INET TECHNOLOGIES INC, 424B4, 1999-05-27

INET TECHNOLOGIES INC
424B4, 1999-05-27
TELEPHONE & TELEGRAPH APPARATUS

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<PAGE> 1

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-59753

5,750,000 SHARES
INET TECHNOLOGIES, INC.
LOGO
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
</TABLE>

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

Of the 5,750,000 shares of Common Stock offered, 4,600,000 shares are being
offered hereby in the United States and 1,150,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share are identical
for both offerings. See "Underwriting".

Of the 5,750,000 shares of Common Stock being offered, 3,766,870 shares are
being sold by the Company and 1,983,130 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.

Prior to the offerings, there has been no public market for the Common
Stock of the Company.

SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "INTI".

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share......................... $16.00 $1.12 $14.88 $14.88
Total(3).......................... $92,000,000 $6,440,000 $56,051,026 $29,508,974
</TABLE>

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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".

(2) Before deducting estimated expenses of $1,250,000 payable by the Company.

(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 690,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 172,500 shares
as part of the concurrent International offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $105,800,000, $7,406,000 and
$68,885,026, respectively. See "Underwriting".

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

The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about June 2, 1999, against payment therefor in immediately available funds.

GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN
RAUSCHER INCORPORATED
HAMBRECHT & QUIST

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The date of this Prospectus is May 26, 1999.

<PAGE> 2

[GRAPHIC]

[Graphic depicting a human eye, part of a freestanding binocular viewer and
the Company's name superimposed upon one another on a multi-colored background.]

Text:

Upper Left corner of graphic: "An eye for surveillance"
Lower Right corner of graphic: "A mind for business"

The Company intends to furnish to its stockholders annual reports
containing audited financial statements examined by its independent auditors.

"GeoProbe", "Spider", "OpenSeven" and the Company's logo are registered
trademarks of Inet, and "Dynamic Service Management", "GeoBill", "GeoCare" and
"Spectra" are trademarks of Inet. This Prospectus also contains trade names,
trademarks and service marks of organizations other than the Company, which are
the property of their respective owners.

Unless the context requires otherwise, the terms "Inet" and the "Company"
refer to Inet Technologies, Inc. and its predecessors and consolidated
subsidiaries.

In this Prospectus, references to "dollars" and "$" are United States
dollars.
---------------------

CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE> 3

[DESCRIPTION OF ARTWORK IN FOLDOUT OF INSIDE FRONT COVER]

[Graphic depicting the implementation of the Company's Geoprobe and Spectra
products within a simplified SS7 network. The elements of the SS7 network are
shown from left to right beginning with the Customer A's call routed from its
telephone to the central office of the calling party's local telephone company,
then to a Signal Transfer Point (STP) where the Geoprobe collects and processes
raw signaling data, then to another STP, then to the central office of the
receiving party's local telephone company and finally to Customer B's telephone.
Spectra is shown implemented at the STP level to conduct diagnostic testing and
monitoring of SS7 signals. In the upper right hand corner of the graphic is a
photograph of the Spectra.]

Text:

Text Down Left Margin of Graphic: "The Signaling Network. The Signaling network
carries a continuous, two-way stream of diverse messages that simultaneously
control all calls, services and elements in a telecommunications network. Some
messages carry instructions for individual calls that include dialed digits,
call status (busy or available) and the activation and deactivation of special
call services. Other messages carry instructions for maintenance functions that
include indicators for failed links, overloaded switched and other network
conditions that could affect call completion."

"The Geoprobe System. 1) Inet's Geoprobe collects all messages directly from the
signaling network. 2) The messages are processed at each collection site. Each
individual message is organized and connected in sequence with all associated
messages. The result - complete, organized and detailed data about every call,
service and maintenance condition occurring in the network. 3) The prepared data
is made available for advanced processing by surveillance, business and third-
party applications within seconds of its collection."

"The Spectra. 1) Off Line, the Spectra tests network elements and services in
development laboratories. 2) Deployed in a live network, the Spectra can be used
as a troubleshooting tool to monitor signaling traffic on connected links."

Text at Upper Left Center of Graphic: "Inet provides telecommunications hardware
and software to local, long distance, cellular and PCS carriers worldwide.
Inet's products help manufacturers and carriers evaluate and improve the
performance and revenue potential of signaling networks."

Text Below photograph of Spectra: "Conformance Testing, Load Benchmarking,
Traffic & Element Emulation, Network Troubleshooting."

Text in center of Graphic of certain data obtained by the GeoProbe from a call:
"Call Attempt: A to B. Call Time: 03:20:00 AM. Setup Time: 00:00:05. Call Route:
NY/Portland. Call Status: Answered. Call Duration: 00:03:36."

Heading at bottom of Graphic: "GEOPROBE SURVEILLANCE & BUSINESS OR THIRD-PARTY
APPLICATIONS"

Text Below Heading at bottom of Graphic:

"Surveillance. Helps to ensure that the network is running smoothly and
efficiently. Generates alarms and records statistics on network events and
conditions. Trouble-shoots network problems quickly.

"Fraud Management. Provides a real-time data feed to legacy fraud systems, which
detect suspicious activity occurring in the network. Provides an opportunity to
reduce revenue lost to wireline and wireless fraud.

"Service Quality Assurance. Verifies that customers are receiving a high
quality of service, call by call and service by service. Pinpoints network and
service usage trends. Preprocesses data for use with external applications.

"Marketing. Provides marketing data to help users make decisions regarding
growth and element deployment in the network by call volume, customer base and
services offered.

"Billing. Tracks usage of the signaling network by interconnecting networks.
Reconciles revenue between service providers for trunk connectivity, call
termination and the delivery of services.

"Third-Party Applications. Supports the development of custom software and the
formatting of data with Application Programming Interface tools."

<PAGE> 4

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial data appearing
elsewhere in this Prospectus, including the more detailed information and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated herein, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment options. See
"Underwriting".

THE COMPANY

Inet provides solutions that enable telecommunications carriers to more
effectively design, deploy, diagnose, monitor and manage communications networks
that carry signaling information used to manage telephone calls. Inet's products
also address the fundamental business needs of telecommunications carriers, such
as improved billing, targeted sales and marketing, fraud prevention and enhanced
call routing. Inet provides these comprehensive solutions primarily through its
GeoProbe and Spectra product offerings.

The GeoProbe system provides real-time monitoring of Common Channel
Signaling System #7 ("SS7") networks and serves as an open platform for business
applications developed by Inet, its customers or third parties. GeoProbe's
monitoring applications enable early warning of network faults, collection of
statistics for performance evaluation, real-time call tracing and
troubleshooting. GeoProbe's associated business applications provide fraud
detection tools, reconciliation of billing between carriers, service quality
reports and marketing data. The Spectra product can be integrated within the
GeoProbe platform or used on a stand-alone basis to provide diagnostic,
emulation and load generation capabilities for use in the design, deployment,
commissioning and diagnosis of signaling networks.

Inet's objective is to be the dominant provider of advanced signaling
network management solutions and associated business applications for
telecommunications networks worldwide. Key elements of Inet's strategy to
achieve this objective include expanding its global market share, increasing its
domestic sales and penetration of its existing customer base, enhancing its
technological leadership position in SS7 network management solutions, expanding
its product offerings by leveraging its core competencies in SS7, Internet
protocol and broad-based communications protocols, and building relationships
with strategic partners.

As of March 31, 1999, the Company had sold its solutions to over 400
customers in 40 countries. The Company's target customers include
telecommunications network carriers and equipment manufacturers throughout North
America, Latin America, Europe and the Asia/Pacific region. To date, the
Company's network carrier customers include AT&T, British Telecom, Deutsche
Telekom, KPN Telecom, MCI WorldCom, o.tel.o communications, Portugal Telecom,
Singapore Telecom, Sprint, SPT Telecom, Telia and Telstra, and its equipment
manufacturer customers include Alcatel, Ascend, Cisco, Ericsson, Motorola and
Nortel. These customers collectively accounted for 52.0% of the Company's
revenues in 1998.

The Company was incorporated in Texas as "INET, Inc." in 1989 and was
subsequently reincorporated in Delaware as "Inet Technologies, Inc." in 1998.
The Company's executive offices are located at 1255 West 15th Street, Suite 600,
Plano, Texas 75075, and its telephone number is (972) 578-6100.

3
<PAGE> 5

THE OFFERINGS

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<S> <C>
Common Stock offered by the Company......................... 3,766,870 shares
Common Stock offered by the Selling Stockholders............ 1,983,130 shares
Common Stock to be outstanding after the offerings.......... 44,662,450 shares(1)
Use of proceeds............................................. For working capital and general
corporate purposes, including
possible acquisitions. See "Use
of Proceeds".
Nasdaq National Market symbol............................... INTI
</TABLE>

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(1) Excludes 1,945,000 shares of Common Stock issuable upon exercise of options
outstanding at March 31, 1999, with exercise prices ranging from $0.60 to
$4.20 per share and with a weighted-average exercise price of $1.67 per
share. See "Management -- 1998 Stock Option/ Stock Issuance Plan" and Note 6
of Notes to Consolidated Financial Statements.

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues............................. $42,041 $57,701 $77,428 $15,512 $23,239
Income from operations............... 13,288 19,096 24,153 4,449 6,274
Net income........................... $ 8,936 $12,714 $17,085 $ 3,037 $ 4,354
======= ======= ======= ======= =======
Basic net income per share........... $ 0.22 $ 0.31 $ 0.42 $ 0.07 $ 0.11
Diluted net income per share......... $ 0.22 $ 0.30 $ 0.40 $ 0.07 $ 0.10
Shares used in computing basic net
income per share(1)................ 40,615 40,855 40,879 40,862 40,896
Shares used in computing diluted net
income per share(1)................ 41,069 41,722 42,452 42,277 42,638
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $43,163 $ 97,964
Working capital............................................. 42,645 97,446
Total assets................................................ 80,494 135,295
Stockholders' equity........................................ 51,224 106,025
</TABLE>

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(1) See Note 9 of Notes to Consolidated Financial Statements for the
determination of shares used in computing basic and diluted net income per
share.

(2) Adjusted to give effect to the sale by the Company of 3,766,870 shares of
Common Stock in the offerings (assuming no exercise of the Underwriters'
over-allotment options and after deducting the underwriting discount and
estimated offering expenses payable by the Company). See "Capitalization"
and "Use of Proceeds".

4
<PAGE> 6

RISK FACTORS

In addition to the other information in this Prospectus, prospective
purchasers of the Common Stock offered hereby should consider carefully the
following factors in evaluating the Company and its business. All statements,
trend analysis and other information contained in this Prospectus relative to
markets for the Company's products and trends in revenue, gross margin and
anticipated expense levels, as well as other statements, including such words as
"anticipate", "believe", "estimate", "expect", "intend", "may", "plan" and
"should" and other similar expressions, constitute forward-looking statements.
These forward-looking statements are subject to business and economic risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below as well
as those discussed elsewhere in this Prospectus.

FLUCTUATIONS IN QUARTERLY FINANCIAL RESULTS

The Company's quarterly operating results have varied significantly in the
past and are likely to vary significantly from quarter to quarter in the future
based on a number of factors, many of which are outside the Company's control.
Such factors include the size and timing of specific orders by customers;
competition; the market acceptance of new products and technologies by the
Company and its competitors; the mix of products and services sold by the
Company; the timing of product shipments and product installations by the
Company; in limited circumstances, customer product acceptance; the capital
spending patterns of the Company's customers; the mix of domestic and
international sales; changes in the timing and level of expenses; the relative
percentages of products sold through the Company's direct and indirect sales
channels; customer order deferrals in anticipation of enhancements or new
products; the Company's timing of and investments in research and development
activities; changes in and the Company's ability to implement its strategy;
changes in the availability of materials needed to produce the Company's
products; the progress and timing of the privatization of telecommunications
markets and the worldwide deregulation of the international telecommunications
industry; defects and product quality problems; intellectual property disputes;
expansion of and risks associated with the Company's international operations;
and changes in general economic conditions. Furthermore, a large portion of the
Company's operating expenses, including rent and salaries, are set based upon
expected future revenues. Accordingly, if revenues are below expectations, the
Company's operating results are likely to be adversely and disproportionately
affected because such operating expenses are not variable in the short term, and
cannot be quickly reduced to respond to anticipated decreases in revenues.

The amount of revenues associated with particular product sales can vary
significantly. The deferral or loss of one or more individually significant
sales could materially adversely affect operating results in a particular
quarter, particularly if there are significant sales and marketing expenses
associated with the deferred or lost sales.

The Company's operating results are also likely to fluctuate due to factors
which impact prospective customers of the Company. Expenditures by prospective
customers tend to vary in cycles that reflect overall economic conditions and
individual budgeting and buying patterns. The Company's business would be
adversely affected by a decline in the economic prospects of its customers or
the economy generally, which could alter current or prospective customers'
capital spending priorities or budget cycles or extend the Company's sales cycle
with respect to certain customers. In addition, the Company's operating results
historically have been influenced by certain seasonal fluctuations, with
revenues tending to be strongest in the fourth quarter of each year. The Company
believes that this seasonality has been due to the capital appropriation
practices of many of its customers. The Company expects that in future periods
this seasonal trend may cause first quarter revenues to remain consistent with,
or decrease from, the level achieved in the preceding quarter.

5
<PAGE> 7

As a result of all of the foregoing, the Company believes that future
operating results are likely to vary significantly from quarter to quarter, and
historical operating results should not be relied upon as any indication of
future performance. Moreover, there can be no assurance that the Company's
revenues will grow in future periods or that the Company will remain profitable.
In addition, in some future quarters the Company's operating results may be
below the expectations of public market analysts. In such event, the market
price of the Common Stock would likely be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

DEPENDENCE ON TELECOMMUNICATIONS INDUSTRY

The Company has derived all of its revenues from sales of products and
related services to the telecommunications industry. The telecommunications
industry has undergone a period of rapid growth and consolidation during the
past few years. The Company's business, financial condition and results of
operations would be materially adversely affected in the event of a significant
slowdown in the growth of this industry. Further, consolidations of prospective
customers of the Company may delay or cause cancellations of significant sales
of the Company's products, which could materially adversely affect the Company's
operating results in a particular period. See "Business -- Industry Background".

REGULATORY UNCERTAINTIES

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

LENGTHY SALES CYCLE

The sales cycle for the Company's products is long, typically ranging from
six to 24 months for GeoProbe sales (excluding the cycle for subsequent
applications and enhancements, which varies widely) and up to six months for
occasional, large Spectra sales. Accordingly, the Company's ability to forecast
the timing and amount of specific sales is limited, and the deferral or loss of
one or more significant sales could materially adversely affect operating
results in a particular quarter, particularly if there are significant sales and
marketing expenses associated with the deferred or lost sales. See
"-- Fluctuations in Quarterly Financial Results" and "Business -- Sales,
Marketing and Support -- Sales and Marketing".

PRODUCT CONCENTRATION; RELIANCE ON SS7 NETWORKS

The Company's two principal products, GeoProbe and Spectra, generated
substantially all of the Company's revenues in 1996, 1997, 1998 and the three
months ended March 31, 1999 and are expected to continue to account for a
substantial majority of the Company's revenues for the foreseeable future. Any
downturn in the demand for either or both of such products would have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, there can be no assurance that the Company will be
successful in developing any other
6
<PAGE> 8

products or taking any other steps to reduce the risk associated with any
slowdown in demand for GeoProbe and Spectra.

Inet's future operating results are dependent in significant part on the
continued viability and expansion of SS7 signaling networks. The Company's
business, financial condition and results of operations would be materially
adversely affected if the market for SS7 network solutions fails to grow or
grows more slowly than the Company currently anticipates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Industry Background".

COMPETITION

The market for SS7-based telecommunications network management applications
is intensely competitive, both in the U.S. and internationally, and subject to
rapid technological change, evolving industry standards and regulatory
developments. Competition is expected to persist, intensify and increase in the
future. The Company competes with a number of U.S. and international suppliers
that vary in size and in the scope and breadth of the products and services
offered. GeoProbe principally competes with products offered by Hewlett-Packard
Company ("Hewlett-Packard"). Spectra principally competes with products offered
by Hewlett-Packard, Tekelec and Tektronix, Inc. ("Tektronix"). Certain of the
Company's competitors have, in relation to the Company, longer operating
histories, larger installed customer bases, longer-standing relationships with
customers, greater name recognition and significantly greater financial,
technical, marketing, customer service, public relations, distribution and other
resources. Additionally, it is possible that new competitors or alliances among
competitors could emerge and rapidly acquire significant market share. As a
result, such competitors may be able to more quickly develop or adapt to new or
emerging technologies and changes in customer requirements, or devote greater
resources to the development, promotion and sale of their products. Increased
competition is likely to result in price reductions, reduced margins and loss of
market share. There can be no assurance that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations. See "Business -- Competition".

NEED TO MANAGE GROWTH AND EXPANSION

The Company has recently experienced rapid and significant growth that has
placed, and is expected to continue to place, a significant strain on the
Company's management, information systems and operations. For example, the
Company's revenues have increased from $17.5 million in 1995 to $77.4 million in
1998 and to $23.2 million in the three months ended March 31, 1999, and the
number of its employees has increased from 116 at December 31, 1995 to 358 at
December 31, 1998 and to 390 at March 31, 1999. In addition, the Company's
executive officers have no experience managing a public company. The Company's
ability to effectively manage significant additional growth will require it to
improve its financial, operational and management information and control
systems and procedures and to effectively expand, train, motivate and manage its
employees. The failure to manage growth effectively would have a material
adverse effect on the Company's business, financial condition and results of
operations.

The Company anticipates that continued growth, if any, will require it to
recruit and hire a substantial number of new employees, particularly sales and
marketing personnel and technical personnel with SS7 knowledge and experience,
both in the U.S. and internationally. Competition for such personnel is intense,
and the Company has at times in the past experienced difficulty in recruiting
qualified personnel. The Company historically has filled a portion of its new
personnel needs with non-U.S. citizens holding temporary work visas that allow
such persons to work in the U.S. for only a limited period of time. Accordingly,
any change in U.S. immigration policy limiting the issuance of temporary work
visas could adversely affect the Company's ability to recruit new personnel.
Furthermore, the addition of significant numbers of new personnel requires the
Company to incur significant start-up expenses, including procurement of office
space and equipment, initial
7
<PAGE> 9

training costs and low utilization rates of new personnel. There can be no
assurance that the Company will successfully recruit additional personnel as
needed or that the start-up expenses incurred in connection with the hiring of
additional personnel would not materially adversely affect the Company's future
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- The Inet Strategy".

DEPENDENCE ON KEY PERSONNEL

The Company's future success will depend to a significant extent upon the
continued service and performance of a relatively small number of key senior
management, technical, sales and marketing personnel, none of whom is bound by
an employment agreement. The Company has obtained $500,000 key man life
insurance policies covering each of the Company's three founders and each
founder has entered into an agreement not to compete against the Company until
one year after the termination of his employment. However, the terms of such
non-compete agreements are limited, and there can be no assurance that such
agreements will be of meaningful benefit to the Company. The Company's success
also depends upon its ability to continue to attract, motivate and retain other
highly qualified personnel, particularly personnel with SS7 knowledge and
experience. The Company is also searching for a chief financial officer. The
loss of any existing key personnel or the inability to attract, motivate and
retain additional qualified personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management" and "Business -- Employees".

RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON NEW PRODUCTS

The market for the Company's products is characterized by rapid
technological advances, evolving industry and customer-specific protocol
standards, changes in customer requirements and frequent new product
introductions and enhancements. The introduction of telecommunications network
management products involving superior technologies or the evolution of
alternative technologies or new industry protocol standards could render the
Company's existing products, as well as products currently under development,
obsolete and unmarketable. The Company believes its future success will depend
in part upon its ability, on a timely and cost-effective basis, to continue to:
enhance the GeoProbe and Spectra products; develop and introduce new products
for the telecommunications network management market and other markets; address
evolving industry protocol standards and changing customer needs; and achieve
broad market acceptance for its products. There can be no assurance the Company
will achieve these objectives.

The Company's future success will also depend in part on the Company's
ability to develop solutions for networks based on emerging technologies (e.g.,
Asynchronous Transfer Mode and Internet telephony) which are likely to be
characterized by continuing technological developments, evolving industry
standards and changing customer requirements. There can be no assurance that the
Company will successfully develop competitive products for these emerging
technologies, and the failure to do so could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Products -- Products Under Development" and "-- Research and
Development".

INTERNATIONAL OPERATIONS

Revenues from customers located outside of the U.S. represented 49.4%,
52.6%, 52.2% and 47.4% of the Company's total revenues in 1996, 1997, 1998 and
the three months ended March 31, 1999, respectively. Inet believes that
continued growth and profitability will require expansion of its sales in
international markets. This expansion may be costly and time-consuming and may
not generate returns for a significant period of time, if at all. The Company's
international operations are subject to various risks inherent in international
operations, including: management of geographically dispersed operations; longer
accounts receivable payment cycles; the ability to establish relationships with
government-owned or subsidized telecommunications providers; general economic
conditions in each country; currency controls and exchange rate fluctuations;
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<PAGE> 10

seasonal reductions in business activity particular to certain markets; loss of
revenues, property and equipment from expropriation, nationalization, war,
insurrection, terrorism and other political risks; foreign taxes and the overlap
of different tax structures; greater difficulty in safeguarding intellectual
property; import and export licensing requirements; trade restrictions; and
involuntary renegotiation of contracts with foreign governments and
telecommunications carriers. International expansion of the Company's business
will require significant management attention and financial resources. Moreover,
in order to further expand internationally, the Company may be required to
establish relationships with additional distributors and third-party
integrators. There can be no assurance that the Company will effectively
establish such relationships. If international revenues are not adequate to
offset the additional expense of expanding international operations, the
Company's business, financial condition and results of operations could be
materially adversely affected.

Beginning in the last six months of 1997 and continuing into 1999, the
Asia/Pacific region has experienced unstable local economies and significant
devaluations of local currencies. These instabilities may continue or worsen,
which could have a material adverse effect on the Company's results of
operations as sales to customers in this region constituted approximately 7.5%
and 4.8% of total revenues in 1998 and the three months ended March 31, 1999,
respectively. At March 31, 1999, the Company's collection risks with respect to
customers in the Asia/Pacific region were not significant.

To date, international sales have been denominated solely in U.S. dollars,
and accordingly the Company has not been exposed to fluctuations in non-U.S.
currency exchange rates. As a result, the Company's sales in international
markets may be adversely affected by a strengthening U.S. dollar. However, Inet
expects that in future periods a portion of international sales may be
denominated in currencies other than U.S. dollars, thereby exposing the Company
to gains and losses on non-U.S. currency transactions. The Company may choose to
limit such exposure by entering into various hedging strategies. There can be no
assurance that any such hedging strategies undertaken by Inet would be
successful in avoiding exchange-related losses.

There can be no assurance that laws or administrative practices relating to
taxation, foreign exchange or other matters of countries in which the Company
operates or will operate will not change. Any such change could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".

DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS; DEPENDENCE ON SUBCONTRACTORS
AND LICENSED TECHNOLOGY

At present, the Company's products utilize certain semiconductors that are
available from only one manufacturer and other components that are available
from a limited number of suppliers. While alternative suppliers have been
identified for certain key components, those alternative sources have not been
qualified by the Company. The Company's qualification process could be lengthy,
and there can be no assurance that additional sources would become available to
the Company on a timely basis, or if such sources were to become available, that
the components would be comparable in price and quality to the Company's current
components. The Company has no long-term agreements with its suppliers and
generally makes its purchases with purchase orders on an "as-needed basis".
Furthermore, certain components require an order lead-time of approximately six
months. Other components that currently are readily available may become
difficult to obtain in the future. Accordingly, the Company makes advance
purchases of certain components in relatively large quantities to ensure that it
has an adequate and readily available supply. The Company's failure to order
sufficient quantities of these components sufficiently in advance of product
delivery deadlines could prevent the Company from adequately responding to
unanticipated increases in customer orders. In the past, the Company has
experienced delays in the receipt of certain of its key components, which have
resulted in delays in product deliveries. The inability to obtain sufficient key
components as required or to develop alternative sources if and as required in
the future could
9
<PAGE> 11

result in delays or reductions in product shipments or increases in product
costs, which in turn could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company relies exclusively upon third-party subcontractors to
manufacture its subassemblies. The Company has also retained, from time to time,
third-party design services in the development of application-specific
integrated circuits. The Company's reliance on third-party subcontractors
involves a number of risks, including the potential absence of adequate
capacity, the unavailability of or interruption in access to certain process
technologies, and reduced control over product quality, delivery schedules,
manufacturing yields and costs. Any disruption in the Company's relationships
with third-party subcontractors and the Company's inability to develop
alternative sources if and as required in the future could result in delays or
reductions in product shipments or increases in product costs, which in turn
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing".

The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in its products to perform key functions. The
inability to maintain any such software licenses on commercially reasonable
terms could result in shipment delays or reductions until equivalent software
could be developed or licensed and integrated into the Company's products, which
could materially adversely affect the Company's business, financial condition
and results of operations. See "Business -- Proprietary Rights".

POTENTIAL ACQUISITIONS

The Company may in the future pursue acquisitions of businesses, products
and technologies, or the establishment of joint venture arrangements, that could
expand the Company's business. The negotiation of potential acquisitions or
joint ventures as well as the integration of an acquired or jointly developed
business, technology or product could cause diversion of management's time and
resources. Future acquisitions by the Company could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities, amortization of goodwill and other intangibles, research and
development write-offs and other acquisition-related expenses. Further, no
assurance can be given that any acquired business or joint venture will be
successfully integrated with the Company's operations. If any such acquisition
or joint venture were to occur, there can be no assurance that the Company will
receive the intended benefits of the acquisition or joint venture.

PROPRIETARY RIGHTS

The telecommunications industry is characterized by the existence of a
large number of patents and frequent allegations of patent infringement. The
Company has received, and may receive in the future, notices from holders of
patents that raise issues as to possible infringement by the Company's products.
As the number of telecommunications network management products increases and
the functionality of these products further overlaps, the Company believes that
it may become increasingly subject to allegations of infringement. To date, the
Company has engaged in correspondence with third-party holders of patents as a
result of two such notices. The Company believes that its products do not
infringe any valid patents cited in the notices received. However, questions of
infringement and the validity of patents in the field of telecommunications
signaling technologies involve highly technical and subjective analyses. There
can be no assurance that any such patent holders or others will not in the
future initiate legal proceedings against the Company or that, if any such
proceedings were initiated, the Company would be successful in defending against
such proceedings. Any such proceeding could be time consuming and expensive to
defend or resolve, result in substantial diversion of management resources,
cause product shipment delays, or force the Company to enter into royalty or
license agreements rather than dispute the merits of any such proceeding
initiated against the Company. There can be no assurance that any such royalty
or
10
<PAGE> 12

license agreements would be available on terms acceptable to the Company, if at
all. Any such claims against the Company, with or without merit, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company's continued success is dependent in part upon its proprietary
technology. To protect its proprietary technology, the Company relies on a
combination of technical innovation, trade secret, copyright and trademark laws,
non-disclosure agreements and, to a lesser extent, patents, each of which
affords only limited protection. In addition, the laws of some foreign countries
do not protect the Company's proprietary rights in the products to the same
extent as do the laws of the U.S. Despite the measures taken by the Company, it
may be possible for a third party to copy or otherwise obtain and use the
Company's proprietary technology and information without authorization. Policing
unauthorized use of the Company's products is difficult, and litigation may be
necessary in the future to enforce the Company's intellectual property rights.
Any such litigation could be time consuming and expensive to prosecute or
resolve, result in substantial diversion of management resources, and have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be
successful in protecting its proprietary technology or that the Company's
proprietary rights will provide a meaningful competitive advantage to the
Company. See "Business -- Proprietary Rights".

PRODUCT LIABILITY

Products as complex as those offered by the Company may contain undetected
defects or errors when first introduced or as enhancements are released that,
despite testing by the Company, are not discovered until after a product has
been installed and used by customers, which could result in delayed market
acceptance of the product or damage to the Company's reputation and business. To
date, the Company has not been materially adversely affected by products
containing defects or errors. The Company attempts to include provisions in its
agreements with customers that are designed to limit the Company's exposure to
potential liability for damages arising out of defects or errors in or the use
of the Company's products. However, the nature and extent of such limitations
tend to vary from customer to customer and it is possible that such limitations
may not be effective as a result of unfavorable judicial decisions or laws
enacted in the future. Although the Company has not experienced any product
liability suits to date, the sale and support of the Company's products entails
the risk of such claims. Any product liability claim brought against the
Company, regardless of its merit, could result in material expense to the
Company, diversion of management time and attention, and damage to the Company's
business reputation and its ability to retain existing customers or attract new
customers. See "-- Year 2000 Compliance" and "Business -- Products -- Products
Under Development" and "-- Research and Development".

CONTROL BY PRINCIPAL STOCKHOLDERS

Upon completion of the offerings, the Company's three founders, Samuel S.
Simonian, Elie S. Akilian and Mark A. Weinzierl will beneficially own 28.1%,
28.3% and 28.1% of the outstanding shares of Common Stock (27.5%, 27.8% and
27.6%, respectively, if the Underwriters' over-allotment options are exercised
in full). Consequently, two or more of such individuals, acting together, will
be able to control the outcome of all matters submitted for stockholder action,
including the election of the Board of Directors of the Company and the approval
of significant corporate transactions, and will effectively control the
management and affairs of the Company, which may have the effect of delaying or
preventing a change in control of the Company. In addition, following the
offerings, Messrs. Simonian, Akilian and Weinzierl will constitute three of the
six members of the Board of Directors and will have significant influence in
directing the actions taken by the directors. See "Management" and "Principal
and Selling Stockholders".

11
<PAGE> 13

YEAR 2000 COMPLIANCE

Many currently-installed computer systems and software products are coded
to accept only two-digit entries in date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. As a result, telecommunications equipment, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the
telecommunications and software industries concerning the potential effects
associated with such compliance.

The Company believes that the purchasing patterns of customers and
potential customers may be significantly affected by Year 2000 issues. Many
companies are expending significant resources to correct or replace their
current software systems to achieve Year 2000 compliance. These expenditures may
result in reduced funds available to purchase products such as those offered by
the Company. Many customers and potential customers may also defer installing or
purchasing Year 2000 compliant products until they believe it is absolutely
necessary, thus resulting in potentially deferred sales. Conversely, Year 2000
issues may cause other companies to accelerate installations or purchases,
thereby causing an increase in short-term revenues and a consequent decrease in
long-term revenues from products. Additionally, Year 2000 issues could cause a
significant number of companies, including current customers of the Company, to
reevaluate their current system needs and as a result consider switching to
other systems or suppliers. These Year 2000 issues could materially adversely
affect the Company's business, financial condition and results of operations.

The Company has reviewed its products offered to customers, and believes
that the versions currently offered to customers are Year 2000 compliant.
Certain earlier versions of its Spectra product are not Year 2000 compliant, and
the Company has developed and is offering upgrades to customers that would bring
such earlier versions into compliance with Year 2000 requirements. Nonetheless,
there can be no assurance that the Company's products, particularly when such
products incorporate third-party software, contain all date code changes
necessary to ensure Year 2000 compliance. Although the Company has not
experienced any Year 2000-related product liability claims or lawsuits to date,
the sale and support of products that are not Year 2000 compliant entail the
risk of such claims and lawsuits. The Company's defense against any future
lawsuits, regardless of their merit, could result in substantial expense to the
Company as well as the diversion of management time and attention. In addition,
Year 2000 product liability claims, regardless of the merit or eventual outcome
of such claims, could affect the Company's business reputation and its ability
to retain existing customers or attract new customers which, in turn, could have
a material adverse effect on the Company's business, financial condition and
results of operations.

In addition, an inventory and analysis of internal management and other
information systems has been performed and the Company has determined that it
will be required to upgrade certain portions of its computer hardware and
software tools so that they will be Year 2000 compliant. These upgrades are
being and will continue to be made in conjunction with the Company's overall
information systems initiatives. In addition, the Company is contacting
third-party vendors to ensure that any of their products that are incorporated
into the Company's products or currently in use by the Company can adequately
deal with the change in century. Areas being addressed include third-party
suppliers of semiconductors and other components of the Company's products as
well as full reviews of the Company's manufacturing equipment, telephone and
voice mail systems, security systems and other office support systems. The
Company also plans to formally communicate with significant suppliers and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 issues. To date, no
information technology initiatives have been deferred by the Company as a result
of its Year 2000 compliance project.

The Company expects to complete its Year 2000 project during the fall of
1999. The Company believes that the aggregate incremental costs related to the
Year 2000 project have not been, and

12
<PAGE> 14

are not expected to be, material to the Company's results of operations,
financial position and cash flows. The Company does not separately track
internal costs incurred for the Year 2000 project. Such costs are principally
for software upgrades, and are being funded through operating cash flows. Based
on available information, the Company does not believe any material exposure to
significant business interruption exists as a result of Year 2000 compliance
issues, or that the cost of remedial actions will have a material adverse effect
on its business, financial condition or results of operations. Accordingly, the
Company has not adopted any formal contingency plan in the event its Year 2000
compliance project is not completed in a timely manner.

SECURITY

The Company has included security features in certain of its products that
are intended to protect the privacy and integrity of customer data. Despite the
existence of these security features, the Company's products may be vulnerable
to breaches in security due to defects in the security mechanisms, as well as
vulnerabilities inherent in the operating system or hardware platform on which
the product runs, and/or the networks linked to that platform. Security
vulnerabilities, regardless of origin, could jeopardize the security of
information stored in and transmitted through the computer systems of the
Company's customers. Solving any security problems may require significant
capital expenditures and adversely affect the Company's reputation and product
acceptance which, in turn, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Product
Liability".

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of discouraging, delaying or preventing a change in control
of the Company or unsolicited acquisition proposals that a stockholder may
consider favorable, including provisions: authorizing the issuance of "blank
check" preferred stock; providing for a classified Board of Directors with
staggered, three-year terms; prohibiting cumulative voting in the election of
directors; requiring super-majority voting to effect certain amendments to the
Certificate of Incorporation and Bylaws; limiting the persons who may call
special meetings of stockholders; prohibiting stockholder action by written
consent; and establishing advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that can be acted
upon at stockholders meetings. Certain provisions of Delaware law and the
Company's stock incentive plans may also have the effect of discouraging,
delaying or preventing a change in control of the Company or unsolicited
acquisition proposals. See "Management -- 1998 Stock Option/Stock Issuance Plan"
and "Description of Capital Stock -- Certain Anti-Takeover, Limited Liability
and Indemnification Provisions".

NO PRIOR PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF SHARE PRICE

Prior to the offerings, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after the offerings. The initial public offering price for the
Common Stock was determined by negotiations among the Company, the Selling
Stockholders and the representatives of the Underwriters, and may not be
representative of the price that will prevail in the open market. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.

Factors that may cause the market price of the Common Stock to fluctuate
significantly after the offerings include variations in the Company's results of
operations; future sales of Common Stock; the announcement of technological
innovations or new products by the Company, its competitors and others; market
analysts' estimates of the Company's performance; and general market conditions.
The public markets have experienced volatility that has particularly affected
the market prices of securities of many technology companies for reasons that
have often been unrelated to

13
<PAGE> 15

operating results. Such volatility may adversely affect the market price of the
Common Stock and the Company's visibility and credibility in its markets.

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock after the offerings
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the offerings, the Company will have outstanding 44,662,450 shares
of Common Stock (45,524,950 shares if the Underwriters' over-allotment options
are exercised in full), assuming no exercise of options after March 31, 1999. Of
these shares, the 5,750,000 shares offered hereby (6,612,500 shares if the
Underwriters' over-allotment options are exercised in full) will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144"). The remaining 38,912,450 shares of Common Stock outstanding upon
completion of the offerings will be "restricted securities" as that term is
defined in Rule 144.

Upon the expiration of lock-up agreements between the Company's
stockholders and the Underwriters (the "Lock-Up Agreements"), beginning 180 days
after the date of this Prospectus, 37,752,000 shares held by certain
stockholders of the Company will become eligible for sale pursuant to the
volume, manner of sale and notice requirements of Rule 144 and 1,160,450 shares
held by certain other stockholders of the Company will become eligible for sale
without regard to the volume limitations and manner of sale and notice
requirements of Rule 144. In addition, as of March 31, 1999, there were
outstanding options to purchase an aggregate of 1,945,000 shares of Common
Stock. Pursuant to the lock-up provisions set forth in the stock option
agreements used under the Company's 1995 Employee Stock Option Plan, 1,133,000
shares underlying such options will become eligible for sale pursuant to Rule
701 under the Securities Act ("Rule 701") beginning 180 days after the date of
this Prospectus, and the remaining 812,000 shares underlying such options will
become eligible for sale pursuant to Rule 701 more than 180 days after the date
of this Prospectus as such options vest. See "Shares Eligible for Future Sale".

IMMEDIATE SUBSTANTIAL DILUTION

Purchasers of Common Stock in the offerings will incur immediate,
substantial dilution in net tangible book value per share of $13.63. In
addition, the Company has issued options to acquire Common Stock at prices
substantially below the initial public offering price. To the extent such
options are exercised, there will be further dilution. See "Dilution".

14
<PAGE> 16

USE OF PROCEEDS

The Company will receive approximately $54.8 million from the sale of
shares of Common Stock to be sold by the Company pursuant to the offerings
(approximately $67.6 million if the Underwriters' over-allotment options are
exercised in full) after deducting the underwriting discount and estimated
offering expenses payable by the Company.

The principal purposes of the offerings are to increase the Company's
equity capital, to create a public market for the Common Stock, to facilitate
future access by the Company to public equity markets, to provide liquidity for
certain of the Company's existing stockholders and to provide increased
visibility of the Company in a marketplace where many of its competitors are
publicly held companies.

The Company currently intends to use the net proceeds of the offerings for
working capital and general corporate purposes, including financing accounts
receivable and capital expenditures made in the ordinary course of its business.
The Company may also apply a portion of the proceeds of the offerings to acquire
businesses, products and technologies, or enter into joint venture arrangements,
that are complementary to the Company's business and product offerings. Although
the Company has not identified any specific businesses, products, technologies
or joint ventures that it may acquire or enter into, nor are there any current
agreements or negotiations with respect to any such transactions, the Company
from time to time evaluates such opportunities. Pending such uses, the net
proceeds will be invested in government securities and other short-term,
investment-grade, interest-bearing instruments. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its capital
stock since 1993 and does not intend to pay any cash dividends on its Common
Stock in the foreseeable future. Future dividends, if any, will be determined by
the Board of Directors. The Company's revolving credit facility restricts the
payment of cash dividends without the bank's consent.

15
<PAGE> 17

DILUTION

The net tangible book value of the Company at March 31, 1999 was $51.2
million, or $1.25 per share of Common Stock. Net tangible book value represents
the amount of total tangible assets of the Company reduced by the amount of its
total liabilities. After giving effect to the Company's sale of 3,766,870 shares
of Common Stock in the offerings (assuming no exercise of the Underwriters'
over-allotment options and after deducting the underwriting discount and
estimated offering expenses payable by the Company), the Company's pro forma net
tangible book value at March 31, 1999 would have been $106.0 million, or $2.37
per share of Common Stock. This represents an immediate increase in net tangible
book value of $1.12 per share to the Company's existing stockholders and an
immediate dilution in net tangible book value of $13.63 per share to new
investors purchasing shares of Common Stock in the offerings. The following
table illustrates the per share dilution in net tangible book value to new
investors:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $16.00
Net tangible book value per share as of March 31, 1999.... $1.25
Increase per share attributable to new investors.......... 1.12
-----
Pro forma net tangible book value per share after the
offerings................................................. 2.37
------
Dilution per share to new investors in the offerings........ $13.63
======
</TABLE>

The following table sets forth, as of March 31, 1999, the differences in
the number of shares purchased, consideration paid and the average price per
share paid to the Company by existing stockholders and by investors purchasing
shares of Common Stock in the offerings (assuming no exercise of the
Underwriters' over-allotment options and before deducting the estimated
underwriting discount and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 40,895,580 91.6% $ 46,000 0.1% *(2)
New investors(1)........... 3,766,870 8.4 60,269,920 99.9 $16.00
---------- ----- ----------- -----
Total............ 44,662,450 100.0% $60,315,920 100.0%
========== ===== =========== =====
</TABLE>

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

(1) The net effect of sales by the Selling Stockholders in the offerings will be
to reduce the number of shares held by existing stockholders to 38,912,450
or 87.1% of the total number of shares of Common Stock outstanding after the
offerings, and to increase the number of shares held by new investors to
5,750,000 or 12.9% of the total number of shares of Common Stock outstanding
after the offerings.

(2) Less than $0.01 per share.

The preceding table assumes no exercise of any stock options outstanding as
of March 31, 1999. As of March 31, 1999, there were outstanding stock options to
purchase a total of 1,945,000 shares of Common Stock, with exercise prices
ranging from $0.60 to $4.20 per share and with a weighted-average exercise price
of $1.67 per share. To the extent these options are exercised, new investors
will experience further dilution. See "Management -- 1998 Stock Option/ Stock
Issuance Plan" and Note 6 of Notes to Consolidated Financial Statements.

16
<PAGE> 18

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1999, and such capitalization as adjusted to reflect the sale by the
Company of 3,766,870 shares of Common Stock in the offerings. See "Use of
Proceeds".

<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $0.001 par value, no shares authorized;
and 25,000,000 shares authorized and none issued....... $ -- $ --
Common Stock, $0.001 par value, 175,000,000 shares
authorized; 40,934,422 shares issued; and 44,662,450
shares issued, as adjusted(1).......................... 41 45
Additional paid-in capital................................ 1,236 55,816
Unearned compensation..................................... (407) (407)
Treasury stock, at cost (38,842 shares)................... (217) --
Retained earnings......................................... 50,571 50,571
------- --------
Total stockholders' equity............................. 51,224 106,025
------- --------
Total capitalization................................... $51,224 $106,025
======= ========
</TABLE>

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

(1) Excludes 1,945,000 shares of Common Stock issuable upon exercise of options
outstanding as of March 31, 1999, with exercise prices ranging from $0.60 to
$4.20 per share and with a weighted-average exercise price of $1.67 per
share. See "Management -- 1998 Stock Option/ Stock Issuance Plan" and Note 6
of Notes to Consolidated Financial Statements.

17
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Consolidated Financial Statements and the Notes
thereto and the other financial information included elsewhere in this
Prospectus. The statements of income data for the years ended December 31, 1996,
1997 and 1998 and the balance sheet data at December 31, 1997 and 1998 are
derived from the Consolidated Financial Statements included elsewhere in this
Prospectus which have been audited and reported on by Ernst & Young LLP,
independent auditors. The statements of income data for the years ended December
31, 1994 and 1995 and the balance sheet data at December 31, 1994, 1995 and 1996
are derived from financial statements not included herein which have been
audited and reported on by Ernst & Young LLP, independent auditors. The
statements of income data for the three months ended March 31, 1998 and 1999 and
the balance sheet data as of March 31, 1999 have been derived from unaudited
interim consolidated financial statements. The unaudited interim consolidated
financial statements reflect all adjustments (consisting only of normal
recurring entries) which, in the opinion of the Company's management, are
necessary for a fair presentation of the results for the interim periods
presented.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues.................................... $12,247 $17,531 $42,041 $57,701 $77,428 $15,512 $23,239
Cost of revenues............................ 3,523 5,961 13,650 15,783 22,404 4,546 7,125
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 8,724 11,570 28,391 41,918 55,024 10,966 16,114
Operating expenses:
Sales and marketing....................... 1,630 2,767 5,488 7,741 8,612 1,674 2,958
General and administrative................ 1,347 1,883 3,185 5,423 6,592 1,644 2,030
Research and development.................. 4,042 4,681 6,430 9,658 15,667 3,199 4,852
------- ------- ------- ------- ------- ------- -------
Total operating expenses............ 7,019 9,331 15,103 22,822 30,871 6,517 9,840
------- ------- ------- ------- ------- ------- -------
Income from operations...................... 1,705 2,239 13,288 19,096 24,153 4,449 6,274
Other income (expense):
Interest income........................... 24 75 20 147 834 125 342
Interest expense.......................... (10) (6) (42) (123) -- -- --
Other..................................... (17) (5) (6) (8) (7) -- (19)
------- ------- ------- ------- ------- ------- -------
Income before provision for income taxes.... 1,702 2,303 13,260 19,112 24,980 4,574 6,597
Provision for income taxes.................. 468 644 4,324 6,398 7,895 1,537 2,243
------- ------- ------- ------- ------- ------- -------
Net income.................................. $ 1,234 $ 1,659 $ 8,936 $12,714 $17,085 $ 3,037 $ 4,354
======= ======= ======= ======= ======= ======= =======
Basic net income per share.................. $ 0.03 $ 0.04 $ 0.22 $ 0.31 $ 0.42 $ 0.07 $ 0.11
Diluted net income per share................ $ 0.03 $ 0.04 $ 0.22 $ 0.30 $ 0.40 $ 0.07 $ 0.10
Shares used in computing basic net income
per share(1).............................. 39,600 39,600 40,615 40,855 40,879 40,862 40,896
Shares used in computing diluted net income
per share(1).............................. 39,600 41,207 41,069 41,722 42,452 42,277 42,638
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 166 $ 181 $ 742 $ 3,386 $21,914 $43,163
Working capital............................. 4,569 6,130 15,101 24,290 38,313 42,645
Total assets................................ 7,551 18,641 27,105 38,758 65,508 80,494
Stockholders' equity........................ 5,971 7,629 16,614 29,386 46,813 51,224
</TABLE>

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

(1) See Note 9 of Notes to Consolidated Financial Statements for the
determination of shares used in computing basic and diluted net income per
share.

18
<PAGE> 20

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

The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus. This discussion contains forward-looking statements that are
subject to business and economic risks and uncertainties. All statements, trends
and other information contained in this Prospectus relative to markets for the
Company's products and trends in revenue, gross margin and anticipated expense
levels, as well as other statements, including such words as "anticipate",
"believe", "plan", "estimate", "expect", "intend", "may" and "should" and other
similar expressions, constitute forward-looking statements. The Company's actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this Prospectus.

OVERVIEW

Inet was founded in 1989, and during the early stages of its operations it
focused primarily on developing and selling diagnostic tools that addressed a
predecessor to the SS7 signaling protocol. As the telecommunications industry
increasingly adopted SS7, the Company shifted its focus to developing and
deploying SS7-based solutions as well as broadening its product offerings.
Spectra was first introduced in December 1990 and is currently in its ninth
generation release. Beginning in 1993, the Company focused a significant portion
of its product development efforts on developing a complete monitoring and
surveillance solution for SS7 networks, culminating in the introduction of
GeoProbe in late 1995. The Company continues to focus significant resources on
the development of enhancements to Spectra and enhancements and add-on
applications to GeoProbe.

Historically, the Company has generated substantially all of its revenues
from Spectra and GeoProbe. As a result, factors adversely affecting GeoProbe and
Spectra, such as the condition of the telecommunications market, competition,
technological change and disputes regarding proprietary rights utilized in these
products, would have a material adverse effect on the pricing of and demand for
these products. Revenues attributable to Spectra represented a majority of total
revenues in 1997. Revenues attributable to GeoProbe represented a majority of
total revenues in 1998. Although Inet expects Spectra revenues to continue to
represent a significant portion of total revenues for the foreseeable future,
Spectra sales are expected to continue to decline as a percentage of total
revenues as a result of increasing sales of GeoProbe. The remaining revenues are
derived from sales of other products and training, warranty and support services
related to the Company's products.

Product revenues are generally recognized in the period the Company has
completed all hardware manufacturing and/or software development to contractual
specifications, factory testing has been completed, the product has been shipped
to the customer, the fee is fixed and determinable and collection is considered
probable by the Company's management. When the Company has significant
obligations subsequent to shipment (e.g., installation and system integration),
revenues are not recognized prior to the time the system has been delivered and
installed at the customer's premises and there are no significant unfulfilled
obligations. Revenues from arrangements that include significant acceptance
terms are not recognized until acceptance has occurred. Revenues from product
support services, including product support services included in initial
licensing fees, are recognized ratably over the contract period. Post-contract
support services included in the initial licensing fee are allocated from the
total contract amount based on the relative fair value determined using
vendor-specific objective evidence.

During the last three years, a substantial portion of the Company's total
revenues were derived from customers located outside of the U.S., and Inet
believes that continued growth and profitability will require expansion of its
sales in international markets. The Company currently maintains a product
support facility and a sales support facility outside London, England and a
sales support

19
<PAGE> 21

facility in Frankfurt, Germany, and expects to establish additional
international sales and other offices in the future. To date, international
sales have been denominated solely in U.S. dollars and, accordingly, the Company
has not been exposed to fluctuations in non-U.S. currency exchange rates.
However, Inet expects that in future periods a portion of international sales
may be denominated in currencies other than U.S. dollars, thereby exposing the
Company to gains and losses on non-U.S. currency transactions. The Company may
choose to limit such exposure by entering into various hedging strategies. There
can be no assurance that any such hedging strategies undertaken by Inet would be
successful in avoiding exchange rate-related losses. For a discussion of a
number of other risks associated with international operations, see "Risk
Factors -- International Operations".

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items reflected in the Company's
consolidated statements of income:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................... 32.5 27.4 28.9 29.3 30.7
----- ----- ----- ----- -----
Gross profit...................................... 67.5 72.6 71.1 70.7 69.3
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing............................... 13.0 13.4 11.1 10.8 12.7
General and administrative........................ 7.6 9.4 8.5 10.6 8.7
Research and development.......................... 15.3 16.7 20.3 20.6 20.9
----- ----- ----- ----- -----
Total operating expenses.................. 35.9 39.5 39.9 42.0 42.3
----- ----- ----- ----- -----
Income from operations.............................. 31.6 33.1 31.2 28.7 27.0
Other income (expense).............................. (0.1) 0.0 1.1 0.8 1.4
----- ----- ----- ----- -----
Income before provision for income taxes............ 31.5 33.1 32.3 29.5 28.4
Provision for income taxes.......................... 10.3 11.1 10.2 9.9 9.7
----- ----- ----- ----- -----
Net income.......................................... 21.2% 22.0% 22.1% 19.6% 18.7%
===== ===== ===== ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1998 AND 1999

REVENUES

The Company's revenues increased 49.8% from $15.5 million in the three
months ended March 31, 1998 to $23.2 million in the three months ended March 31,
1999, primarily due to increased unit sales. The Company anticipates that any
changes in revenues in future periods will be attributable primarily to changes
in sales volume. International revenues increased in absolute dollars from $9.9
million in the three months ended March 31, 1998 to $11.0 million in the three
months ended March 31, 1999, but decreased from 63.7% of total revenues in the
1998 period to 47.4% of total revenues in the 1999 period. The Company
anticipates that in the future individual, large sales may represent a greater
percentage of total revenues. Accordingly, the deferral or loss

20
<PAGE> 22

of one or more significant sales could materially adversely affect operating
results in a particular period, particularly if there are significant sales and
marketing expenses associated with the deferred or lost sales.

COST OF REVENUES

Cost of revenues consists primarily of hardware expenses and personnel
costs related to the manufacturing, installation and support of the Company's
products. Cost of revenues increased 56.7% from $4.5 million in the three months
ended March 31, 1998 to $7.1 million in the three months ended March 31, 1999.
Cost of revenues represented 29.3% and 30.7% of total revenues in the three
months ended March 31, 1998 and 1999, respectively. The increase in cost of
revenues in absolute dollars primarily resulted from increased costs directly
associated with an increase in the number of units sold. The Company believes
that for at least the remainder of 1999, cost of revenues should not vary
significantly as a percentage of total revenues from the level experienced in
the three months ended March 31, 1999.

OPERATING EXPENSES

SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of personnel, travel and facilities expenses related to sales and
marketing, distributor commissions and expenses of trade shows and advertising.
Such expenses increased 76.7% from $1.7 million in the three months ended March
31, 1998 to $3.0 million in the three months ended March 31, 1999. The increase
in absolute dollars was primarily due to increased staffing and related costs of
approximately $600,000 and other expenses related to expansion of international
sales activities of approximately $300,000. Sales and marketing expenses as a
percentage of total revenues were 10.8% and 12.7% in the three months ended
March 31, 1998 and 1999, respectively. The increase as a percentage of total
revenues during the 1999 period was primarily due to increased expenses related
to expansion of international sales activities. The Company believes that sales
and marketing expenses will increase in absolute dollars but, for at least the
remainder of 1999, should not vary significantly as a percentage of total
revenues from the level experienced in the three months ended March 31, 1999.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel, facilities and other costs of the finance,
administrative and executive departments of the Company as well as fees and
expenses associated with legal and accounting requirements. Such expenses
increased 23.5% from $1.6 million in the three months ended March 31, 1998 to
$2.0 million in the three months ended March 31, 1999. The increase in absolute
dollars was primarily related to increased staffing and related costs of
approximately $300,000 associated with the growth of the Company's business
during the 1999 period. General and administrative expenses as a percentage of
total revenues were 10.6% and 8.7% in the three months ended March 31, 1998 and
1999, respectively. The Company anticipates that general and administrative
expenses will continue to increase in absolute dollars for the foreseeable
future as the Company accommodates its growth, adds related infrastructure and
incurs expenses related to being a public company.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of salaries and other compensation expenses associated with
the Company's research and development activities. Such expenses increased 51.7%
from $3.2 million in the three months ended March 31, 1998 to $4.9 million in
the three months ended March 31, 1999, representing 20.6% and 20.9% of total
revenues, respectively. The increase in absolute dollars was primarily due to
additional staffing and related personnel costs of $1.5 million associated with
the Company's research and development efforts. The Company expects that
research and development expenses in future periods will increase in absolute
dollars as these investments are crucial to the Company's ability to evolve its
technologies and expand its product offerings to meet its customers' needs.

21
<PAGE> 23

In accordance with Statement of Financial Accounting Standards No. 86,
software development costs are expensed as incurred until technological
feasibility has been established, at which time subsequent costs are capitalized
until the product is available for general release to customers. To date, either
the establishment of technological feasibility of the Company's products and
their general release have substantially coincided or costs incurred subsequent
to the achievement of technological feasibility have not been material. As a
result, software development costs qualifying for capitalization have been
insignificant, and the Company has not capitalized any software development
costs.

OTHER INCOME (EXPENSE)

Other income (expense) increased from $125,000 in the three months ended
March 31, 1998 to $323,000 in the three months ended March 31, 1999. The
increase resulted from increased interest earned on higher balances of cash and
cash equivalents resulting from increased cash flow from operations.

PROVISION FOR INCOME TAXES

The Company recorded income tax expense of $1.5 million and $2.2 million in
the three months ended March 31, 1998 and 1999, respectively. The Company's
effective income tax rates were 33.6% and 34.0% in the three months ended March
31, 1998 and 1999, respectively.

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

REVENUES

Total revenues increased 37.2% from $42.0 million in 1996 to $57.7 million
in 1997, and increased an additional 34.2% from 1997 to $77.4 million in 1998.
The increase was primarily due to an increase in unit sales during 1997 and
1998. Revenues from sales of product other than Spectra and GeoProbe
collectively accounted for 5% or less of total revenues in these years.
International sales represented 49.4%, 52.6% and 52.2% of total revenues in
1996, 1997 and 1998, respectively.

COST OF REVENUES

Cost of revenues increased 15.6% from $13.7 million in 1996 to $15.8
million in 1997, and increased an additional 42.0% from 1997 to $22.4 million in
1998. Cost of revenues represented 32.5%, 27.4% and 28.9% of total revenues in
1996, 1997 and 1998, respectively. The decreases in absolute dollars and as a
percentage of total revenues during 1997 primarily resulted from the absence of
start-up costs associated with the GeoProbe product (which was introduced in
1996), as well as a decrease in the cost of semiconductor memory chips. The
increase in absolute dollars during 1998 primarily resulted from costs
associated with increased unit sales. There can be no assurance that expenses
associated with the initial release of other new products will not be incurred
in future periods. New product offerings or changes in the Company's product mix
can affect the cost of revenues as a percentage of total revenues.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses increased 41.1% from $5.5
million in 1996 to $7.7 million in 1997, and increased an additional 11.3% from
1997 to $8.6 million in 1998. These expenses represented 13.0%, 13.4% and 11.1%
of total revenues in 1996, 1997 and 1998, respectively. The increase in absolute
dollars between 1996 and 1998 was primarily attributable to increased staffing
and related expenses as the Company established new domestic sales offices and
increased marketing and promotional activities. The decrease as a percentage of
total revenues during 1998 was primarily attributable to relatively higher
growth in total revenues.

22
<PAGE> 24

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 70.3% from $3.2 million in 1996 to $5.4 million in 1997, and increased
an additional 21.6% from 1997 to $6.6 million in 1998. These expenses
represented 7.6%, 9.4% and 8.5% of total revenues in 1996, 1997 and 1998,
respectively. The increase in absolute dollars between 1996 and 1997 was
primarily attributable to increased staffing costs associated with the growth of
the Company's business and, to a lesser extent, the establishment of bad debt
reserves. The increase in absolute dollars between 1997 and 1998 was primarily
attributable to increased staffing costs. General and administrative expenses
increased as a percentage of total revenues during 1997 primarily due to
increased staffing costs incurred in anticipation of future growth and because
the Company had not previously established bad debt reserves. General and
administrative expenses decreased as a percentage of total revenues during 1998
primarily due to relatively higher growth in total revenues and the Company's
ability to leverage its base of resources to support a larger organization.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 50.2% from $6.4 million in 1996 to $9.7 million in 1997, and increased
an additional 62.2% from 1997 to $15.7 million in 1998. These expenses
represented 15.3%, 16.7% and 20.3% of total revenues in 1996, 1997 and 1998,
respectively. The increase in absolute dollars and as a percentage of total
revenues over this period was primarily attributable to increased staffing
dedicated to research and development activities.

OTHER INCOME

Other income (expense) was ($28,000), $16,000 and $827,000 in 1996, 1997
and 1998, respectively. The increase in 1997 and 1998 resulted from increased
interest earned on higher balances of cash and cash equivalents resulting from
increased cash flow from operations. The 1997 interest income was partially
offset by interest expense attributable to additional indebtedness.

PROVISION FOR INCOME TAXES

The Company recorded income tax expense of $4.3 million, $6.4 million and
$7.9 million in 1996, 1997 and 1998, respectively. The Company's effective
income tax rates were 32.6%, 33.5% and 31.6% in 1996, 1997 and 1998,
respectively. The increase in the effective tax rate in 1997 was primarily due
to higher levels of income. The decrease in the effective tax rate in 1998 was
primarily due to lower state income taxes.

SELECTED QUARTERLY FINANCIAL RESULTS

The following tables set forth unaudited consolidated statements of income
data for the nine quarters ended March 31, 1999, as well as such data expressed
as a percentage of the Company's total revenues for such periods. This data has
been derived from unaudited interim consolidated financial statements that, in
the opinion of management, have been prepared on a basis consistent with the
Consolidated Financial Statements included elsewhere herein and include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such information when read in conjunction with the
Consolidated Financial Statements and the Notes

23
<PAGE> 25

thereto. The operating results for any quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
1997 1998 1999
----------------------------------------- -------------------------------------- -------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $11,608 $13,482 $12,136 $20,475 $15,512 $18,653 $20,470 $22,792 $23,239
Cost of revenues................. 3,217 3,423 4,164 4,979 4,546 5,067 5,959 6,832 7,125
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................... 8,391 10,059 7,972 15,496 10,966 13,586 14,511 15,960 16,114
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............. 2,209 1,963 1,831 1,738 1,674 2,118 2,439 2,382 2,958
General and administrative...... 1,189 1,235 1,373 1,626 1,644 1,613 1,650 1,685 2,030
Research and development........ 2,180 2,124 2,468 2,886 3,199 3,511 4,341 4,615 4,852
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses...... 5,578 5,322 5,672 6,250 6,517 7,242 8,430 8,682 9,840
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations........... 2,813 4,737 2,300 9,246 4,449 6,344 6,081 7,278 6,274
Interest income.................. 31 18 43 56 125 197 266 245 342
Interest expense................. (18) (26) (68) (12) -- -- -- -- --
Other income (expense)........... 3 (1) -- (9) -- -- -- (7) (19)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before provision for
income taxes.................... 2,829 4,728 2,275 9,281 4,574 6,541 6,347 7,516 6,597
Provision for income taxes....... 947 1,583 762 3,106 1,537 2,330 1,844 2,183 2,243
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income....................... $ 1,882 $3,145 $ 1,513 $ 6,175 $ 3,037 $4,211 $ 4,503 $ 5,333 $ 4,354
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic net income per share....... $ 0.05 $ 0.08 $ 0.04 $ 0.15 $ 0.07 $ 0.10 $ 0.11 $ 0.13 $ 0.11
Diluted net income per share..... $ 0.05 $ 0.08 $ 0.04 $ 0.15 $ 0.07 $ 0.10 $ 0.11 $ 0.13 $ 0.10
Shares used in computing basic
net income per share(1)......... 40,836 40,862 40,862 40,862 40,862 40,874 40,886 40,896 40,896
Shares used in computing diluted
net income per share(1)......... 41,367 41,389 42,027 42,103 42,277 42,277 42,614 42,640 42,638
</TABLE>

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

(1) See Note 9 of Notes to Consolidated Financial Statements for the
determination of shares used in computing basic and diluted net income per
share.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
1997 1998 1999
----------------------------------------- -------------------------------------- -------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................. 27.7 25.4 34.3 24.3 29.3 27.2 29.1 30.0 30.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................... 72.3 74.6 65.7 75.7 70.7 72.8 70.9 70.0 69.3
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............. 19.1 14.6 15.1 8.5 10.8 11.4 11.9 10.5 12.7
General and administrative...... 10.2 9.1 11.3 7.9 10.6 8.6 8.1 7.4 8.7
Research and development........ 18.8 15.8 20.3 14.1 20.6 18.8 21.2 20.2 20.9
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................. 48.1 39.5 46.7 30.5 42.0 38.8 41.2 38.1 42.3
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations........... 24.2 35.1 19.0 45.2 28.7 34.0 29.7 31.9 27.0
Interest income.................. 0.4 0.2 0.3 0.3 0.8 1.1 1.3 1.1 1.5
Interest expense................. (0.2) (0.2) (0.6) (0.1) 0.0 0.0 0.0 0.0 0.0
Other income (expense)........... 0.0 (0.0) 0.0 (0.0) 0.0 0.0 0.0 (0.0) (0.1)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before provision for
income taxes.................... 24.4 35.1 18.7 45.4 29.5 35.1 31.0 33.0 28.4
Provision for income taxes....... 8.2 11.8 6.2 15.2 9.9 12.5 9.0 9.6 9.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income....................... 16.2% 23.3% 12.5% 30.2% 19.6% 22.6% 22.0% 23.4% 18.7%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

The Company's operating results historically have been influenced by
certain seasonal fluctuations, with revenues tending to be strongest in the
fourth quarter of each year. The Company believes that this seasonality has been
due to the capital appropriation practices of many of its customers. The Company
expects that in future periods this seasonal trend may cause revenues for the
March 31 quarter to remain consistent with, or decrease from, the level achieved
in the preceding quarter.

Sales and marketing expenses generally decreased as a percentage of total
revenues during each quarter of 1997 primarily due to decreased sales through
indirect sales channels, which typically require the payment of higher
commissions than sales through the Company's direct sales organization. Sales
through indirect sales channels may increase in future periods.

24
<PAGE> 26

General and administrative expenses generally increased in absolute dollars
during each quarter and fluctuated between 7.4% and 11.3% of total revenues
during the nine quarters ended March 31, 1999. The growth of general and
administrative expenses in absolute dollars has been primarily due to increases
in personnel and related costs required to support the growth of the Company.
Such expenses have fluctuated as a percentage of total revenues primarily due to
variability in total revenues and because certain of such expenses were incurred
in anticipation of future revenues.

Research and development expenses increased in absolute dollars during each
quarter from the quarter ended June 30, 1997. However, such expenses fluctuated
between 14.1% and 21.2% of total revenues during those periods primarily due to
variability in total revenues.

Income from operations fluctuated between 19.0% and 45.2% of total revenues
during the nine quarters ended March 31, 1999. A large portion of the Company's
operating expenses, including rent and salaries, are set based upon expected
future revenues. Accordingly, if revenues are below expectations, operating
results are likely to be adversely and disproportionately affected because such
operating expenses are not variable in the short term, and cannot be quickly
reduced to respond to anticipated decreases in revenues.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has funded its operations and met its
capital expenditure requirements primarily through cash flows from operations
and bank borrowings. The Company had working capital of $42.6 million at March
31, 1999, compared with $38.3 million at December 31, 1998. At March 31, 1999,
the Company had $43.2 million in cash and cash equivalents, an increase of $21.3
million from $21.9 million in cash and cash equivalents at December 31, 1998.

The Company currently maintains a $10.0 million revolving credit facility
with a commercial bank that expires in June 2000. Up to $5.0 million of the
credit facility may be used to issue letters of credit. At the Company's option,
borrowings under the credit facility bear interest at either (i) the bank's
prime rate less up to 0.50% or (ii) the London interbank offered rate (LIBOR),
as adjusted to meet specified Federal Reserve requirements with respect to
Eurocurrency liabilities, plus up to 1.50%. The credit facility is secured by
all of the Company's accounts receivable, inventories, property, equipment and
investments and contains customary restrictive covenants, including covenants
requiring the Company to maintain certain financial ratios and restricts the
payment of cash dividends without the bank's consent, and requires the payment
of a commitment fee equal to 0.125% of the unused portion of the facility. At
March 31, 1999, no amounts were outstanding under the credit facility, and the
amount available to the Company, after considering outstanding letters of
credit, was $9.97 million.

Cash provided by operating activities was $1.8 million, $7.8 million and
$24.5 million in 1996, 1997 and 1998, respectively, and $12.7 million and $22.2
million in the three months ended March 31, 1998 and 1999, respectively.
Operating cash flows in 1997 increased primarily due to increased levels of
income from operations, partially offset by increases in trade accounts and
unbilled receivables and a decrease in accounts payable. Operating cash flows in
1998 increased primarily due to increased levels of income from operations, an
increase in deferred revenue and a decrease in unbilled receivables, partially
offset by an increase in trade accounts receivable. Operating cash flows during
the three months ended March 31, 1999 increased primarily due to increased
levels of income from operations, a decrease in trade accounts receivable and an
increase in deferred revenues. Cash used in investing activities was primarily
related to purchases of property and equipment, and aggregated $2.1 million,
$3.8 million and $6.0 million in 1996, 1997 and 1998, respectively, and $1.0
million in each of the three months ended March 31, 1998 and 1999. Financing
activities related primarily to proceeds of borrowings and repayment of
borrowings. Financing activities provided cash of $837,000 in 1996, used cash of
$1.4 million in 1997 and

25
<PAGE> 27

provided cash of $9,000 in 1998. At March 31, 1999, the Company did not have any
material commitments for capital expenditures.

The Company may in the future pursue acquisitions of businesses, products
or technologies, or enter into joint venture arrangements, that could complement
or expand the Company's business and product offerings. Any material acquisition
or joint venture could result in a decrease in the Company's working capital
depending on the amount, timing and nature of the consideration to be paid. See
"Risk Factors -- Potential Acquisitions".

Inet believes that the net proceeds received by the Company from the
offerings, together with current cash balances, potential cash flows from
operations and available borrowings under its revolving credit facility will be
sufficient to meet its anticipated cash needs for working capital, capital
expenditures and other activities for at least the next 12 months. Thereafter,
if current sources are not sufficient to meet the Company's needs, it may seek
additional equity or debt financing. In addition, any material acquisition of
complementary businesses, products or technologies or material joint venture
could require the Company to obtain additional equity or debt financing. There
can be no assurance that such additional financing would be available on
acceptable terms, if at all.

YEAR 2000 COMPLIANCE

26
<PAGE> 28

the Company can adequately deal with the change in century. Areas being
addressed include third-party suppliers of semiconductors and other components
of the Company's products as well as full reviews of the Company's manufacturing
equipment, telephone and voice mail systems, security systems and other office
support systems. The Company also plans to formally communicate with significant
suppliers and customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. To date, no information technology initiatives have been deferred by the
Company as a result of its Year 2000 compliance project.

The Company expects to complete its Year 2000 project during the fall of
1999. The Company believes that the aggregate incremental costs related to the
Year 2000 project have not been, and are not expected to be, material to the
Company's results of operations, financial position and cash flows. The Company
does not separately track internal costs incurred for the Year 2000 project.
Such costs are principally for software upgrades, and are being funded through
operating cash flows. Based on available information, the Company does not
believe any material exposure to significant business interruption exists as a
result of Year 2000 compliance issues, or that the cost of remedial actions will
have a material adverse effect on its business, financial condition or results
of operations. Accordingly, the Company has not adopted any formal contingency
plan in the event its Year 2000 compliance project is not completed in a timely
manner.

27
<PAGE> 29

BUSINESS

OVERVIEW

Inet's objective is to be the dominant provider of advanced signaling
network management solutions and associated business applications for
telecommunications networks worldwide. Key elements of Inet's strategy to
achieve this objective include expanding its global market share, increasing its
domestic sales and penetration of its existing customer base, enhancing its
technological leadership position in SS7 network management solutions, expanding
its product offerings by leveraging its core competencies in SS7, Internet
protocol and broadband communications protocols, and building relationships with
strategic partners.

INDUSTRY BACKGROUND

THE TELECOMMUNICATIONS INDUSTRY

Historically, telecommunications carriers operated in a highly regulated
environment with little or no competition. Recently, governments worldwide have
begun to deregulate the telecommunications industry in order to reduce costs and
improve service. Deregulation has allowed the emergence of many new
telecommunications carriers and has increased the level of competition. New
entrants to the global telecommunications landscape include competitive long
distance and local exchange carriers; competitors to government post, telephone
and telegraph companies ("PTTs") outside the U.S.; wireless carriers; resellers
such as calling card providers; and Internet telephony providers.

Greater competition is forcing telecommunications carriers to differentiate
themselves by providing advanced, value-added services and features. Examples of
these services include toll-free "800" numbers, prepaid calling cards, Caller
ID, customized routing and billing and voice messaging. Carriers in a growing
number of markets are also being required to provide Local

28
<PAGE> 30

Number Portability ("LNP"), which enables open access to competitors by allowing
telephone numbers to be moved, or "ported", from one carrier to another.

Telecommunications network architectures have significantly increased in
complexity in order to accommodate the functionality requirements of value-added
services and LNP. These "intelligent networks" allow various functions and
service resources to be created and distributed flexibly throughout the network.
For example, intelligent network functions enable carriers to provision, monitor
and bill for multiple services in an efficient manner, which reduces cost and
increases quality of service to the customer.

The growth of intelligent networks, coupled with a significant worldwide
increase in demand for telecommunications and Internet protocol-based and
Internet-related data services, has resulted in corresponding demand for
telecommunications infrastructure and advanced networking technologies,
including network management inter-operability and diagnostic systems.
Telecommunications networks operate in real time and are mission-critical to
their end users. Thus, telecommunications carriers must provide the very highest
quality and reliability of service to remain competitive.

SS7 AND MODERN TELECOMMUNICATIONS NETWORK ARCHITECTURES

A telecommunications network not only must convey information between
points, it also must determine the best routes for connections, control the
allocation of resources used to transfer the information and keep transaction
records for billing and measurement purposes. A simple telephone call, or other
network service such as voice message retrieval or a conference call, involves
two types of information: the call content (voice, computer data or video) and
information about the call (such as the party initiating the call and the number
being called) which is required to connect, manage and bill for the transaction.
This information about a telephone call or other service is generally referred
to as "signaling".

The first generation of telephone networks was designed to pass both call
content and signaling over a single internal network path, called a "trunk",
from the source of the call to the called destination. Signaling information was
passed via audio tones or voltage changes on the telephone line or trunk
connection. It became apparent, however, that the "single path" method of
transferring both call content and signaling becomes inefficient and unreliable
as network traffic grows, leading to network congestion and service quality
problems. Single path signaling also lacks flexibility because the control
information cannot be separated easily from the call content flowing over a
trunk. As a result, advanced services cannot be offered in networks in which
single path signaling is used.

These problems were first recognized during the 1960s and were subsequently
resolved through the development and deployment of "Common Channel Signaling".
In Common Channel Signaling, the call content is separated from the signaling
information. The signaling information is then passed over an entirely separate
path through the carrier's network, while the call content is passed over a
trunk. Signaling paths in the network are connected to a set of systems that
control and monitor the progress of calls and other transactions and route the
signaling information as required. The signaling paths, or "links", and
signaling network control systems comprise a separate network infrastructure,
called a "signaling network", that operates in parallel with the network of
trunks used to convey call content. The technique is called Common Channel
Signaling because signaling information for multiple calls passes over a shared,
or "common", set of signaling channels. This method of combining signaling
information for multiple calls results in much higher overall network
efficiency.

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<PAGE> 31

The following illustration depicts a simplified carrier network
incorporating Common Channel Signaling:
[ILLUSTRATION]
[Illustration of two boxes, each representing a telephone switching office, each
connected to separate customer telephones. The two switching offices are
connected by two lines. The top connecting line depicts the voice path between
the two switched offices. A second line depicting the signaling link extends
from the bottom of each switching office and connects at a bubble in the center
of the illustration depicting the signaling network.]

Modern signaling networks are based on a globally standardized architecture
and set of protocols called SS7, or sometimes referred to internationally as
"C7". Since the mid-1980s, SS7 has been implemented by telecommunications
carriers worldwide, including incumbent carriers, emerging competitive service
providers, Internet service providers, and wireless carriers. SS7 utilizes
digital packet-switching technology and is designed to be robust, flexible, and
scalable, enabling telecommunications carriers to provide new services quickly
and to optimize the network bandwidth used for trunk connections. When a call is
placed, the originating location's call switching equipment uses the SS7 network
to "look ahead" and determine whether the destination is busy or otherwise
unavailable before allocating a trunk to the call and connecting both parties.
The look ahead operation also enables information such as Caller ID to be passed
before the call is actually connected. The SS7 network's speed and power allow
these operations to occur almost instantly, which significantly reduces the time
required to process each call and improves service to the end user.

The principal components of an SS7 network are:

- SIGNALING SERVICE POINT ("SSP"). A subsystem of a telephone switch
that connects to the SS7 network and processes signaling information
associated with that particular switch. SSPs are the origination and
termination points for SS7 messages in the network. SSPs exchange
messages with other SSPs, STPs, and SCPs throughout the network.

- SIGNAL TRANSFER POINT ("STP"). A router that controls the flow of
messages among the other elements in the SS7 network. An STP may
include additional functionality that allows it to access external
databases in addition to performing simple routing based on the
source and destination address information included in network
messages.

- SERVICE CONTROL POINT ("SCP"). A database server that provides
additional information for call routing, billing and other services.

- LINKS. A set of dedicated digital channels through which the SS7
messages flow among SSPs, STPs, SCPs and other devices throughout
the network. These are typically 56 or 64 kilobits-per-second (kbps)
standard digital connections.

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<PAGE> 32

The following illustration depicts the basic architecture of an SS7
signaling network:
[ILLUSTRATION]
[Illustration depicting a telephone at the bottom left (labeled 'New York
Caller') and a telephone at the bottom right (labeled 'Inet Operator'), each
linked linearly to a circle (representing an SSP) and then a box (representing
an STP), with each STP connected to a bubble labeled 'Telecommunications
Carrier's Network.']

SS7: AN ILLUSTRATIVE EXAMPLE

In order to better illustrate the critical role of the SS7 network in
modern telecommunications and to demonstrate the complexity of this network,
consider the example of a person in New York who wishes to call the toll-free
"800" number for Inet. The caller picks up the telephone and dials
1-800-WOW-INET. At the caller's local phone company's central office, an SSP
collects the dialed digits and analyzes them, attempting to determine the
destination location. Since the number dialed is an "800" number, the SSP uses
the SS7 network to query an SCP database. The SCP translates the "800" number
into the local phone number assigned to Inet's headquarters (972-578-6100), and
returns the number through the SS7 network back to the SSP.

The originating SSP then sends a "call setup" message, indicating the 972
number, to the nearest STP. This STP determines that the call must be routed
through the long distance carrier associated with the "800" number, and forwards
the message through the particular long distance carrier's STP, which in turn
determines that the call should terminate at Inet's office in Plano, Texas. The
message is then routed by the long distance company's STP to the local phone
company's STP in Dallas, and finally to the SSP at the local central office in
Plano that will deliver the call to Inet's internal telephone system.

When the SSP in Plano receives the call setup message, it first checks to
see if Inet's number is busy. If the number is available to receive a call, the
SSP in Plano acknowledges the call setup message by sending an acknowledgement
message back to the originating SSP through the SS7 network, and simultaneously
sends SS7 messages to set up a voice channel between the two central offices.
All of these interactions take place in less than one second. At this point,
Inet's phone begins to ring.

When Inet's operator answers the phone, the SSP in Plano sends an "answer"
message through the SS7 network back to the originating SSP, which completes the
voice connection. After both parties hang up the phone and the call ends,
additional messages are sent through the SS7 network to close the call, free up
the voice trunks, and bill for the call.

THE NEED FOR SS7 NETWORK MANAGEMENT SOLUTIONS

As the example above demonstrates, even a relatively simple transaction
like an "800" call requires a sophisticated series of SS7 network operations.
Long-distance authorization codes, pre-paid calling cards, cellular phones, LNP
and other advanced services increase the number of SS7

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<PAGE> 33

messages required for each network transaction, which in turn tends to increase
the number of STPs, SCPs and links required in the network.

Each SS7 network typically contains equipment and software manufactured by
multiple vendors. Moreover, multiple SS7 networks are connected between
carriers, often spanning international boundaries. The entire "network of
networks" must operate as a seamless whole, in real time, with a minimal number
of errors. Any indication of trouble in the network must be detected and
diagnosed as quickly as possible. Network capacity utilization must be monitored
continuously for "bottlenecks" and other conditions. To maintain reliability,
each new connection between two carriers' networks must be certified and
approved by the engineering staffs at both carriers before traffic is allowed to
flow through the connection.

In the past, when SS7 networks were used exclusively on wireline networks
to complete standard telephone calls, it was sufficient for carriers to employ
localized diagnostic equipment and a large number of technicians who could be
dispatched in reasonable time to any point where trouble was suspected or where
new connections were being installed. However, this approach is not readily
scalable. It requires significant numbers of personnel with specialized domain
expertise and does not adequately provide for diagnosis of network-wide,
interrelated conditions that tend to arise in complex environments. The
combination of new and different types of interconnected SS7 networks (such as
satellite and cellular networks), increased traffic levels and complexity within
each SS7 network and strict performance requirements has led to an increased
need for systems and software that enable carriers to get a complete picture of
all signaling network facilities and monitor any or all SS7 message traffic in
real time. Comprehensive network management solutions are required to enable
advanced intelligent networks to reach their full potential.

There is also a growing need for SS7 network management systems to be fully
integrated into the overall collection of systems that manage all aspects of a
carrier's operations, such as billing, service order entry, provisioning,
repair, and service definition. Seamless integration of SS7 management with
applications that enable a carrier to use and leverage the information gathered
in its SS7 network allows a carrier to improve its customer service, reduce
costs, and increase operational efficiency. To provide a carrier with these
advantages, an SS7 network management system must offer a suite of software
applications above and beyond more traditional management functions such as
monitoring and diagnostics.

THE INET SOLUTION

Inet provides solutions that enable telecommunications carriers to more
effectively design, deploy, diagnose, monitor and manage communications networks
that carry signaling information used to manage telephone calls. Inet's products
also address the fundamental business needs of carriers, such as improved
billing, targeted sales and marketing, fraud prevention and enhanced call
routing. Inet provides these comprehensive solutions primarily through its
GeoProbe and Spectra product offerings.

Inet's GeoProbe system provides real-time, network-wide monitoring and
serves as an open platform for business applications developed by Inet, its
customers or third parties. GeoProbe's monitoring applications enable early
warning of network faults, collection of statistics for performance evaluations,
real-time call tracing and troubleshooting. GeoProbe's associated business
applications provide fraud detection tools, reconciliation of billing between
carriers, service quality reports and marketing data. GeoProbe provides many
advantages, including:

- GLOBAL NETWORK VIEW. GeoProbe is designed to provide a comprehensive view
of a carrier's entire SS7 network. This design ensures that all relevant
events and/or signaling throughout the carrier's network, regardless of
their point of origin, path and termination point, are properly
correlated and processed for presentation to network management systems
or personnel. In the absence of such a global approach, carriers must
rely on a patchwork of systems scattered throughout their networks in
order to diagnose problems. Inet's
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<PAGE> 34

proprietary call tracking technology enables a carrier to reconstruct an
entire call and its related transactions at any time during or after the
call. Traditional sampling techniques, by contrast, tend to produce
erroneous and inaccurate results because collected data is usually
incomplete and only local in scope.

- REAL-TIME FUNCTIONALITY. GeoProbe is designed to collect, process and
present data in real time, even under extreme network load conditions.
This key attribute makes real-time management and operation of SS7
networks possible. Without a real-time monitoring system, carrier
networks are more vulnerable to overloads, fraud and delayed problem
resolution, which can lead to customer dissatisfaction and compromised
network integrity.

- ADVANCED ENGINEERING AND PLANNING CAPABILITIES. GeoProbe continuously
provides an accurate and detailed view of real-time and historical
statistics on a carrier's SS7 network usage and the service applications
delivered through the network. This allows carriers to implement network
designs optimized for cost and performance, and to refine network
configuration over time based on changes in demand. For example, a
carrier can use data collected by GeoProbe to identify a point in the
network that is constricting traffic flow. The carrier can then install
additional equipment at that point, increasing the throughput of its
entire network.

- FAST, COST-EFFECTIVE DIAGNOSTICS. GeoProbe's software applications
rapidly isolate problems between interconnected SS7 elements and
networks, enabling telecommunications carriers to reduce downtime,
maintenance and costs.

- REDUNDANCY AND RELIABILITY. GeoProbe is available with various levels of
redundancy in order to guard against data loss and help ensure that
critical applications remain operational. Available redundancy features
include power, interfaces, processors, storage devices and transport
network access, and certain business applications such as billing.

- VENDOR INDEPENDENCE. All GeoProbe applications are based on data captured
directly from the SS7 network, as opposed to information provided in
vendor-specific format by individual network elements such as STPs and
SCPs. As a result, carriers can use GeoProbe regardless of which vendors'
equipment is deployed in their SS7 network.

The Spectra product is a vendor-independent tool that provides diagnostic,
emulation and load generation capabilities for use in the design, deployment,
commissioning and diagnosis of SS7 networks. Spectra can be integrated within
the GeoProbe platform or used on a stand-alone basis with a carrier's own
equipment. Spectra can also be used by equipment manufacturers to design and
test SS7 network equipment. Key benefits of Inet's Spectra product are:

- EASE OF USE. Spectra provides a multitude of easy-to-access emulation and
diagnostic functions. These capabilities allow testing and
troubleshooting personnel to quickly and effectively perform tasks that
would otherwise require lengthy set-up times and programming efforts.

- COMPREHENSIVE CAPABILITIES. Spectra provides customers with the ability
to monitor, emulate and generate signaling data for use in
troubleshooting, validation, conformance and regression testing of
switches and other network equipment. Spectra's load generation
capabilities and multiple emulation functions can test the various layers
of the SS7 protocol, up to and including the signaling information
involved with complex applications, such as LNP.

- MULTIPLE PROTOCOL SUPPORT. Spectra enables network equipment
manufacturers and telecommunications carriers to perform end-to-end
testing of applications utilizing multiple signaling protocols, such as
country-specific variations of SS7. Spectra alleviates the need to use
multiple diagnostic tools and provides easy and consolidated access to
test results.

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<PAGE> 35

- VERSATILE CONFIGURATION AND COMPATIBILITY WITH GEOPROBE. Inet offers
Spectra in a rack-mounted version that supports up to 16 links and a
portable version that supports up to eight links. Spectra's versatility
is enhanced by its portability and the ability to integrate with the
GeoProbe system.

Together, GeoProbe and Spectra represent an integrated and comprehensive
set of solutions for signaling network design, monitoring, management, testing
and diagnosis.

THE INET STRATEGY

Inet's objective is to be the dominant provider of advanced signaling
network management solutions and associated business applications for
telecommunications networks. Key elements of Inet's strategy to achieve this
objective include:

EXPAND GLOBAL MARKET SHARE. The Company is pursuing business in markets
throughout the world that are in the process of being deregulated or privatized.
The percentage of the Company's revenues attributable to international markets
exceeded 50% of its revenues in 1998 and is expected to remain a substantial
portion of the Company's revenues going forward. The Company believes that its
future growth and profitability require continued expansion in international
markets. Inet also selectively pursues incumbent carriers in newly emerging
markets and in advanced but monopolistic markets in order to establish its
presence in these markets prior to the time at which such a market is
deregulated or privatized. The Company intends to expand its international
presence by adding offices in key global markets.

ACCELERATE DOMESTIC SALES AND INCREASE PENETRATION OF EXISTING CUSTOMER
BASE. Inet intends to seek additional revenue opportunities by working closely
with its installed customer base to identify opportunities for the sale of
additional GeoProbe systems, add-on business applications and other products.
Based on experience with its existing customers, the Company believes that
achieving early widespread deployment of the GeoProbe in a particular carrier's
network provides significant ongoing opportunities for sales of additional
GeoProbe systems and add-on applications. The Company is expanding its domestic
sales force in order to pursue opportunities with its installed customer base,
as well as first-time sales to new customers.

ENHANCE TECHNOLOGY LEADERSHIP POSITION. The Company intends to maintain its
position as a technological leader in SS7 network management and associated
business solutions. To accomplish this objective, the Company intends to, among
other things, continue investing in research and development, including new
product development and enhancements to its current products.

EXPAND PRODUCT OFFERINGS. Inet believes that it has gained significant
expertise in SS7, Internet protocol and broadband communications technologies in
the course of the design, development and implementation of its Spectra and
GeoProbe product offerings and through its work with its existing customer base.
The Company intends to leverage its core competency in SS7 to expand its current
product offerings and to develop new product offerings for complementary
signaling environments such as Internet protocol, Asynchronous Transfer Mode and
Internet telephony.

BUILD RELATIONSHIPS WITH STRATEGIC PARTNERS. Inet intends to build
strategic relationships with complementary software vendors and signaling
equipment manufacturers worldwide in order to integrate the Company's product
offerings with others' products and/or to create joint-marketing opportunities.
In addition, the Company intends to augment its sales efforts by establishing
and expanding relationships with other telecommunications equipment vendors,
systems consulting and integration firms and network management providers.

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<PAGE> 36

PRODUCTS

GEOPROBE

The GeoProbe system contains the following key elements:

- A core hardware platform designed as a scalable, distributed,
RISC-based multi-processing data I/O platform, which captures
network data traffic and processes that data through multiple
software applications.

- Advanced SS7 network monitoring software applications.

- The Company's OpenSeven application programming interface ("API"),
which enables customers and third party developers to customize
and extend the features of the system.

- A suite of business software applications which enable a carrier
to leverage the data collected by the GeoProbe system, such as
call-based interconnect billing, usage measurement billing,
customer quality assurance and LNP monitoring.

The following illustration depicts the functional architecture of the
GeoProbe system:
[TARGET CHART]
[Illustration of four concentric circles depicting the functional architecture
of the GeoProbe system. In the outermost circle (which a legend indicates to be
the Business-Level Applications) is text describing the following types of
applications: 'Real-Time Fraud Data Feed,' 'Third Party Applications,'
'Marketing Applications,' 'Service Quality Assurance' and 'Interconnect Billing
Reconciliation.' The next circle inward is the interface to the Application
Programming Interface tools labeled 'OpenSeven API.' The next inward circle
contains the following Surveillance-Level Applications: 'Alarms,' 'Network
Performance,' 'Call Completion Stats,' 'Mass Call Detection,' 'Global Call
Trace,' 'Service Performance' and 'Signal Unit Storage.']

The GeoProbe system provides a network-wide view regardless of topology or
number of protocols in use. GeoProbe passively (i.e., non-intrusively) monitors
all messages that flow over each signaling link and can automatically correlate
these messages to reconstruct every call in a carrier's network. This capability
provides comprehensive call analysis for troubleshooting, problem detection, and
network integrity assurance. In addition, the information collected by GeoProbe
improves a carrier's ability to optimize its network and provide enhanced
services to its customers.

GeoProbe provides call data and network status information to users via a
graphical user interface and through Web-based reporting applications. GeoProbe
displays maps that represent network elements (e.g., SSPs, STPs and SCPs). When
failures or user-specified events occur, an icon representing the affected
network element changes to alert the user to potential trouble or the

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<PAGE> 37

occurrence of the failure or event. GeoProbe also provides users with a wide
range of flexibility to configure their system to set up triggers (i.e., event
detection), filters, alarms and statistics.

The GeoProbe platform contains three elements: SpIprobes, SpIstations and
SpIservers. This modular design accommodates growth in a carrier's network and
facilitates the implementation of enhanced features simply by adding processor
cards to the SpIprobes or deploying additional SpIstations. The following
illustration depicts the elements of the GeoProbe platform in a simplified SS7
network environment:
[ILLUSTRATION]
[Illustration depicting the elements of the GeoProbe platform in a simplified
SS7 network environment. One the left of the graphic is a PC workstation labeled
'SpIstation' contained in a shaded box and denoted as the 'Regional Operations
Center(s)'. Below this picture is an elliptical bubble made up of dashed lines
and connected to the shaded box by a dashed line. Inside the bubble are the
words 'Transport Network (TCP/IP).' Below the bubble is a shaded box also
connected to the bubble by dashed lines. Inside the shaded box denoted as the
'Centralized Network Operations Center' is a computer server labeled 'SpIserver'
and a PC workstation labeled 'SpIstation.' On the right side of the graphic is a
second bubble containing the following elements of the SS7 Network
interconnected by solid black lines: STP, SCP, STP and SSP. Also within the
second bubble are two SpIprobes, each connected to one of the STPs in the second
bubble and also connected by dashed lines to the elliptical bubble on the left
side of the graphic.]

SPIPROBE. SpIprobes are typically co-located with the carrier's STPs
because STPs have the greatest concentration of links and all SS7 messages must
traverse through the STPs. The SpIprobe passively monitors each link at each STP
site. The SpIprobe contains four primary subsystems:

- An Interface subsystem that provides a passive, non-intrusive physical
interface to the monitored links.

- A Processor subsystem based on RISC architecture that processes data
passed from the Interface.

- A Controller subsystem that provides command and control for redundancy,
communication and other "housekeeping" activities.

- A Storage subsystem which provides storage for captured signal units and
statistics.

SPISERVER. SpIserver is a UNIX-based computer that acts as a central file
server for the GeoProbe system. SpIserver is located at the carrier's Network
Operations Center and serves as the processing core for the alarm distribution,
system configuration and database functions of GeoProbe. SpIservers are scalable
so that additional applications and system upgrades can be easily added without
the need for additional SpIservers.

SPISTATION. SpIstations are UNIX-based workstations that can be located
wherever the customer needs network information. Each SpIstation features a
graphical user interface through which the user can view network information
provided by GeoProbe. This displayed information includes SS7 network
configuration and status.

GEOPROBE SOFTWARE APPLICATIONS. Inet has developed a number of software
applications for use with GeoProbe. These applications incorporate Oracle's
relational database and the X-Windows OSF/Motif toolkit. In addition, Inet's
OpenSeven API provides the carrier's personnel or a third party

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<PAGE> 38

software developer with the ability to expand or customize existing applications
or develop new applications to meet their needs.

The following applications are available for use in the GeoProbe system:

<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------
APPLICATION FUNCTIONALITY
- ------------------------------------------------------------------------------------
Surveillance Alarms
Statistics
Local Number Portability monitoring
- ------------------------------------------------------------------------------------
Billing Call-based interconnect billing
Usage measurement billing
- ------------------------------------------------------------------------------------
Fraud Management Feed to real-time fraud
detection systems
- ------------------------------------------------------------------------------------
Marketing, Customer Care Service Level Agreement monitoring
and Service Quality Real-time customer management
Assurance Dynamic Service Management
Special Studies
- ------------------------------------------------------------------------------------
</TABLE>

Pricing for a GeoProbe system varies based on a number of factors, such as
the amount of network traffic, number of links monitored, network configuration,
number of protocols present, and number and type of add-on applications.
GeoProbe system add-ons are priced according to similar metrics. Prices for
GeoProbe systems have ranged from approximately $350,000 to approximately $13
million. Since 1995, the Company has sold GeoProbe systems to over 40 customers
worldwide.

SPECTRA

Inet's Spectra diagnostic unit, designed to serve either as a stand-alone
tool or to be integrated with GeoProbe, provides telecommunications carriers
with the ability to quickly and cost-effectively design, deploy and maintain
their networks. Spectra offers a wide array of filters, traps, traces and other
diagnostic capabilities. Spectra also can be used by equipment manufacturers in
the design of new products through its extensive emulation and conformance
packages and its ability to simulate network conditions.

Spectra is a multi-protocol diagnostic tool targeted to the needs of
advanced SS7/C7, PCS, GSM, IS-41, X.25 and ISDN networks and development
environments. Spectra is designed for ease-of-use, with an intuitive user
interface featuring pop-up menus and single-keystroke commands. Spectra can be
configured by the user to change message text and monitoring scenarios and to
save commonly used configurations, filters, tests and other settings for quick
setup. Spectra translates complex SS7 messages into plain language, and its
display format shows network statistics and test results in an
easy-to-understand format.

Spectra can be purchased in either a portable version, capable of
monitoring up to eight full-duplex links, or in a rack-mounted configuration
that can monitor up to 16 full-duplex links. Depending on configuration and
enhancements, beginning in 1996 prices for a Spectra unit generally have ranged
from $30,000 to $100,000. Since the first Spectra sale in 1990, over 2,500
Spectras have been sold to over 350 customers worldwide.

OTHER CURRENT PRODUCTS - SPIDER

The Company also produces a wireless modem known as Spider for use by law
enforcement, field service, sales force automation and other wireless data
applications. One of the most compact wireless CDPD modems on the market today,
Spider is a single Type III PCMCIA computer card and does not rely on external
power. Spider provides a full duplex, RC4 data-encrypted, 19.2 kbps cellular
packet data link to LANs, intranets and other networks, including the Internet.
Spider comes

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bundled with management software to enable the user to manage signal strength
while simplifying installation and use.

PRODUCTS UNDER DEVELOPMENT

The Company utilizes a common standards-based open architecture approach in
the design of its products. This approach facilitates and accelerates the
development of new applications and products and permits the Company to enhance
existing products by substituting new hardware or software modules. This modular
approach also helps to extend the life cycles of the Company's products, ensure
compatibility among successive generations of products and simplify the
manufacturing process.

Some of the Company's current and planned product development efforts
include a number of add-on marketing applications built on its Customer Quality
Assurance application that will enable carriers to offer improved customizable
services to corporate clients and a high speed link interface module for
GeoProbe. Among the enhancements being developed for Spectra are a high speed
link interface and an API to provide access to the new testing automation tools
on the market today. In addition, the Company has on-going product development
efforts to provide inter-operability solutions between SS7 and Internet protocol
networks.

Products as complex as those currently under development by the Company
frequently are subject to delays, and there can be no assurance that the Company
will not encounter difficulties that could delay or prevent the successful and
timely development, introduction and marketing of these potential new products.
Moreover, even if such potential new products are developed and introduced,
there can be no assurance that they will achieve any significant degree of
market acceptance. Failure to release these or any other potential new products
on a timely basis, or failure of these or any other potential new products, if
and when released, to achieve any significant degree of market acceptance, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors -- Rapid Technological Change and
New Products" and "-- Product Liability".

CUSTOMERS

As of March 31, 1999, the Company had sold versions of its products to over
400 customers in over 40 countries. In 1997, British Telecom accounted for
approximately 14% of the Company's revenues. No individual customer (other than
British Telecom in 1997) accounted for 10% or more of the Company's revenues in
1996, 1997 or 1998. The Company's target customers include telecommunications
network carriers and equipment manufacturers throughout North America, Latin
America, Europe and the Asia/Pacific region.

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The following is a representative list of customers in various market
segments which have purchased in excess of $250,000 worth of the Company's
products since 1996. These customers collectively accounted for 73.5%, 66.2% and
67.9% of the Company's revenues in 1996, 1997 and 1998, respectively.

<TABLE>
<CAPTION>
LONG DISTANCE CARRIERS (IXCS) WIRELESS CARRIERS PTTS EQUIPMENT MANUFACTURERS
- ----------------------------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C>
AT&T Airtouch British Telecom Alcatel
MCI WorldCom Alltel Cable & Wireless Ascend
Sprint AT&T Wireless Deutsche Telekom Bellcore
Bell Atlantic Mobile KPN Telecom Cisco
LOCAL EXCHANGE CARRIERS Bell South Mobility Latvia PTT Ericsson
Cellular One-Maryland o.tel.o Motorola
Brooks Fiber Entel-Chile communications Nortel
Cincinnati Bell LA Cellular Portugal Telecom PT NEC Nusantara
Frontier Startel Singapore Telecom Communication
Intermedia Telebahia SPT Telecom
Communications Western Wireless Telecom Italia
LDI Telia
Telstra
</TABLE>

SALES, MARKETING AND SUPPORT

SALES AND MARKETING

The Company sells the GeoProbe and Spectra to telecommunications carriers
and equipment manufacturers globally through both direct and indirect channels.
The direct channel is used domestically for both product lines with the
Company's sales force structured around a two-tier model -- strategic accounts
and geographic accounts. Internationally, the Company uses both
channels -- GeoProbe is sold directly and in cooperation with system
integrators, distributors and consultants, while Spectra is sold primarily via
distributors. The Company maintains eight sales offices in the U.S. and sales
support facilities outside London, England and in Frankfurt, Germany.

Sales of the Company's products are made predominately to large
telecommunications service providers and involve significant capital
expenditures and lengthy implementation processes. Prospective customers
generally commit significant resources to an evaluation of the Company's and its
competitors' products and require each vendor to expend substantial time, effort
and money educating the prospective customer about the value of the vendor's
solutions. Consequently, sales to this type of customer generally require an
extensive sales effort throughout the customer's organization and final approval
by an executive officer or other senior level employee. The Company frequently
experiences delays following initial contact with a prospective customer and
expends substantial funds and management effort pursuing these sales.
Additionally, delays associated with potential customers' internal approval and
contracting procedures, procurement practices, testing and acceptance processes
are common and may cause potential sales to be delayed or foregone. As a result
of these or other factors, the sales cycle for the Company's products is long,
typically ranging from six to 24 months for GeoProbe sales (excluding the cycle
for subsequent applications and enhancements, which varies widely) and up to six
months for occasional, large Spectra sales. Accordingly, the Company's ability
to forecast the timing and amount of specific sales is limited, and the deferral
or loss of one or more significant sales could materially adversely affect
operating results in a particular quarter, particularly if there are significant
sales and marketing expenses associated with the deferred or lost sales.

The Company's primary marketing activities include raising potential
customer awareness of the benefits of actively managed SS7 networks and
identification of new opportunities with existing customers. To accomplish these
tasks, Inet uses direct sales and marketing efforts, advertising in

39
<PAGE> 41

trade magazines, exhibitions at industry trade shows and presence on the
Internet via the Company's website. These activities focus on generating
qualified sales leads and demonstration opportunities for the Company's
products.

The Company provides extensive training and support for its direct sales
force and its worldwide distributors, including classroom training, product
brochures, demonstration systems and promotional literature.

SERVICES, SUPPORT AND WARRANTY

The Company believes that customer service, support and training are
important to building and maintaining strong customer relationships. The Company
services, repairs and provides technical support for its products. Support
services include 24-hour technical support, remote access diagnostic and
servicing capabilities, installation support and advance replacements for
emergency situations. The extent and nature of customer interaction with the
support organization are shared with the sales organization via a common
database.

The Company maintains an in-house repair facility and provides on-going
telephone assistance to customers from its support center in Plano, Texas. In
addition, the Company services its European customers from a product support
office outside London, England. As Inet's customers become more geographically
diverse, the Company may open service centers in other key locations.

The Company typically warrants its products against defects in materials
and workmanship for one year after the sale and thereafter offers extended
service warranties.

The Company also provides varying levels of extended product support under
support services agreements. Support services agreements are typically sold to
customers for a one-year term and may be renewed for additional one-year
periods. Customers that do not renew their support services agreements but wish
to obtain product updates and new version releases are generally required to
purchase such items from the Company at market prices.

RESEARCH AND DEVELOPMENT

The Company's product development efforts include expenditures for research
and development, new product design and enhancement of existing products.
Research and development expenses were $6.4 million, $9.7 million, $15.7 million
and $4.9 million in 1996, 1997, 1998, and the three months ended March 31, 1999,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".

The Company's primary development facilities are located in its Plano,
Texas headquarters. The Company believes that recruiting and retaining highly
skilled engineering personnel is essential to its success. To the extent that
the Company is not successful in attracting and retaining qualified technical
personnel, its business, financial condition and results of operations would be
materially adversely affected.

The Company's products are designed to comply with a significant number of
standards and regulations, some of which are evolving as new technologies are
deployed. For sales to customers in the U.S., the Company's products must comply
with various standards established by Bellcore and the American National
Standards Institute. Internationally, the Company's products must comply with
standards established by telecommunications authorities in various countries as
well as with recommendations of the International Telecommunications Union and
the European Telephone Standards Institute. The failure of the Company's
products to comply, or delays in compliance, with the various existing and
evolving standards could have a material adverse effect on the Company's
business and operating results.

MANUFACTURING

Inet's production process consists of procurement and inspection of
components, final assembly, burn-in, quality control testing and packaging. Inet
outsources the manufacturing of its

40
<PAGE> 42

hardware to a number of Texas-based contract manufacturers. The Company has
obtained ISO 9001 certification for in-house processes and has obtained the CE
certification for shipments to the European Community.

Inet generally uses industry-standard components for its products which are
available from multiple sources. However, the Company's products currently
utilize certain semiconductors that are available from only one manufacturer and
other components that are available from a limited number of suppliers. The
Company attempts to minimize the need for sole and limited source components by
performing design reviews, prior to the manufacture of any new product, during
which the Company seeks to eliminate sole source components. During manufacture,
Inet forecasts annual parts usage and meets with key vendors to obtain their
commitment to meet forecast supply needs. The Company periodically reevaluates
the sources of components identified as having potential delivery problems and
the costs and benefits of redesigning the Company's products to incorporate
alternative components. If any sole or limited source components should become
unavailable, Inet believes that it could design similar functionality into its
product using other components. See "Risk Factors -- Dependence on Sole and
Limited Source Suppliers; Dependence on Subcontractors and Licensed Technology".

COMPETITION

The market for SS7-based telecommunications network management applications
is relatively new, intensely competitive, both in the U.S. and internationally,
and subject to rapid technological change, evolving industry standards and
regulatory developments. Competition is expected to persist, intensify and
increase in the future. The Company competes with a number of U.S. and
international suppliers that vary in size and in the scope and breadth of the
products and services offered. GeoProbe principally competes with products
offered by Hewlett-Packard. Spectra principally competes with products offered
by Hewlett-Packard, Tekelec and Tektronix. Certain of the Company's competitors
have, in relation to the Company, longer operating histories, larger installed
customer bases, longer-standing relationships with customers, greater name
recognition and significantly greater financial, technical, marketing, customer
service, public relations, distribution and other resources. Additionally, it is
possible that new competitors or alliances among competitors could emerge and
rapidly acquire significant market share. As a result, such competitors may be
able to more quickly develop or adapt to new or emerging technologies and
changes in customer requirements, or devote greater resources to the
development, promotion and sale of their products. Increased competition is
likely to result in price reductions, reduced margins and loss of market share.

The Company believes that its ability to compete successfully depends on
numerous factors, both within and outside the Company's control, including:
responsiveness to telecommunications service providers' needs; the Company's
ability to support existing and new industry standards; the development of
technical innovations; the attraction and retention of qualified personnel;
regulatory changes; the quality, reliability and security of the Company's and
its competitors' products and services; sufficient market presence by the
Company; the ability to execute a strategy of rapid expansion; ease of use of
the Company's products; the pricing policies of the Company's competitors and
suppliers; the timing of introductions of new products and services by the
Company and its competitors; and general market and economic conditions. There
can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations.

PROPRIETARY RIGHTS

Company's products. As the number of telecommunications network management
products increases and the functionality of these products further overlaps, the
Company believes that it may become increasingly subject to allegations of
infringement. To date, the Company has engaged in correspondence with
third-party holders of patents as a result of two such notices. The Company
believes that its products do not infringe any valid patents cited in the
notices received. However, questions of infringement in the field of
telecommunications signaling technologies involve highly technical and
subjective analyses. There can be no assurance that any such patent holders or
others will not in the future initiate legal proceedings against the Company or
that, if any such proceedings were initiated, the Company would be successful in
defending against such proceedings. Any such proceeding could be time consuming
and expensive to defend, prosecute or resolve, result in substantial diversion
of management resources, cause product shipment delays, or force the Company to
enter into royalty or license agreements rather than dispute the merits of any
such proceeding initiated against the Company. There can be no assurance that
any such royalty or license agreements would be available on terms acceptable to
the Company, if at all. Any such claims against the Company, with or without
merit, could have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company's continued success is dependent in part upon its proprietary
technology. To protect its proprietary technology, the Company relies on a
combination of technical innovation, trade secret, copyright and trademark laws,
non-disclosure agreements and, to a lesser extent, patents, each of which
affords only limited protection. In addition, the laws of some foreign countries
do not protect the Company's proprietary rights in the products to the same
extent as do the laws of the U.S. Moreover, although the Company holds one U.S.
patent, has additional patent applications pending and is in the process of
preparing additional patent applications for filing, there can be no assurance
that the Company will receive additional patents. Despite the measures taken by
the Company, it may be possible for a third party to copy or otherwise obtain
and use the Company's proprietary technology and information without
authorization. Policing unauthorized use of the Company's products is difficult,
and litigation may be necessary in the future to enforce the Company's
intellectual property rights. Any such litigation could be time consuming and
expensive to prosecute or resolve, result in substantial diversion of management
resources, and have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be successful in protecting its proprietary technology or that
the Company's proprietary rights will provide a meaningful competitive advantage
to the Company.

The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in its products to perform key functions. There can
be no assurance that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms. The inability to
maintain any such software licenses could result in shipment delays or
reductions until equivalent software could be developed or licensed and
integrated into the Company's products, which could materially adversely affect
the Company's business, financial condition and results of operations.

EMPLOYEES

As of March 31, 1999, the Company had 390 employees, of whom 194 were
engaged in research and development, 57 were engaged in sales and marketing, 76
were engaged in customer support services, 21 were engaged in manufacturing and
42 were engaged in administrative and other business support functions. The
Company believes it has experienced good employee relations to date.

The Company's success depends, in part, upon its ability to continue to
attract, motivate and retain additional highly qualified employees, particularly
employees with SS7 knowledge and experience. The process of locating such
employees with the combination of skills and attributes necessary to implement
the Company's strategy is lengthy. The loss of any existing key employees
42
<PAGE> 44

or the inability to attract, motivate and retain additional qualified employees
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Dependence on Key
Personnel".

FACILITIES

The Company is headquartered in Plano, Texas, where it currently leases
approximately 90,000 square feet of office space. The Company also leases sales
offices in Arizona, California, Georgia, Illinois, Maryland, Pennsylvania and
Washington. Additionally, the Company leases four international offices, two
outside of London, England which provide product and sales support, and a sales
support facility in Frankfurt, Germany. Although the Company is evaluating the
lease of additional space for its headquarters operations, the Company believes
that its existing facilities are adequate for its current needs and that
additional space will be available as needed.

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<PAGE> 45

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information concerning the directors and
executive officers of the Company as of March 31, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Samuel S. Simonian.......... 43 Chairman of the Board
Elie S. Akilian............. 42 President, Chief Executive Officer and Director
Mark A. Weinzierl........... 35 Executive Vice President, Secretary and Director
William H. Mina............. 53 Senior Vice President -- Finance and Administration and
Director
James R. Adams.............. 59 Director Nominee
Grant A. Dove............... 70 Director Nominee
</TABLE>

SAMUEL S. SIMONIAN co-founded the Company in 1989, has served as a director
since such time and has served as Chairman of the Board since April 1999. He
previously served as President of the Company from 1989 to April 1999, and as
Chief Executive Officer from March 1994 to April 1999. Mr. Simonian holds a B.S.
in Electrical Engineering from the University of Texas at Arlington. Prior to
co-founding Inet, Mr. Simonian worked from 1979 to 1989 at Electrospace Systems,
Inc. in its antenna control systems division and its switching department. Mr.
Simonian is the nephew of William H. Mina's spouse.

ELIE S. AKILIAN co-founded the Company in 1989, has served as a director
since such time and has served as President and Chief Executive Officer since
April 1999. He previously served as Executive Vice President from March 1989 to
April 1999. Mr. Akilian received his B.S. in Electrical Engineering from the
University of Texas at Arlington. Prior to co-founding Inet, Mr. Akilian worked
from 1980 to 1989 at Electrospace Systems, Inc. in its switching department.

MARK A. WEINZIERL co-founded the Company in 1989, has served as a director
since such time and has served as Executive Vice President and Secretary since
March 1990. Mr. Weinzierl received his B.S. in Electrical Engineering from Iowa
State University in 1986 and attended the University of Texas at Dallas M.B.A.
program. Prior to co-founding Inet, Mr. Weinzierl worked from 1986 to 1989 at
Electrospace Systems, Inc. in its switching department.

WILLIAM H. MINA has served as Senior Vice President -- Finance and
Administration since April 1999 and as a director of the Company since June
1996. He previously served as Senior Vice President and Chief Financial Officer
of the Company from February 1997 to April 1999. From 1985 to February 1997, Mr.
Mina was employed by Wafra Investment Advisory Group Inc. ("Wafra"), a New
York-based investment banking firm. While at Wafra, he served in various
positions, including Senior Vice President and Chief Financial Officer. Mr. Mina
holds an M.B.A. from Southern Methodist University and a B.A. in Business
Administration from Dallas Baptist University. Mr. Mina is married to Samuel
Simonian's aunt.

JAMES R. ADAMS has consented to become a director of the Company upon
consummation of the offerings. Mr. Adams has served as a director of Texas
Instruments Incorporated since 1989 and served as its Chairman of the Board from
1996 to 1998. He previously served as President of SBC Communications, Inc. from
1992 to 1995 and as President of Southwestern Bell Telephone Company from 1988
to 1992. Mr. Adams holds an M.B.A. from the University of Texas at Austin and a
B.S. in Math and Physics from Texas A&M University.

GRANT A. DOVE has consented to become a director of the Company upon
consummation of the offerings. Mr. Dove has served as Managing Partner of
Technology Strategies & Alliances ("TS&A") since 1991 and currently serves as a
director of the following publicly held companies: MediaOne Group, Inc. (a
provider of telecommunications and cable television), OPTEK Technology,

44
<PAGE> 46

Inc. (a designer and manufacturer of electronic sensor components and
assemblies), Cooper Cameron Corporation (an oilfield services company), and
InterVoice, Inc. (a telecommunications equipment and software sales company).
Prior to joining TS&A, Mr. Dove served as Chairman and Chief Executive Officer
of the Microelectronics and Computer Technology Corporation. Mr. Dove holds a
B.S. in Electrical Engineering from Virginia Polytechnic Institute and State
University.

The Company is currently searching for a chief financial officer.

BOARD OF DIRECTORS

The Board of Directors is currently composed of four members. Upon
consummation of the offerings, the Company intends to increase the number of
directors to six and elect Messrs. Adams and Dove to fill the two resulting
vacancies. Within 90 days following the completion of the offerings, the Company
intends to establish a Compensation Committee and an Audit Committee of the
Board of Directors. Each director holds office until the next annual meeting of
the stockholders or until his successor is duly elected and qualified. The
Company's Certificate of Incorporation and Bylaws provide that, beginning with
the first annual meeting of stockholders following the offerings, the Board of
Directors will be divided into three classes, with each class serving staggered,
three-year terms. See "Description of Capital Stock -- Certain Anti-Takeover,
Limited Liability and Indemnification Provisions -- Certificate of Incorporation
and Bylaw Provisions".

The Company anticipates that, for an undetermined period following the
offerings, directors of the Company will not be paid any fees or compensation
for service as members of the Board of Directors or any committee thereof, but
will be reimbursed for any reasonable out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors and any committees
thereof. In addition, directors who are not employees of the Company or any of
its subsidiaries periodically receive automatic grants of non-qualified options
under the Company's 1998 Stock Option/Stock Issuance Plan. See "-- 1998 Stock
Option/Stock Issuance Plan".

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware law. Prior to consummation
of the offerings, the Company intends to obtain directors' and officers'
liability insurance and expects to enter into indemnification agreements with
all of its directors and executive officers. In addition, the Company's
Certificate of Incorporation limits the liability of directors of the Company to
the Company or its stockholders for breaches of the directors' fiduciary duties
to the fullest extent permitted by Delaware law. See "Description of Capital
Stock -- Certain Anti-Takeover, Limited Liability and Indemnification
Provisions".

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1998, the Company had no compensation committee or other committee
of the Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made during such year by the Board of
Directors, each member of which also served as an executive officer.

EMPLOYMENT CONTRACTS

The officers serve at the discretion of the Board of Directors. The Company
does not presently have an employment contract in effect with any of its
executive officers.

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<PAGE> 47

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and the other
executive officers of the Company whose salary and bonus exceeded $100,000 for
services rendered in all capacities to the Company and its subsidiaries during
1998 (collectively, the "Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) -------------
NAME AND ----------------------- OPTIONS ALL OTHER
PRINCIPAL POSITION(S) SALARY BONUS (# OF SHARES) COMPENSATION
--------------------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Samuel S. Simonian(2).................. $204,000 $455,250 -- $ 204(3)
Chairman of the Board
Elie S. Akilian(2)..................... 204,000 425,250 -- 204(3)
President and Chief
Executive Officer
Mark A. Weinzierl...................... 204,000 420,250 -- 204(3)
Executive Vice President
and Secretary
William H. Mina........................ 180,000 160,250 65,000 29,624(4)
Senior Vice President -- Finance
and Administration
</TABLE>

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

(1) Excludes certain perquisites and other benefits which did not exceed 10% of
any officer's total salary and bonus.

(2) Mr. Simonian served as Chief Executive Officer during 1998.

(3) Represents life insurance premiums paid on behalf of such officer.

(4) Consists of contributions to such officer's participation in the Company's
401(k) plan.

OPTION GRANTS

The following table provides certain information concerning stock options
granted to each of the Named Officers during 1998. No stock appreciation rights
were granted to these individuals during such year.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(1) IN 1998 PER SHARE DATE 5% 10%
- ---- ---------- ---------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Samuel S. Simonian..... -- -- -- -- -- --
Elie S. Akilian........ -- -- -- -- -- --
Mark A. Weinzierl...... -- -- -- -- -- --
William H. Mina........ 65,000(1) 13% $4.20 1/01/08 $171,688 $435,092
</TABLE>

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

(1) The options were granted on January 1, 1998 and vest and become exercisable
in a single installment upon the third anniversary of the date of grant.

(2) Future value assumes appreciation in the market value of the Common Stock of
5% and 10% per year over the ten-year option period. The actual value
realized may be greater than or less than the potential realizable values
set forth in the table.

46
<PAGE> 48

YEAR-END OPTION VALUES

No options were exercised by the Named Officers during 1998. The following
table provides certain information concerning option holdings at December 31,
1998 with respect to each of the Named Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Samuel S. Simonian.................... -- -- -- --
Elie S. Akilian....................... -- -- -- --
Mark A. Weinzierl..................... -- -- -- --
William H. Mina....................... -- 175,000(1) -- $575,250(2)
</TABLE>

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

(1) 110,000 of such options will become fully exercisable upon the consummation
of the offerings. The remainder vest and become exercisable on January 1,
2001.

(2) Value is determined by subtracting the exercise price from a price
determined based upon the most recent independent appraisal of the Common
Stock ($5.57 per share), multiplied by the number of shares underlying the
options. By subtracting the exercise price from an initial public offering
price of $16.00 per share, such value would equal $2,400,500.

1998 STOCK OPTION/STOCK ISSUANCE PLAN

The Company's 1998 Stock Option/Stock Issuance Plan (the "1998 Plan") is
intended to serve as the successor equity incentive program to the Company's
existing 1995 Employee Stock Option Plan (the "Predecessor Plan"). The 1998 Plan
became effective on July 23, 1998 upon adoption by the Board of Directors and
was subsequently approved by the stockholders on July 23, 1998. Common Stock has
initially been authorized for issuance under the 1998 Plan in the amount of
6,750,000. In addition, the share reserve will automatically be increased on the
last trading day of January each calendar year, beginning in January 2000, by a
number of shares equal to one percent (1%) of the total number of shares of
Common Stock outstanding on the last trading day of the immediately preceding
calendar year, but no such annual increase shall exceed 500,000 shares. However,
in no event may any one participant in the 1998 Plan receive option grants or
direct stock issuances for more than 1,000,000 shares in the aggregate per
calendar year.

Outstanding options under the Predecessor Plan have been incorporated into
the 1998 Plan, and no further option grants will be made under the Predecessor
Plan. The incorporated options will continue to be governed by their existing
terms, unless the Plan Administrator elects to extend one or more features of
the 1998 Plan to those options. However, except as otherwise noted below, the
outstanding options under the Predecessor Plan contain substantially the same
terms and conditions summarized below for the Discretionary Option Grant Program
in effect under the 1998 Plan.

The 1998 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price determined by
the Plan Administrator, (ii) the Stock Issuance Program under which such
individuals may, in the Plan Administrator's discretion, be issued shares of
Common Stock directly, through the purchase of such shares at a price determined
by the Plan Administrator or as a bonus tied to the performance of services and
(iii) the Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of Common Stock at an exercise price equal to 100% of
the fair market value of those shares on the grant date.

47
<PAGE> 49

The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee of the Board. The Compensation
Committee, as Plan Administrator, will have complete discretion to determine
which eligible individuals are to receive option grants or stock issuances, the
time or times when such option grants or stock issuances are to be made, the
number of shares subject to each such grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the U.S. federal tax laws, the vesting schedule to be in effect for
the option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. The administration of the Automatic Option
Grant Program is self-executing in accordance with the express provisions of
that program.

The exercise price for the shares of Common Stock subject to option grants
made under the Plan may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee. In addition,
the Plan Administrator may provide financial assistance to one or more
participants in the 1998 Plan in connection with their acquisition of shares, by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the option exercise price and or direct issue
price plus any associated withholding taxes incurred in connection with such
acquisition.

In the event of an acquisition of the Company, whether by merger or asset
sale or a sale by the stockholders of more than 50% of the total combined voting
power of the Company recommended by the Board, each outstanding option under the
Discretionary Option Grant Program which is not to be assumed by the successor
corporation or otherwise continued will automatically accelerate in full, and
all unvested shares under the Discretionary Option Grant and Stock Issuance
Programs will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are to be assigned to the successor
corporation or otherwise continued in effect. The Plan Administrator will have
the authority under the Discretionary Option Grant Program to provide that the
shares subject to options granted under that program will automatically vest (i)
upon an acquisition of the Company, whether or not those options are assumed or
continued, (ii) a hostile change in control of the Company effected through a
successful tender offer for more than 50% of the Company's outstanding voting
stock or by proxy contest for the election of Board members or (iii) in the
event the individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a designated period (not to exceed eighteen
(18) months) following an acquisition in which those options are assumed or
otherwise continued in effect or a hostile change in control. The vesting of
outstanding shares under the Stock Issuance Program may be accelerated upon
similar terms and conditions. Options currently outstanding under the
Predecessor Plan will accelerate either at the time of an acquisition or a
change in control or upon the termination of the optionee's service following an
acquisition or change in control.

Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock. There are currently no outstanding stock
appreciation rights under the Predecessor Plan.

The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.

Under the Automatic Option Grant Program, each individual who is serving as
a non-employee member of the Board on the date the underwriting agreement for
the offerings is executed and who

48
<PAGE> 50

has not previously been in the employ of the Company will receive at that time
an option grant for 20,000 shares of Common Stock with a exercise price equal to
the price per share at which the Common Stock is to be sold in the offerings.
Each individual who first joins the Board after the effective date of the
offerings as a non-employee Board member will also receive an option grant for
20,000 shares of Common Stock at the time of his or her commencement of Board
service, provided such individual has not otherwise been in the prior employ of
the Company. In addition, at each Annual Stockholders Meeting, beginning with
the 2000 Annual Meeting, each individual who is to continue to serve as a
non-employee Board member will receive an option grant to purchase 10,000 shares
of Common Stock, whether or not such individual has been in the prior employ of
the Company.

Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of 10 years, subject to earlier termination following the optionee's cessation
of Board service. Each automatic option will be immediately exercisable;
however, any shares purchased upon exercise of the option will be subject to
repurchase, at the option exercise price paid per share, should the optionee's
service as a non-employee Board member cease prior to vesting in the shares. The
20,000-share grant will vest in three equal and successive annual installments
over the optionee's period of Board service. Each additional 10,000-share grant
will vest upon the optionee's completion of one year of Board service measured
from the grant date. However, each outstanding option will immediately vest upon
(i) certain changes in the ownership or control of the Company or (ii) the death
or disability of the optionee while serving as a Board member.

The Board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earliest of
(i) July 23, 2008, (ii) the date on which all shares available for issuance
under the 1998 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors on July 23, 1998 and approved by the
stockholders on July 23, 1998. The Purchase Plan is designed to allow eligible
employees of the Company and participating subsidiaries to purchase shares of
Common Stock, at semi-annual intervals, through their periodic payroll
deductions under the Purchase Plan. A reserve of 750,000 shares of Common Stock
has been established for this purpose.

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the Underwriting Agreement is executed in
connection with the offerings and will end on the last business day in July
2001. The next offering period will commence on the first business day in August
2001, and subsequent offering periods will commence as designated by the Plan
Administrator.

Individuals who are eligible employees on the start date of any offering
period may generally enter the Purchase Plan on that start date or on any
subsequent semi-annual entry date (February 1 or August 1 each year).
Individuals who become eligible employees after the start date of the offering
period may join the Purchase Plan on any subsequent semi-annual entry date
within that period.

Payroll deductions may not exceed 15% of the participant's base salary for
each semi-annual period of participation, and the accumulated payroll deductions
will be applied to the purchase of shares on the participant's behalf on each
semi-annual purchase date (the last business day in January and July each year),
at a purchase price per share not less than eighty-five percent (85%) of the
lower of (i) the fair market value of the Common Stock on the participant's
entry date into the
49
<PAGE> 51

offering period or (ii) the fair market value on the semi-annual purchase date.
In no event, however, may any participant purchase more than 1,000 shares, nor
may all participants in the aggregate purchase more than 187,500 shares on any
one semi-annual purchase date. Should the fair market value of the Common Stock
on any semi-annual purchase date be less than the fair market value of the
Common Stock on the first day of the offering period, then the current offering
period will automatically end and a new offering period will begin, based on the
lower fair market value.

The Board may amend or modify the Purchase Plan following any semi-annual
purchase date. The Purchase Plan will terminate on the last business day in July
2009, unless sooner terminated by the Board.

CERTAIN TRANSACTIONS

In February 1997, the Company issued 50,000 shares of Common Stock to Mr.
Mina, the Company's Senior Vice President -- Finance and Administration, as a
bonus in connection with the commencement of Mr. Mina's employment with the
Company.

Pursuant to a Registration Rights Agreement dated as of July 17, 1998 (the
"Registration Rights Agreement") by and among the Company and Messrs. Simonian,
Akilian and Weinzierl, the Company has agreed to provide such stockholders with
certain rights to include their respective shares of Common Stock in any
Company-initiated registered offering of shares of Common Stock ("piggyback
rights"). In addition, under the Registration Rights Agreement, beginning 180
days after the date of this Prospectus, such stockholders have the right,
subject to certain conditions and limitations, to require the Company to file up
to six registration statements under the Securities Act covering all or part of
such stockholders' shares of Common Stock. The Company has agreed to bear
substantially all expenses associated with offerings by such stockholders under
the Registration Rights Agreement, other than underwriting commissions and
discounts attributable to sales by such stockholders. The Company and each such
stockholder have agreed to indemnify the others from certain liabilities which
may arise in connection with any offering made pursuant to the Registration
Rights Agreement.

Since the beginning of the Company's 1996 fiscal year SBC Communications,
Inc. and certain of its subsidiaries ("SBC") has purchased approximately
$923,769 of the Company's products. Mr. Adams, a nominee to become a director of
the Company, served as President of SBC until 1995.

Since the beginning of the Company's 1996 fiscal year InterVoice, Inc. has
purchased approximately $397,510 of the Company's products. Mr. Dove, a nominee
to become a director of the Company, serves as a director of InterVoice, Inc.

All future transactions, including loans, between the Company and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors on the Board of Directors, and will continue to be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.

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<PAGE> 52

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1999, and as adjusted to
reflect the sale of shares offered hereby, by (i) each person who is known by
the Company to own beneficially more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, director-nominees and Named
Officers, (iii) all current executive officers and directors as a group, and
(iv) each of the other Selling Stockholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERINGS(1) NUMBER OFFERINGS(1)(2)
------------------------ OF SHARES ------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
---------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Samuel S. Simonian(3)........... 13,037,000(4) 31.9% 500,000 12,537,000(4) 28.1%
Elie S. Akilian(3).............. 13,134,000(5) 32.1 500,000 12,634,000(5) 28.3
Mark A. Weinzierl(3)............ 13,052,300 31.9 500,000 12,552,300 28.1
William H. Mina................. 193,000(6) * 77,000 116,000(6) *
James R. Adams.................. 0 * 0 0 *
Grant A. Dove................... 0 * 0 0 *
All executive officers,
directors and
director-nominees as a group
(six persons)................. 39,416,300(7) 96.2 1,577,000 37,839,300(7) 84.5
Other Selling Stockholders:
Brandenburg Life Foundation... 15,000 * 1,000 14,000 *
Pierce Brockman............... 323,000(8) * 120,000 203,000(8) *
Chad Harper................... 57,000(9) * 15,000 42,000(9) *
Roy Henke..................... 84,000(10) * 25,000 59,000(10) *
Steve Holcomb................. 87,000(11) * 20,000 67,000(11) *
Elizabeth Lott................ 15,000 * 12,000 3,000 *
Mike Reiman................... 323,000(8) * 100,000 223,000(8) *
Gary Ruwaldt.................. 131,580 * 13,130 118,450 *
George Zahar.................. 436,000(12) * 100,000 336,000(12) *
</TABLE>

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

* Indicates less than 1%.

(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission under Rule 13d-3(d)(i). In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of Common Stock subject to options held by
that person that are currently exercisable or become exercisable within 60
days following March 31, 1999 are deemed outstanding. However, such shares
are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. Unless otherwise indicated in the footnotes
to this table, the persons and entities named in the table have sole voting
and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.

(2) Assumes no exercise of the Underwriters' over-allotment options.

(3) The address for such stockholder is 1255 W. 15th Street, Suite 600, Plano,
Texas 75075.

(4) Includes 267,900 shares held by such stockholder's minor children.

(5) Includes 178,600 shares held by such stockholder's minor children.

(6) Includes 110,000 shares purchasable upon the exercise of options and 33,000
shares held jointly by such stockholder and his spouse.

(7) Includes 110,000 shares purchasable upon the exercise of options. See notes
(4), (5) and (6) above.

(8) Includes 43,000 shares purchasable upon the exercise of options.

(9) Includes 17,000 shares purchasable upon the exercise of options.

(10) Includes 44,000 shares purchasable upon the exercise of options.

(11) Includes 47,000 shares purchasable upon the exercise of options.

(12) Includes 36,000 shares purchasable upon the exercise of options.

The Company will pay all costs and expenses of the offerings, other than
the underwriting discount relating to shares sold by the Selling Stockholders,
the fees and disbursements of legal counsel and other advisors to the Selling
Stockholders and stock transfer and other taxes attributable to the sale of
shares by the Selling Stockholders which will be borne by the Selling
Stockholders.

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<PAGE> 53

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

The authorized capital stock of the Company consists of 175,000,000 shares
of Common Stock, par value $0.001 per share, and 25,000,000 shares of Preferred
Stock, par value $0.001 per share ("Preferred Stock"). The following summary is
qualified in its entirety by reference to the Company's Certificate of
Incorporation and Bylaws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. In
addition, the Company's revolving credit facility restricts the payment of cash
dividends without the bank's consent. See "Dividend Policy". In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock to be issued in the
offerings will be fully paid and nonassessable.

As of March 31, 1999, there were outstanding 40,895,580 shares of Common
Stock and options to purchase 1,945,000 shares of Common Stock. Upon completion
of the offerings, 44,662,450 shares of Common Stock (45,524,950 shares if the
Underwriters' over-allotment options are exercised in full) will be outstanding,
assuming no exercise of options after March 31, 1999.

PREFERRED STOCK

The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. No shares of Preferred Stock are outstanding, and the
Company has no current plans to issue any shares of Preferred Stock.

CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to Section 203 ("Section 203") of the Delaware
General Corporation Law (the "DGCL") which subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation

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<PAGE> 54

outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.

Section 203 defines business combinations to include (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder, (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder, (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder, or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

The Company's Certificate of Incorporation and Bylaws include provisions
that may have the effect of discouraging, delaying or preventing a change in
control of the Company or an unsolicited acquisition proposal that a stockholder
might consider favorable, including a proposal that might result in the payment
of a premium over the market price for the shares held by stockholders. These
provisions are summarized in the following paragraphs.

CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation and Bylaws
provide, beginning with the first annual meeting of stockholders following the
offerings, for the Board of Directors to be divided into three classes of
directors serving staggered, three-year terms. The classification of the Board
of Directors has the effect of requiring at least two annual stockholder
meetings, instead of one, to replace a majority of the members of the Board of
Directors.

SUPERMAJORITY VOTING. The Certificate of Incorporation requires the
approval of the holders of at least 66 2/3% of the Company's combined voting
power to effect certain amendments to the Certificate of Incorporation.

AUTHORIZED BUT UNISSUED OR UNDESIGNATED CAPITAL STOCK. The Company's
authorized capital stock consists of 175,000,000 shares of Common Stock and
25,000,000 shares of Preferred Stock. No Preferred Stock will be designated upon
consummation of the offerings. After the offerings, the Company will have
outstanding 44,662,450 shares of Common Stock (45,524,950 shares if the
Underwriters' over-allotment options are exercised in full). The authorized but
unissued (and in the case of Preferred Stock, undesignated) stock may be issued
by the Board of Directors in one or more transactions. In this regard, the
Company's Certificate of Incorporation grants the Board of Directors broad power
to establish the rights and preferences of authorized and unissued Preferred
Stock. The issuance of shares of Preferred Stock pursuant to the Board of
Directors' authority described above could decrease the amount of earnings and
assets available for distribution to holders of Common Stock and adversely
affect the rights and powers, including voting rights, of such holders and may
have the effect of delaying, deferring or preventing a change in control of the
Company. The Board of Directors does not currently intend to seek stockholder
approval prior to any issuance of Preferred Stock, unless otherwise required by
law.

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<PAGE> 55

SPECIAL MEETINGS OF STOCKHOLDERS. The Bylaws provide that special meetings
of stockholders of the Company may be called only by the Board of Directors, or
by the Company's Chairman of the Board or President.

NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate of Incorporation
and the Bylaws provide that an action required or permitted to be taken at any
annual or special meeting of the stockholders of the Company may only by taken
at a duly called annual or special meeting of stockholders. This provision
prevents stockholders from initiating or effecting any action by written
consent, and thereby taking actions opposed by the Board of Directors.

NOTICE PROCEDURES. The Bylaws establish advance notice procedures with
regard to all stockholder proposals, including proposals entered relating to the
nomination of candidates for election as directors, the removal of directors and
amendments to the Certificate of Incorporation or Bylaws to be brought before
meetings of stockholders of the Company. These procedures provide that notice of
such stockholder proposals must be timely given in writing to the Secretary of
the Company prior to the meeting. Generally, to be timely, notice must be
received by the Secretary of the Company not less than 120 days prior to the
meeting. The notice must contain certain information specified in the Bylaws.

LIMITATION OF DIRECTOR LIABILITY. The Certificate of Incorporation limits
the liability of directors of the Company (in their capacity as directors but
not in their capacity as officers) to the Company or its stockholders to the
fullest extent permitted by the DGCL. Specifically, directors of the Company
will not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, which relates to unlawful
payments of dividends or unlawful stock repurchases or redemptions, or (iv) for
any transaction from which the director derived an improper personal benefit.

INDEMNIFICATION ARRANGEMENTS. The Certificate of Incorporation and Bylaws
require the directors and officers of the Company to be indemnified and permit
the advancement to them of expenses in connection with actual or threatened
proceedings and claims arising out of their status as such, to the fullest
extent permitted by the DGCL. Prior to consummation of the offerings, the
Company will enter into indemnification agreements with each of its directors
and executive officers that provide for indemnification and expense advancement
to the fullest extent permitted under the DGCL.

OTHER ANTI-TAKEOVER PROVISIONS

See "Management -- 1998 Stock Option/Stock Issuance Plan" for a discussion
of certain provisions of the 1998 Plan which may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., 2323 Bryan Street, Suite 2300, Dallas, Texas
75201, telephone: (214) 965-2235.

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<PAGE> 56

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the offerings, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and impair the Company's ability
to raise capital through the sale of equity securities.

Upon completion of the offerings, the Company will have outstanding
44,662,450 shares of Common Stock (45,524,950 shares if the Underwriters'
over-allotment options are exercised in full), assuming no exercise of options
after March 31, 1999. Of these shares, the 5,750,000 shares offered hereby
(6,612,500 shares if the Underwriters' over-allotment options are exercised in
full) will be freely tradable without restriction or further registration under
the Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 38,912,450 shares
of Common Stock outstanding upon completion of the offerings will be "restricted
securities" as that term is defined in Rule 144.

Upon the expiration of the Lock-Up Agreements beginning 180 days after the
date of this Prospectus, 37,752,000 shares held by certain stockholders of the
Company will become eligible for sale pursuant to the volume limitations, manner
of sale and notice requirements of Rule 144 and 1,160,450 shares held by certain
other stockholders of the Company will become eligible for sale without regard
to the volume limitations, manner of sale and notice requirements of Rule 144.
In addition, as of March 31, 1999, there were outstanding options to purchase an
aggregate of 1,945,000 shares of Common Stock. Pursuant to the lock-up
provisions set forth in the stock option agreements used under the Company's
1995 Employee Stock Option Plan, 1,133,000 shares underlying such options will
become eligible for sale pursuant to Rule 701 beginning 180 days after the date
of this Prospectus, and the remaining 812,000 shares underlying such options
will become eligible for sale pursuant to Rule 701 more than 180 days after the
date of this Prospectus as such options vest.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who owns shares that were purchased from the
Company (or any affiliate thereof) at least one year previously, is entitled to
sell in "brokers' transactions" or to market makers, within any three-month
period commencing 90 days after the date of this Prospectus, a number of shares
that does not exceed the greater of (i) one percent of the then outstanding
shares of Common Stock (approximately 447,000 shares immediately after the
offerings, or approximately 455,000 shares if the Underwriters' over-allotment
options are exercised in full) or (ii) the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the date on which the
required notice of such sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are generally subject to the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who owns shares that were purchased from the Company (or
any affiliate thereof) at least two years previously and who has not been an
affiliate of the Company at any time during the 90 days preceding a sale, would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations or manner of sale, public information or notice requirements of Rule
144. Under Rule 701, persons who purchase shares from the Company upon exercise
of options granted prior to the date of this Prospectus are entitled to sell
such shares in the public markets commencing 90 days after the date of this
Prospectus in reliance on Rule 144 without having to comply with the holding
period requirements thereof and, in the case of non-affiliates of the Company,
without having to comply with the volume limitations or public information or
notice requirements thereof.

Within 90 days after the date of this Prospectus, the Company intends to
file registration statements under the Securities Act covering the shares of
Common Stock reserved for issuance under the Company's stock incentive plans and
not eligible for sale pursuant to Rule 701. See "Management -- 1998 Stock
Option/Stock Issuance Plan" and "-- Employee Stock Purchase Plan". Such
registration statements will become effective upon filing, thus permitting the
resale of

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<PAGE> 57

such shares in the public markets without restriction under the Securities Act
subject, however, to applicable lock-up arrangements and limitations applicable
to affiliates.

Commencing 180 days after the date of this Prospectus, the holders of
37,728,500 shares of Common Stock will be entitled to certain "piggyback" and
demand registration rights under the Securities Act with respect to such shares.
Such rights are scheduled to expire not later than October 2003. See "Certain
Transactions".

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<PAGE> 58

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of certain anticipated United States
federal income tax consequences of the purchase, ownership and disposition of
the Common Stock by a "Non-U.S. Holder". A Non-U.S. Holder is a person that, for
U.S. federal income tax purposes, (i) is not a "U.S. person," (ii) is not, and
has not been, engaged in a U.S. trade or business, (iii) is not subject to tax
pursuant to provisions of U.S. tax laws applicable to certain former U.S.
citizens or residents and (iv) in the case of an individual, is not present in
the U.S. for 183 days or more during the relevant tax year of the ownership and
disposition of the Common Stock. A U.S. person means a citizen or resident of
the U.S. for U.S. federal income tax purposes, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any state thereof, an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or a trust that meets the following
two tests: (A) a U.S. court is able to exercise primary supervision over the
administration of the trust, and (B) one or more U.S. persons have the authority
to control all substantial decisions of the trust.

The following discussion does not consider specific facts and circumstances
that may be relevant to the taxation of a particular Non-U.S. Holder.
Specifically, this discussion does not address the U.S. tax consequences to any
person who might own, or be considered as owning under certain attribution
rules, 5% or more of the outstanding shares of the Common Stock or who acquired
or holds Common Stock other than for investment.

The discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), judicial decisions, administrative pronouncements, and existing
and proposed Treasury Regulations issued by the U.S. Department of the Treasury
now in effect. Each prospective investor should understand that future
legislative, administrative and judicial changes could modify the tax
consequences described below, possibly with retroactive effect. The following
discussion is limited to U.S. federal income tax consequences and does not
address any state, local or non-U.S. consequences of the purchase, ownership and
disposition of the Common Stock.

EACH NON-U.S. HOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE COMMON STOCK, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL AND NON-U.S. TAX LAWS AND PROPOSED CHANGES IN
APPLICABLE LAWS.

DIVIDENDS

The Company does not anticipate paying a dividend to stockholders in the
foreseeable future. In the event a dividend is paid by the Company, the payment
will be a taxable dividend for U.S. federal income tax purposes to the extent of
the current or accumulated earnings and profits of the Company. Each Non-U.S.
Holder who receives a taxable dividend will be subject to withholding of U.S.
federal income tax equal to 30% of the taxable dividend unless such Non-U.S.
Holder is eligible for a reduced tax rate or tax exemption under an applicable
income tax treaty. Currently, for purposes of determining whether tax is to be
withheld at the 30% rate or at a reduced treaty rate, the Company will
ordinarily presume that dividends paid to an address in a foreign country are
paid to a resident of such country absent knowledge that such presumption is not
warranted. On October 6, 1997, the U.S. Department of the Treasury issued final
Treasury Regulations (the "Final Regulations") regarding withholding and
information reporting which are generally effective for payments made after
December 31, 1999, subject to certain transition rules. Under the Final
Regulations, Non-U.S. Holders will be required to provide certain applicable
certifications in order to claim the benefit of a reduced rate of withholding
under a treaty. In addition, other recently adopted Treasury Regulations (the
"Hybrid Entity Regulations") provide special rules to determine whether, for
purposes of determining the applicability of a tax treaty, dividends paid to a
Non-U.S. Holder that
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<PAGE> 59

is an entity should be treated as paid to the entity or those holding an
interest in that entity. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE EFFECT TO THEM, IF ANY, OF THE FINAL REGULATIONS AND
THE HYBRID ENTITY REGULATIONS.

GAIN ON DISPOSITIONS

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on gain realized on the sale or exchange of Common Stock.

FEDERAL ESTATE TAXES

Common Stock held by an individual Non-U.S. Holder at the date of his or
her death will be included in his or her gross estate for United States federal
estate tax purposes unless an applicable estate tax treaty provides otherwise.

BACKUP WITHHOLDING AND INFORMATION REPORTING

DIVIDENDS

The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to and the tax withheld, if any, with respect to such
holder. These information reporting requirements apply regardless of whether
withholding was reduced by an applicable tax treaty. Copies of these information
returns may also be available to tax authorities in other jurisdictions under
the provisions of a specific treaty or agreement with such tax authorities in
the country in which the Non-U.S. Holder resides.

DISPOSITIONS OF COMMON STOCK

The payment of the proceeds from the disposition of shares of Common Stock
through the U.S. office of a broker will be subject to information reporting and
backup withholding unless the holder, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. Generally, the payment of the proceeds from the disposition of shares
of Common Stock to or through a non-U.S. office of a broker will not be subject
to backup withholding and will not be subject to information reporting. In the
case of the payment of proceeds from the disposition of shares of Common Stock
through a non-U.S. office of a broker that is a U.S. person or a U.S.-related
person (as defined by U.S. tax laws) information reporting (but not backup
withholding) is required on the payment unless the broker has documentary
evidence in its files of the holder's Non-U.S. Holder status and has no actual
knowledge to the contrary.

Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS. Non-U.S. Holders should consult
their tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom and the procedures for
obtaining such an exemption, if available. When the Final Regulations become
effective they will unify certification procedures for withholding and
information reporting, but will generally not effect substantive rules.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Brobeck, Phleger & Harrison LLP, Austin,
Texas. Certain legal matters in connection with the offerings will be passed
upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.

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EXPERTS

The Consolidated Financial Statements of the Company at December 31, 1997
and 1998, and for each of the three years in the period ended December 31, 1998
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part of the Registration Statement. Statements contained in
this Prospectus concerning the contents of any contract or any other document
are not necessarily complete; reference is made in each instance to the copy of
such contract or any other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World
Trade Center, 13th Floor, New York, New York 10048 after payment of fees
prescribed by the Commission. The Commission also maintains a Web site which
provides online access to reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at the address http://www.sec.gov.

59
<PAGE> 61

(This page intentionally left blank)
<PAGE> 62

INET TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999 (unaudited)............................ F-3
Consolidated Statements of Income for the Years ended
December 31, 1996, 1997, and 1998 and the Three Months
ended March 31, 1998 and 1999 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1996, 1997 and 1998 and the Three
Months ended March 31, 1999 (unaudited)................... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1996, 1997, and 1998 and the Three Months
ended March 31, 1998 and 1999 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 63

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Inet Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Inet
Technologies, Inc. (the Company), as of December 31, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Inet
Technologies, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

January 25, 1999

F-2
<PAGE> 64

INET TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1997 1998 1999
-------- -------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,386 $21,914 $43,163
Trade accounts receivable, net of allowance for doubtful
accounts of $500,000 and $659,000 at December 31, 1997
and 1998, respectively, and $780,000 at March 31,
1999................................................... 15,832 22,073 14,795
Unbilled receivables...................................... 5,805 1,602 1,984
Inventories............................................... 6,963 7,592 8,050
Deferred income taxes..................................... -- 2,568 2,506
Other current assets...................................... 1,565 1,248 1,401
------- ------- -------
Total current assets.............................. 33,551 56,997 71,899
Property and equipment, net................................. 5,162 8,394 8,423
Other assets................................................ 45 117 172
------- ------- -------
Total assets...................................... $38,758 $65,508 $80,494
======= ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 1,329 $ 1,858 $ 2,032
Accrued compensation and benefits......................... 2,237 2,159 1,407
Deferred revenue.......................................... 4,161 13,073 21,631
Deferred income taxes..................................... 759 -- --
Taxes payable............................................. 260 878 3,095
Other accrued liabilities................................. 515 716 1,089
------- ------- -------
Total current liabilities......................... 9,261 18,684 29,254
Deferred tax liabilities.................................... 111 11 16
Commitments
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares -- 25,000,000
Issued shares -- None.................................. -- -- --
Common stock, $.001 par value:
Authorized shares -- 175,000,000
Issued shares -- 40,900,422 at December 31, 1997 and
40,934,422 at December 31, 1998 and March 31, 1999... 41 41 41
Additional paid-in capital................................ 430 1,236 1,236
Unearned compensation..................................... -- (464) (407)
Retained earnings......................................... 29,132 46,217 50,571
Treasury stock, 38,842 common shares at December 31, 1997
and 1998 and March 31, 1999, at cost................... (217) (217) (217)
------- ------- -------
Total stockholders' equity........................ 29,386 46,813 51,224
------- ------- -------
Total liabilities and stockholders' equity........ $38,758 $65,508 $80,494
======= ======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE> 65

INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues........................................... $42,041 $57,701 $77,428 $15,512 $23,239
Cost of revenues................................... 13,650 15,783 22,404 4,546 7,125
------- ------- ------- ------- -------
Gross profit............................. 28,391 41,918 55,024 10,966 16,114
Operating expenses:
Sales and marketing expenses..................... 5,488 7,741 8,612 1,674 2,958
General and administrative expenses.............. 3,185 5,423 6,592 1,644 2,030
Research and development expenses................ 6,430 9,658 15,667 3,199 4,852
------- ------- ------- ------- -------
15,103 22,822 30,871 6,517 9,840
------- ------- ------- ------- -------
Income from operations................... 13,288 19,096 24,153 4,449 6,274
Other income (expense):
Interest income.................................. 20 147 834 125 342
Interest expense................................. (42) (123) -- -- --
Other............................................ (6) (8) (7) -- (19)
------- ------- ------- ------- -------
Other income (expense), net........................ (28) 16 827 125 323
------- ------- ------- ------- -------
Income before provision for income
taxes.................................. 13,260 19,112 24,980 4,574 6,597
Provision for income taxes......................... 4,324 6,398 7,895 1,537 2,243
------- ------- ------- ------- -------
Net income............................... $ 8,936 $12,714 $17,085 $ 3,037 $ 4,354
======= ======= ======= ======= =======
Basic net income per common share.................. $ 0.22 $ 0.31 $ 0.42 $ .07 $ .11
======= ======= ======= ======= =======
Diluted net income per common share................ $ 0.22 $ 0.30 $ 0.40 $ .07 $ .10
======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-4
<PAGE> 66

INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------- PAID-IN UNEARNED RETAINED --------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS SHARES AMOUNT EQUITY
---------- ------ ---------- ------------ -------- ------ ------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 39,250,422 $39 $ 109 $ -- $ 7,482 -- $ -- $ 7,630
Issuance of common stock upon
exercise of employee stock
options....................... 1,600,000 2 2 -- -- -- -- 4
Income tax benefit from exercise
of employee stock options..... -- -- 261 -- -- -- -- 261
Purchase of common stock of the
Company....................... -- -- -- -- -- 38,842 (217) (217)
Net income and comprehensive
income........................ -- -- -- -- 8,936 -- -- 8,936
---------- --- ------ ----- ------- ------ ----- -------
Balance at December 31, 1996....... 40,850,422 41 372 -- 16,418 38,842 (217) 16,614
Issuance of common stock......... 50,000 -- 58 -- -- -- -- 58
Net income and comprehensive
income........................ -- -- -- -- 12,714 -- -- 12,714
---------- --- ------ ----- ------- ------ ----- -------
Balance at December 31, 1997....... 40,900,422 41 430 -- 29,132 38,842 (217) 29,386
Issuance of common stock......... 19,000 -- 106 -- -- -- -- 106
Issuance of common stock upon
exercise of employee stock
options....................... 15,000 -- 9 -- -- -- -- 9
Net income and comprehensive
income........................ -- -- -- -- 17,085 -- -- 17,085
Stock option compensation........ -- -- 691 (464) -- -- -- 227
---------- --- ------ ----- ------- ------ ----- -------
Balance at December 31, 1998....... 40,934,422 $41 $1,236 $(464) $46,217 38,842 $(217) $46,813
========== === ====== ===== ======= ====== ===== =======
Net income and comprehensive
income (unaudited)............ -- -- -- -- 4,354 -- -- 4,354
Stock option compensation
(unaudited)................... -- -- -- 57 -- -- -- 57
---------- --- ------ ----- ------- ------ ----- -------
Balance at March 31, 1999
(unaudited)...................... 40,934,422 $41 $1,236 $(407) $50,571 38,842 $(217) $51,224
========== === ====== ===== ======= ====== ===== =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 67

INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 8,936 $12,714 $17,085 $ 3,037 $ 4,354
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 1,038 1,521 2,752 546 964
Deferred income taxes..................................... 857 63 (3,427) (966) 67
Issuance of common stock and stock options charged to
expense................................................ -- 58 333 54 57
Tax benefit of employee stock options..................... 261 -- -- -- --
Change in assets and liabilities:
(Increase) decrease in trade accounts receivable....... (5,891) (2,596) (6,241) (870) 7,278
(Increase) decrease in unbilled receivables............ (3,413) (2,392) 4,203 2,116 (382)
(Increase) decrease in inventories..................... 2,222 (450) (629) 286 (458)
(Increase) decrease in other assets.................... 176 (1,303) 245 1,064 (208)
Increase (decrease) in accounts payable................ 2,057 (2,105) 529 957 174
Increase in taxes payable.............................. 16 121 618 1,707 2,217
Increase (decrease) in accrued compensation and
benefits............................................. 633 1,161 (78) 34 (752)
Increase (decrease) in deferred revenue................ (5,616) 1,629 8,912 4,644 8,558
Increase (decrease) in other accrued liabilities....... 567 (637) 201 65 373
------- ------- ------- ------- -------
Net cash provided by operating activities................... 1,843 7,784 24,503 12,674 22,242
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (2,119) (3,790) (5,984) (1,027) (993)
------- ------- ------- ------- -------
Net cash used in investing activities....................... (2,119) (3,790) (5,984) (1,027) (993)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of stock option exercises.......................... 4 -- 9 -- --
Treasury stock purchase..................................... (217) -- -- -- --
Payments of note payable.................................... (3,400) (7,068) -- -- --
Proceeds from note payable.................................. 4,450 5,718 -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities......... 837 (1,350) 9 -- --
------- ------- ------- ------- -------
Net increase in cash and cash equivalents................... 561 2,644 18,528 11,647 21,249
Cash and cash equivalents at beginning of period............ 181 742 3,386 3,386 21,914
------- ------- ------- ------- -------
Cash and cash equivalents at end of period.................. $ 742 $ 3,386 $21,914 $15,033 $43,163
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................... $ 42 $ 123 $ -- -- --
======= ======= ======= ======= =======
Income taxes paid........................................... $ 3,511 $ 6,390 $ 9,263 -- --
======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 68

INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Inet Technologies, Inc. (the "Company") provides solutions that enable
telecommunications carriers to more effectively design, deploy, diagnose,
monitor and manage communications networks that carry signaling information used
to manage telephone calls. The Company's products also address the fundamental
business needs of telecommunications carriers, such as improved billing,
targeted sales and marketing, fraud prevention and enhanced call routing. The
Company provides these comprehensive solutions primarily through its GeoProbe
and Spectra product offerings.

In connection with its planned initial public offering, in July 1998 the
Company changed its state of incorporation from Texas to Delaware (the
"Reincorporation"), also changing its name from Inet, Inc. to Inet Technologies,
Inc. With the Reincorporation, the Company effected a change in par value of the
Company's common stock from no par value to $.001 par value, an increase in
authorized common stock from 25,000,000 to 175,000,000 shares and created a
preferred class of stock with 25,000,000 authorized shares. Also in July 1998,
the Company's Board of Directors approved a ten-for-one split of the Company's
common stock on July 23, 1998. The accompanying financial statements have been
retroactively restated to reflect these actions including the effect of the
stock split on all applicable share and per share amounts.

CONSOLIDATION

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

UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements as of
March 31, 1999 and for the three months ended March 31, 1998 and 1999 have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Rule 10-01 of Securities and Exchange Commission
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. They do reflect all adjustments (consisting only of normal
recurring entries) which, in the opinion of the Company's management, are
necessary for a fair presentation of the results for the interim periods
presented.

The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of results that may be expected for any other interim
period or for the full year.

CASH AND CASH EQUIVALENTS

All highly liquid securities with original maturities of three months or
less are classified as cash equivalents. The carrying value of cash equivalents
approximates fair market value. At December 31, 1998, all cash equivalents were
invested with a nationally recognized financial institution.

F-7
<PAGE> 69
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories are valued at the lower of standard cost, which approximates
actual cost determined on a first-in, first-out basis, or market. Inventories
consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials......................................... $3,401 $1,895 $2,349
Work-in-process....................................... 1,940 2,289 1,732
Finished goods........................................ 1,622 3,408 3,969
------ ------ ------
$6,963 $7,592 $8,050
====== ====== ======
</TABLE>

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization and are depreciated on a straight-line basis over their estimated
useful lives, as follows:

<TABLE>
<S> <C>
Computers and other equipment....................... 3-5 Years
Software............................................ 3 Years
Office furniture and fixtures....................... 7 Years
Leasehold improvements.............................. Term of lease
</TABLE>

RESEARCH AND DEVELOPMENT EXPENDITURES

REVENUE RECOGNITION

Effective January 1, 1998, the Company adopted Statement of Position (SOP)
97-2, "Software Revenue Recognition," as amended by SOP 98-4, "Deferral of the
Effective Date of Certain Provisions of SOP 97-2," which did not require a
significant change to the Company's revenue recognition policies.

The Company derives revenue from the sale of products and related product
installation, integration and post-contract support services to the
telecommunications industry. Product revenue is generally recognized in the
period the Company has completed all hardware manufacturing and/or software
development to contractual specifications, factory testing has been completed,
the product has been shipped to the customer, the fee is fixed and determinable
and collection is considered probable by the Company's management. When the
Company has significant obligations subsequent to shipment (e.g., installation
and system integration), revenue is not recognized prior to the time the system
has been delivered and installed at the customer's premises

F-8
<PAGE> 70
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and there are no significant unfulfilled obligations. Revenue from arrangements
that include significant acceptance terms is not recognized until acceptance has
occurred.

The Company provides its customers with post-contract support services,
which generally consist of bug fixing and telephone access to the Company's
technical personnel, but may also include the right to receive unspecified
product updates, upgrades and enhancements. Revenue from these services,
including product support services included in initial licensing fees, is
recognized ratably over the contract period. Post-contract support services
included in the initial licensing fee are allocated from the total contract
amount based on the relative fair value determined using vendor-specific
objective evidence (VSOE).

Deferred revenue primarily represents amounts billed to customers pursuant
to terms specified in contracts but for which revenue has not been recognized.

In December 1998, SOP 98-9, "Modification of SOP 97-2, 'Software Revenue
Recognition,' with Respect to Certain Transactions" was released. SOP 98-9
amends SOP 97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is VSOE of the
fair values of all of the undelivered elements that are not accounted for by
means of long-term contract accounting, (2) VSOE of fair value does not exist
for one or more of the delivered elements, and (3) all revenue recognition
criteria of SOP 97-2 (other than the requirement for VSOE of the fair value of
each delivered element) are satisfied.

The provisions of SOP 98-9 that extend the deferral of certain passages of
SOP 97-2 became effective December 15, 1998. All other provisions of SOP 98-9
will be effective for the Company's fiscal year beginning January 1, 2000.
Retroactive application is prohibited. The Company is evaluating the
requirements of SOP 98-9 and the effects, if any, on the Company's current
revenue recognition policies.

STOCK OPTIONS

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its
employee stock options. Under APB 25, if the exercise price of an employee's
stock options equals or exceeds the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company sells products and services to customers associated with the
telecommunications industry, both within the United States and internationally.
The Company continually evaluates the creditworthiness of its customers'
financial condition and generally does not require collateral. The Company has
not experienced significant losses on uncollectible accounts.

RISKS AND UNCERTAINTIES

The Company's future results of operations and financial condition could be
impacted by the following factors, among others: timely introduction of new
products by the Company, market acceptance of new products introduced by the
Company, trends in the telecommunications industry, intense customer
competition, and changes in the terms and conditions of its customer sales
contracts.

F-9
<PAGE> 71
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS PER SHARE

Basic earnings per share excludes any dilutive effects of stock options,
while diluted earnings per share includes any dilutive effects of stock options.

COMPREHENSIVE INCOME

In 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
Statement 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements, and was effective for the Company beginning January 1,
1998. For all periods presented, the Company had no components of comprehensive
income other than net income.

SEGMENT INFORMATION

In 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders, and was adopted by the Company in connection
with its 1998 annual financial statements. See Note 7.

ACCOUNTING ESTIMATES

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

BASIS OF PRESENTATION

Certain prior period amounts have been reclassified to conform to the
current period presentation.

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer and other equipment......................... $5,664 $ 9,709 $10,312
Software............................................. 2,049 2,990 3,039
Office furniture, fixtures, and leasehold
improvements....................................... 1,311 1,768 2,089
------ ------- -------
9,024 14,467 15,440
Less accumulated depreciation and amortization....... 3,862 6,073 7,017
------ ------- -------
$5,162 $ 8,394 $ 8,423
====== ======= =======
</TABLE>

F-10
<PAGE> 72
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. NOTE PAYABLE

The Company has available a line of credit facility with a bank providing
for borrowings of up to $10,000,000 which expires June 15, 2000. The per annum
usage fee on unused portions of the line is 0.125%. At December 31, 1998,
$30,000 was used to support letters of credit under this line. Borrowings under
this facility bear interest payable quarterly at LIBOR plus 1.5% (6.6% at
December 31, 1998) and are collateralized by the Company's accounts receivable,
inventories, and property and equipment. The credit facility includes covenants
requiring the Company to maintain certain financial ratios and restricts the
payment of cash dividends without the bank's consent. At December 31, 1998, no
amounts were outstanding under the credit facility, and the amount available to
the Company, after considering outstanding letters of credit, was $9.97 million.

4. INCOME TAXES

Components of the provision for income taxes were as follows (in
thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -------------------
1996 1997 1998 1998 1999
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current federal provision......... $3,222 $5,706 $10,630 $2,392 $2,044
Current state provision........... 245 616 645 111 132
Deferred federal expense
(benefit)....................... 857 (82) (2,830) (795) (179)
Current foreign provision......... -- 13 47 -- --
Deferred state expense
(benefit)....................... -- 145 (597) (171) 246
------ ------ ------- ------ ------
Total income tax
provision............. $4,324 $6,398 $ 7,895 $1,537 $2,243
====== ====== ======= ====== ======
</TABLE>

The provision for income taxes is reconciled with the federal statutory
rate as follows (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ -------------------
1996 1997 1998 1998 1999
------ ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision computed at federal
statutory rate................... $4,508 $6,689 $8,743 $1,620 $2,309
Utilization of research and
development tax credits.......... (63) (305) (342) (46) (106)
Foreign Sales Corporation income
exemption........................ (287) (500) (687) (161) (188)
State income taxes, net of federal
tax effect....................... 162 481 31 101 132
Other.............................. 4 33 150 23 96
------ ------ ------ ------ ------
$4,324 $6,398 $7,895 $1,537 $2,243
====== ====== ====== ====== ======
</TABLE>

F-11
<PAGE> 73
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------- ------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Foreign subsidiaries, net of operating loss
carryforward.................................... $ -- $ 117 $ 117
Deferred revenue................................... -- 1,498 1,369
Reserves and other accrued expenses not currently
deductible for tax purposes..................... 765 1,160 1,217
Other.............................................. -- 85 --
------- ------ ------
Total deferred tax assets.................. 765 2,860 2,703
Valuation allowance for deferred tax assets........ -- (117) (117)
------- ------ ------
Total deferred tax assets, net of valuation
allowance................................ 765 2,743 2,586
------- ------ ------
Deferred tax liabilities:
Deferred revenue................................... (1,524) -- --
Depreciation....................................... (62) (186) (96)
Other, net......................................... (49) -- --
------- ------ ------
Total deferred tax liabilities............. (1,635) (186) (96)
------- ------ ------
Deferred income tax assets, net of deferred income
tax liabilities.................................... $ (870) $2,557 $2,490
======= ====== ======
</TABLE>

The valuation allowance of $117,000 relates to the net operating loss
carryforwards of foreign subsidiaries for which realization is not assured.

5. OPERATING LEASES

The Company leases its corporate office facility as well as certain
equipment under noncancelable operating lease agreements. Rental expense for
these operating leases was $586,588, $867,893, and $1,372,164 in 1996, 1997, and
1998, respectively.

At December 31, 1998, future minimum lease payments under noncancelable
operating leases are as follows (in thousands):

6. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Board of Directors has the authority to issue up to 25,000,000 shares
of Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.

F-12
<PAGE> 74
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EMPLOYEE STOCK OPTION AND STOCK PURCHASE PLANS

The Company has an Employee Stock Option Plan (the "1995 Plan") which
provides for incentive options and nonqualified options that may be granted to
key employees, officers, directors, and consultants of the Company. Options have
been granted generally at prices not less than the fair value of the Company's
common stock as determined by the Stock Option Committee of the Company's Board
of Directors (the "Committee") at the dates of grant based upon consideration of
several factors, including valuation studies, the historical financial
performance of the Company and the industry in which it operates, the
anticipated future financial performance of the Company and the industry in
which it operates, and the historical and future anticipated market for the
Company's common stock. Options granted under the 1995 Plan vest at rates
established by the Committee and expire ten years after the date of grant. The
exercisability of options granted under the 1995 plan is also subject to various
conditions as determined by the Committee including, among other things, an
initial public offering of the Company's stock. Options granted in the first
quarter of 1998 at $4.20 per share had a fair market value of $5.57 per share,
which resulted in a total of $692,000 compensation expense which is being
recognized ratably over the vesting period of three years beginning in the first
quarter of 1998.

The Company's 1998 Stock Option/Stock Issuance Plan (the "1998 Plan") is
intended to serve as the successor equity incentive program to the Company's
1995 Plan. The 1998 Plan became effective on July 23, 1998 upon adoption by the
Board of Directors and was subsequently approved by the stockholders on July 23,
1998. Common stock has initially been authorized for issuance under the 1998
Plan in the amount of 6,750,000 shares. In addition, the share reserve will
automatically be increased on the last trading day of January each calendar
year, beginning in January 2000, by a number of shares equal to one percent (1%)
of the total number of shares of common stock outstanding on the last trading
day of the immediately preceding calendar year, but no such annual increase
shall exceed 500,000 shares. However, in no event may any one participant in the
1998 Plan receive option grants or direct stock issuances for more than
1,000,000 shares in the aggregate per calendar year. As of December 31, 1998, no
stock options have been granted under the 1998 Plan.

Outstanding options under the 1995 Plan have been incorporated into the
1998 Plan, and no further option grants will be made under the 1995 Plan. The
incorporated options will continue to be governed by their existing terms,
unless the plan administrator elects to extend one or more features of the 1998
Plan to those options. However, except as otherwise noted below, the outstanding
options under the 1995 Plan contain substantially the same terms and conditions
summarized below for the Discretionary Option Grant Program in effect under the
1998 Plan.

The 1998 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the plan administrator, be granted
options to purchase shares of common stock at an exercise price determined by
the plan administrator, (ii) the Stock Issuance Program under which such
individuals may, in the plan administrator's discretion, be issued shares of
common stock directly, through the purchase of such shares at a price determined
by the plan administrator or as a bonus tied to the performance of services and
(iii) the Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to 100% of
the fair market value of those shares on the grant date.

F-13
<PAGE> 75
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock option transactions for the years ended December 31, 1996, 1997, and
1998, are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1997 1998
---------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period:..................... 2,914,000 $ 0.27 1,220,000 $0.64 1,531,750 $0.80
Granted....................... 145,000 0.96 381,750 1.31 506,000 4.20
Exercised..................... (1,600,000) 0.003 -- -- (15,000) 0.60
Forfeited..................... (239,000) 0.60 (70,000) 0.86 (75,750) 1.16
----------- ---------- ----------
Outstanding at end of
period...................... 1,220,000 0.64 1,531,750 0.80 1,947,000 1.67
=========== ========== ==========
Exercisable at end of
period...................... -- -- --
=========== ========== ==========
Weighted-average fair value of
options granted during the
period...................... $ 0.19 $ 0.26 $ 2.12
=========== ========== ==========
</TABLE>

At December 31, 1998, 4,788,000 shares were available for future grants to
employees under the 1998 Plan.

Information related to options outstanding at December 31, 1998, is
summarized below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED AVERAGE
OUTSTANDING AT REMAINING
EXERCISE PRICES DECEMBER 31, 1998 CONTRACTUAL LIFE
--------------- ------------------ ----------------
<S> <C> <C>
$0.60............................ 1,016,000 6.5
1.15............................ 415,500 8.0
4.20............................ 515,500 9.0
</TABLE>

Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," (SFAS 123) requires the disclosure of pro forma net income
and earnings per share information computed as if the Company had accounted for
its employee stock options granted subsequent to December 31, 1994, under the
fair value method set forth in SFAS 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
no volatility and the following weighted-average assumptions for 1996, 1997 and
1998, respectively: risk-free interest rates of 6.33%, 6.29%, and 5.66%; no
dividends; and an expected life of 3.5 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. In addition,
because options vest over several years and additional option grants are
expected, the effects of these hypothetical calculations are not likely to be
representative of similar future calculations.

F-14
<PAGE> 76
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for per share information):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Pro forma net income................................... $8,863 $12,609 $16,679
Pro forma basic net income per common share............ $ 0.22 $ 0.31 $ 0.41
Pro forma diluted net income per common share.......... $ 0.21 $ 0.30 $ 0.39
</TABLE>

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the underwriting agreement is executed in
connection with the Company's initial public offering and will end on the last
business day in July 2000. The next offering period will commence on the first
business day in August 2000, and subsequent offering periods will commence as
designated by the plan administrator.

7. SEGMENT INFORMATION

The Company operates in a single industry segment, providing
telecommunications equipment, software and associated services, and markets its
products through its sales personnel and certain foreign distributors. As a
result, the financial information disclosed herein represents all of the
material financial information related to the Company's principal operating
segment. The distribution of the Company's revenues as a percent of total
revenues is as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States........................... 50.6% 47.4% 47.8% 36.3% 52.6%
Export:
Asia-Pacific Region................... 15.7 17.4 7.5 6.5 4.8
Europe................................ 29.5 31.0 37.9 48.6 37.8
Other................................. 4.2 4.2 6.8 8.6 4.8
----- ----- ----- ----- -----
Total export sales............ 49.4 52.6 52.2 63.7 47.4
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>

The Company has no significant long-lived assets deployed outside of the
United States.

In 1997, British Telecom accounted for approximately 14% of total revenues.
No individual customer accounted for 10% or more of total revenues in 1996 and
1998. Sales to customers in the United Kingdom accounted for 12.2% and 13.6% of
total revenues during 1996 and 1997, respectively. No individual countries other
than the United States accounted for 10% or more of total revenues in 1998.

F-15
<PAGE> 77
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. EMPLOYEE BENEFIT PROGRAM

The Company has a retirement savings plan structured under Section 401(k)
of the Internal Revenue Code (the "Code"). The plan covers substantially all
employees meeting minimum service requirements. Under the plan, employees may
elect to reduce their current compensation by up to 15%, subject to certain
maximum dollar limitations prescribed by the "Code", and have the amount
contributed to the plan as salary deferral contributions. The Company may make
contributions to the plan at the discretion of the Board of Directors. The
Company accrued a discretionary contribution to the plan totaling $700,291,
$1,040,164, and $1,239,893 in 1996, 1997, and 1998, respectively.

9. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income for basic and diluted
earnings per share.............. $ 8,936 $ 12,714 $ 17,085 $ 3,037 $ 4,354
=========== =========== =========== =========== ===========
Denominator:
Denominator for basic earnings per
share -- weighted average
shares.......................... 40,615,369 40,855,279 40,879,418 40,862,000 40,896,000
Effect of dilutive securities:
Employee stock options.......... 453,548 866,325 1,572,499 1,415,000 1,742,000
----------- ----------- ----------- ----------- -----------
Dilutive potential common
shares.......................... 453,548 866,325 1,572,499 1,415,000 1,742,000
----------- ----------- ----------- ----------- -----------
Denominator for diluted earnings
per share -- adjusted weighted-
average shares.................. 41,068,917 41,721,604 42,451,917 42,277,000 42,638,000
=========== =========== =========== =========== ===========
Basic net income per common share... $ 0.22 $ 0.31 $ 0.42 $ 0.07 $ 0.11
=========== =========== =========== =========== ===========
Diluted net income per common
share............................. $ 0.22 $ 0.30 $ 0.40 $ 0.07 $ 0.10
=========== =========== =========== =========== ===========
</TABLE>

For additional disclosures regarding the employee stock option and stock
purchase plans, see Note 6.

F-16
<PAGE> 78

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom Goldman,
Sachs & Co., Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
("Dain Rauscher Wessels"), and Hambrecht & Quist LLC are acting as
representatives, has severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set forth
opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co. ....................................... 1,825,000
Dain Rauscher Wessels....................................... 910,000
Hambrecht & Quist LLC....................................... 910,000
BancBoston Robertson Stephens Inc........................... 135,000
Banc of America Securities LLC.............................. 135,000
A.G. Edwards & Sons, Inc.................................... 135,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 135,000
U.S. Bancorp Piper Jaffray Inc.............................. 135,000
Robert W. Baird & Co. Incorporated.......................... 70,000
SoundView Technology Group, Inc............................. 70,000
Stephens Inc................................................ 70,000
Wit Capital Corporation..................................... 70,000
---------
Total............................................. 4,600,000
=========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $0.65 per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $0.10 per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.

The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the international offering (the "International Underwriters") providing for the
concurrent offer and sale of 1,150,000 shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The International
Underwriters are Goldman Sachs International, Dain Rauscher Wessels, and
Hambrecht & Quist LLC.

Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the

U-1
<PAGE> 79

purchase is located in the United States. Each of the International Underwriters
has agreed pursuant to the Agreement Between that, as a part of the distribution
of the shares offered as a part of the international offering, and subject to
certain exceptions, it will (i) not, directly or indirectly, offer, sell or
deliver shares of Common Stock (a) in the United States or to any U.S. persons
or (b) to any person who it believes intends to reoffer, resell or deliver the
shares in the United States or to any U.S. Persons, and (ii) cause any dealer to
whom it may sell such shares at any concession to agree to observe a similar
restriction.

Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.

The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of the Prospectus to purchase up to an aggregate of 690,000
shares of Common Stock to cover over-allotments, if any. If the U.S.
Underwriters exercise their over-allotment option, the U.S. Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of the
U.S. Underwriters shown in the foregoing table bears to the 4,600,000 shares of
Common Stock offered. The Company has granted the International Underwriters a
similar option to purchase up to an aggregate of 172,500 additional shares of
Common Stock.

The Company and its stockholders have agreed, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities of the Company
(other than pursuant to employee stock incentive plans existing, or on the
conversion or exchange of convertible or exercisable securities outstanding, on
the date hereof) which are substantially similar to the shares of Common Stock
or which are convertible or exchangeable into shares of Common Stock or any
securities which are substantially similar to the shares of Common Stock,
without the prior written consent of Goldman, Sachs & Co. on behalf of the
Underwriters, except for the shares of Common Stock offered in connection with
the concurrent U.S. and international offerings.

The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters have discretionary
authority to exceed five percent of the total number of shares of Common Stock
offered by them.

Prior to the offerings, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company, the Selling Stockholders and the representatives of the Underwriters.
Among the factors considered in determining the initial public offering price of
the Common Stock, in addition to prevailing market conditions, were the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.

In connection with the offerings, the Underwriters may purchase and sell
the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the offerings.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock; and
short positions created by the Underwriters involve the sale by the Underwriters
of a greater number of shares of Common Stock than they are required to purchase
from the Company and the Selling Stockholders in the offerings. The Underwriters
also may impose a penalty bid, whereby selling concessions allowed to broker-
dealers in respect of the securities sold in the offering may be reclaimed by
the Underwriters if such shares of Common Stock are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the
U-2
<PAGE> 80

Common Stock, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "INTI".

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.

U-3
<PAGE> 81

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 5
Use of Proceeds............................ 15
Dividend Policy............................ 15
Dilution................................... 16
Capitalization............................. 17
Selected Consolidated Financial Data....... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 28
Management................................. 44
Certain Transactions....................... 50
Principal and Selling Stockholders......... 51
Description of Capital Stock............... 52
Shares Eligible for Future Sale............ 55
Certain U.S. Federal Income Tax
Considerations for Non-U.S. Holders of
Common Stock............................. 57
Legal Matters.............................. 58
Experts.................................... 59
Additional Information..................... 59
Index to Consolidated Financial
Statements............................... F-1
Underwriting............................... U-1
</TABLE>

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

UNTIL JUNE 20, 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

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

5,750,000 SHARES

INET TECHNOLOGIES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
---------------------
[INET LOGO]
---------------------
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS

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