renewal, the
government is tending to favor larger companies that can assume the role we
currently hold as primary contractor making us a subcontractor to a prime. If we
cannot find larger federal companies to partner with us on renewal of our
federal contracts, we could see a decrease in U.S. government orders and
resulting revenue. This could lead to a decrease in sales and related gross
margin on those sales. Finally, due to the sale of our federal services
business, we are dependent on the buyer, CACI, to provide maintenance and other
services on our products to our Federal customers. Should CACI experience
difficulties in providing those services, it could reflect negatively on our
products overall and cause Federal customers to seek other product vendors.
Should U.S. government orders substantially decline, it could have a material
adverse effect on our business, results of operations and financial condition.

We cannot guarantee that our divestiture of our federal services business will
prove successful

On December 1, 2000, net.com closed the sale of its Federal services business.
Following the closing of the sale, we continue to sell net.com products directly
to the Federal government and have also entered into a strategic alliance with
the acquirer, CACI International, to jointly market each other's products and
services. This divestiture includes both net.com Federal maintenance services
and our Federal professional services. The intent of this divestiture is to
become a pure play networking equipment company with a focus on broadband. For
the divestiture to be successful, we must overcome certain risks that involve
both our ability to receive the entire agreed upon cash consideration from CACI
and our ability to achieve the necessary focus on broadband. The risks affecting
our ability to receive the entire agreed upon compensation include the risk that
CACI will not be allowed to perform under certain government contracts services
that are currently performed by net.com and the risk that CACI will not be able
to generate sufficient revenue from performing maintenance services on net.com
products to enable net.com to receive a royalty payment. If the divestiture of
our Federal services business proves unsuccessful, it could have an adverse
impact on our business, financial condition or results of operation.

Increased competition is likely in the future

The market for networking products is extremely competitive. Our specific
market, telecommunication equipment, is a highly competitive and dynamic market
characterized by the easy entrance of new start-up companies, rapid changes,
converging technologies and a worldwide migration from existing circuit
technology to the new packet based technologies. We compete directly both
internationally and domestically with many different companies, some of which
are large, established suppliers of end-to-end solutions such as Cisco, Lucent,
Nortel and others, such as Gotham, Quarry and Ellacoya which are new start-up
ventures. Many of the large suppliers have greater financial, marketing and
technical resources and offer a wider range of networking products than we have.
They are often able to devote greater resources to the development, marketing
and sale of their products and to use large market capitalizations or
significant cash to acquire other companies with technology and/or products that
are competitive with ours. They often can compete favorably on price because
their large product selection allows them to decrease the price for any
individual product without significantly impacting their overall product
margins. Small start-up ventures are better able to devote all their resources
to a particular product development unencumbered by the requirements to support
an existing product line. As a result of the market's favorable reaction to
initial public offerings in the last calendar year by technology companies,
start-ups that went public in this period may have raised substantial amounts of
capital which could be used for various growth activities including funding
competitive acquisitions. Through these acquisitions, competitors can obtain
strategic advantages that may adversely affect our business, financial condition
or results of operations.

In addition, the networking equipment market has seen the constant introduction
of new technologies that has created pricing pressure on older products while
increasing the performance of networking equipment. Broadband technology
standards are constantly evolving. Alternative technologies or technologies with
greater capability are constantly introduced and sought by our customers. It is
possible that other technologies will either supplant our current technologies
and those technologies we have in development or will require us to
significantly lower prices in order to remain competitive. To remain
competitive, we need to develop new products that meet the ever-changing
technology needs of the networking market but that can be sold at a competitive
price. We also must enhance our current products to provide needed features that
increase the overall value proposition for the customer while keeping the price
competitive. Due to the competitive nature of the market and the relative age of
our current product offerings, we may not be able to maintain prices for our
products at levels that will sustain profitability over the short or long term.


                                      16.
<PAGE>

Our inability to sign competitive resale partners internationally could
significantly affect future product and service revenue

Because the transition from circuit to packet technology is slower outside the
United States, we expect international sales will continue to account for a
significant portion of our Promina product sales in future periods. Resellers
whose territories correspond to a particular geographic region that is not
exclusive to that reseller generate most international sales. Resellers do not
have minimum purchase requirements that they must meet. While we require our
resellers to use their best efforts to resell our products, because our product
line is small, our resellers must often resell product lines from other
networking companies including our competitors such as Cisco, in order to
sustain a profit. Because of Cisco's size and dominant position in the network
equipment market, it is difficult to find a reseller who does not resell Cisco
products. Due to the difficulty of signing up resellers without pre-existing
competitive relationships, our resellers are not always successful in promoting
our products thereby impacting the sustainability of our international product
sales. If we cannot develop relationships with resellers that can effectively
market and sell our products and services, we may not be able to meet our
forecasted sales and revenue in future quarters.

Our Latin America sales may continue at depressed levels

Sales in Latin America have largely been through strategic international resale
partners, primarily IBM and Ericsson Networks, rather than through local
resellers. Our reseller relationship with IBM ended in late calendar 1997. In
Latin America, Ericsson Networks has focused on marketing and selling its own
internally developed products. The decline of these two relationships has
significantly impacted product revenue in Latin America. If we cannot find other
resale channels, our Latin American sales may continue at current or decreased
levels thereby impacting our business, results of operations and financial
condition.

Our products have long sales cycles making it difficult to predict when a
customer will place an order and when to forecast revenue from the related sale

Our products are very complex pieces of networking equipment and represent a
significant capital expenditure to our customers. The purchase of our products
can have a significant impact on how a customer designs its network and provides
services either within its own organization or to an external customer.
Consequently, our customers often engage in extensive testing and evaluation of
products before purchase. There are also numerous financial and budget
considerations and approvals that often must be obtained before a customer will
issue a purchase order. As a result, the length of our sales cycle can be quite
long, up to a year in some cases. While customers may tell us that they are
planning to purchase our products, to ensure a purchase order is placed, we
often must incur substantial sales and marketing expense. If the order is not
placed in the quarter forecasted because approvals took longer than anticipated
by the customer, our sales may not meet forecast and revenues may be
insufficient in that quarter to meet expenses.

We face greater credit risk from some of our new customers

Historically, our customers have tended to be large established companies who
either used our products to develop their own wide area network or were
telephone companies using our products to allow their customers to access their
regional or national network. In the past two years, we have targeted several
emerging global carriers, international voice resellers and smaller rural ILECS
and CLECS. These start-up companies typically do not have either long operating
histories or significant capitalization, so traditional lending sources are
often not available to them. Because financing assistance from the manufacturer
is often required to consummate the transaction, these companies frequently make
purchasing decisions in part on the ability of an equipment manufacturer to
provide financing assistance to them in deploying their network infrastructure.
We have had a leasing program originally with Bank Boston and now with Marcap to
assist these customers with their financing requirements. This program includes
a loss sharing provision with the lessor. Any significant increase in the use of
this vendor financing program by our customers could increase our exposure to
credit risk. In addition, we entered into a loss sharing agreement with one of
our resellers wherein we share in a percentage of any loss arising from a
customer's failure to pay the reseller for our equipment. Both of these programs
are for United States based companies only. Although we have not experienced
significant losses to date from customers failing to meet their obligations,
should a significant number of lessees or customers in any one loss sharing pool
or should one large lessee or customer default, it could have a material adverse
effect on our business, results of operations and financial condition.


                                      17.
<PAGE>

If we are unable to hire qualified new employees or to retain existing
employees, then we may not be able to successfully manage our business

As with all technology companies, our success is dependent on being able to
attract and retain highly skilled engineers, managers and other key employees.
In particular, we have seen a large turnover in our direct sales force in North
America. This turnover has impacted our ability to sell products in the United
States. The current tight job market has made competition for employees very
intense for all employers. The large job growth in the San Francisco Bay Area
and the competition for employees from companies able to offer greater
compensation incentives through either options for stock with a perceived higher
growth value than net.com, or offering a large equity interest in a pre-IPO
start-up company has made it difficult for many departments in net.com including
Marketing and Engineering to attract and recruit new employees in a timely
manner. The recent lay-offs at Internet and telecommunications companies have
improved somewhat retention and recruitment concerns, but have not significantly
improved recruitment for Engineering and other key personnel. While we have put
additional focus and resources into our recruitment activities and have taken
steps including compensation and other incentives that we hope will mitigate
these competitive advantages, we cannot say that in the current economy, our
increased efforts will substantially improve the recruitment and retention
issues faced by our company at this time. Our inability to attract, recruit and
retain key personnel, particularly engineers, sales and marketing employees,
could impact our ability to meet important company objectives such as product
delivery deadlines and sales targets. That in turn could significantly impact
our business, results of operations and financial condition.

We rely on a number of sole source suppliers for our component parts

For both net.com's Promina and new SCREAM product lines, we purchase key
components from single source suppliers, in particular, our back planes, ASICS
and power supplies. If one of these suppliers were no longer able to supply a
required component, it could result in our having to significantly reengineer
the affected product. Further, due to increased demand and cyclical shortages of
capacity in the semiconductor industry, lead times for ordering parts have
increased from time to time. If we encounter shortages or delays in receiving
ordered components or if we are not able to accurately forecast our ordering
requirements, this could adversely impact our ability to ship ordered products
and could ultimately negatively impact our results of operations and financial
condition.

The availability of uninterrupted electric power could impact our ability and
our suppliers ability to maintain our operations in California

Recently, the public electric utility that provides power to our facilities and
many of our suppliers' facilities have been subject to shortages of electric
power. These shortages have led to dramatic increases in operating costs and
have subjected the business to unpredictable rolling blackouts where power has
been completely interrupted for extended periods of time. Should this power
shortage persist, and the frequency of outages increase, it may become more
difficult for our subcontract manufacturer and other suppliers to meet delivery
commitments. In addition, continued interruptions of power may impact our
ability to deliver new products to the market place on a timely basis. Should
the electric utility not be able to secure sufficient power supplies in the
future, it could have a material adverse impact on our financial condition and
results of operations.

We single source our manufacturing process so that a failure or delay by that
vendor could impact our ability to timely ship our products

We currently subcontract some testing and all product manufacturing to one
company, Solectron. Final test and assembly is generally performed at our
Fremont, California facility. While subcontracting creates substantial cost
efficiencies in the manufacturing process, it also exposes us to delays in
product shipments should Solectron be unable to perform under our contract. In
addition, should Solectron in some future period decide not to renew our
contract with them, it would be difficult for us to quickly transfer our
manufacturing requirements to another vendor likely causing substantial delays
in customer product shipments and impacting revenue and our results of
operations.

To maintain our competitive advantage, we need to protect our intellectual
property from infringement by others

Our future success is dependent upon our ability to develop new products
superior to those of our competitors. We have an aggressive program in place to
patent our intellectual property and protect it from infringement by
competitors. In addition, we take measures to protect our trade secret
information from disclosure by third parties


                                      18.
<PAGE>

and current and former employees. Despite our concerted efforts in these areas,
we cannot guarantee our patents will issue or that we will be able to protect
our trade secrets from disclosure. Even if a patent does issue, we cannot
guarantee that it will not later be found invalid or infringed without our
knowledge. In particular, with the movement of employees from competitor to
competitor, it may be inevitable that trade secret information will be disclosed
at some point and used in product development. Monitoring unauthorized use of
our technology and trade secrets is extremely difficult. If our technology or
trade secret information is disclosed to a competitor, it may not be possible
for us to prove infringement or misappropriation sufficiently for a court to
take actions necessary to protect us. If a competitor gained an advantage
through infringement and/or misappropriation of our trade secrets, it could
seriously impact our competitive position in the market and ultimately our
financial condition.

We are subject, and may again be subject, to claims that our technology
infringes another's intellectual property

Over the past decade, many companies have developed a business model where they
seek to increase their revenues by claiming infringement of one or more of their
patents. A number of these companies are large with extensive patent portfolios
developed because of their actual monopoly or near monopoly positions in certain
markets. These companies approach other companies and attempt to coerce them
into a licensing agreement by threatening to use their resources and patent
portfolio in never ending claims of infringement against their many patents.
While we have patents in our portfolio that we consider valuable, we do not have
an extensive enough portfolio to easily defend against these accusations of
infringement. Even if the infringement claims are without merit, defending
against these claims is time consuming and expensive especially for a small
company such as net.com and takes us away from the focus of our business. In
every case, we may not be able to successfully negotiate a licensing agreement
or the third party may institute litigation against us. In addition, if we were
required to pay royalties to an ever-increasing number of companies, it could
impact our financial condition and results of operation.

We need to continue to license products from third parties

For both our Promina and SCREAM products, we license some of our technology from
third party suppliers. If the relevant licensing agreement expires or is
terminated without our being able to renew that license, that failure to renew
the license could impact our ability to market the affected product and that, in
turn, could materially impact our results of operations and financial condition.

Domestic or foreign regulations of telecommunications or the Internet could
impact our ability to sell our products

As a telecommunications networking equipment manufacturer, our customers
worldwide often work within a regulated environment. That in turn requires us to
develop products that meet their regulatory requirements. Regulations usually
vary to a certain extent from country to country. For example, in many
countries, our Promina products require homologation certification in order to
connect to the public networks. If we do not comply with existing or evolving
regulations or if our products fail to obtain appropriate regulatory approvals
where required, it would impact our ability to sell our products in those
markets.

In addition, there are currently few laws or regulations that govern access or
commerce on the Internet. If individual countries, or groups of countries acting
in concert began to impose regulations or standards on Internet access or
commerce including voice over IP, this could materially impact our ability to
sell our new SCREAM or other new products if the regulations or standards
resulted in decreased demand or increased costs for our products. This, in turn,
could have a material adverse effect on our business, results of operations and
financial condition.


                                       19.
<PAGE>

Item 3.

                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

There has been no material change from the information as reported in the Form
10-K for the fiscal year ended March 31, 2000. Refer to the Quantitative and
Qualitative Disclosures section in the Form 10-K for fiscal year ended March 31,
2000 for information on the financial instruments.


                                      20.
<PAGE>

                                    PART II.

                                OTHER INFORMATION

Item 5. Other Information

      In January 2001, we lost 2 of the members of our Board of Directors.
      Walter Gill, a founder of net.com and well respected technologist in the
      Silicon Valley, died. His loss will be greatly felt by everyone at
      net.com. On January 15, 2001, George Scalise resigned from the net.com
      Board to focus on his more extensive duties as a member of the Federal
      Reserve Bank Board of San Francisco.

Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits

            None

      (b)   Report on Form 8-K

            On October 19, 2000, the Company filed a report on Form 8-K
            reporting under Item 5 that it had reached an agreement with CACI
            International Inc., a global information technology products and
            services company, to divest itself of the assets of its Federal
            services business.

            On December 15, 2000, the Company filed a report on Form 8-K
            reporting under Item 2 the closing on December 1, 2000 of the sale
            of its Federal Services Business pursuant to the Asset Acquisition
            Agreement with CACI, Inc.-Federal, a Delaware corporation ("CACI
            Sub"), CACI International Inc, a Delaware corporation and the holder
            of all of the capital stock of CACI Sub ("CACI Parent"), N.E.T.
            Federal, Inc., a Delaware corporation ("Federal") and Network
            Equipment Technologies, Inc..


                                      21.
<PAGE>

                                   SIGNATURES

                  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 12, 2000                 /s/ Hubert A.J. Whyte
                                         ---------------------------------
                                         Hubert A.J. Whyte
                                         President and Chief Executive Officer


                                         /s/ John C. Batty
                                         ---------------------------------
                                         John C. Batty
                                         Senior Vice President and
                                         Chief Financial Officer
                                         (Principal Financial and
                                         Accounting Officer)


                                      22.