AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INET TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 3661 75-2269056
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code number) identification number)

WILLIAM H. MINA
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
INET TECHNOLOGIES, INC.
1255 WEST 15TH STREET, SUITE 600 1255 W. 15TH STREET, SUITE 600
PLANO, TEXAS 75075 PLANO, TEXAS 75075
(972) 578-6100 (972) 578-6100
(Address, including zip code, and telephone number, FACSIMILE: (972) 578-6113
including area code, of the registrant's principal (Name, address, including zip code, and telephone
executive offices) number,
including area code, of agent for service)

Copies to:

CARMELO M. GORDIAN, ESQ. KENNETH M. SIEGEL, ESQ.
RONALD G. SKLOSS, ESQ. PAUL R. TOBIAS, ESQ.
J. MATTHEW LYONS, ESQ. S. DAWN SMITH, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI,
301 CONGRESS AVENUE, SUITE 1200 PROFESSIONAL CORPORATION
AUSTIN, TEXAS 78701 650 PAGE MILL ROAD
(512) 477-5495 PALO ALTO, CALIFORNIA 94304
FACSIMILE: (512) 477-5813 (650) 493-9300
FACSIMILE: (650) 493-6811

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ________

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, $0.001 par
value..................... 6,612,500 shares $17.00 $112,412,500 $33,162
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(1) Includes 862,500 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 24, 1998

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

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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 will be
identical for both offerings. See "Underwriting".

Of the 5,750,000 shares of Common Stock being offered, 3,841,870 shares are
being sold by the Company and 1,908,130 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. It is currently estimated that the initial public offering
price per share will be between $15.00 and $17.00. For factors to be considered
in determining the initial public offering price, see "Underwriting".

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

Application will be made to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol "INTI", subject to official
notice of issuance.
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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.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $

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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 $740,000 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 $ , $ and
$ , respectively. See "Underwriting".
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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 , 1998, 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 , 1998.
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[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. 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.
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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".
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[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."

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 (i) reflects the recent reincorporation of the Company in Delaware
and a 10-for-1 split of the Common Stock and (ii) 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 competency in SS7, and building
relationships with strategic partners.

As of June 30, 1998, the Company had sold its solutions to over 300
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, KPN Telecom,
MCI, o.tel.o communications, Portugal Telecom, Singapore Telecom, Sprint, SPT
Telecom, Telia, Telstra and Worldcom, and its equipment manufacturer customers
include DSC Communications, Ericsson, Motorola and Nortel.

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.

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THE OFFERINGS

Common Stock offered by the Company......................... 3,841,870 shares
Common Stock offered by the Selling Stockholders............ 1,908,130 shares
Common Stock to be outstanding after the offerings.......... 44,722,450 shares(1)
Use of proceeds............................................. For working capital and general
corporate purposes, including
possible acquisitions. See "Use
of Proceeds".
Proposed Nasdaq National Market symbol...................... INTI

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(1) Excludes 1,991,000 shares of Common Stock issuable upon exercise of options
outstanding at June 30, 1998, with exercise prices ranging from $0.60 to
$4.20 per share and with a weighted-average exercise price of $1.66 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)

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1995 1996 1997 1997 1998
------- ------- ------- ------- -------

STATEMENTS OF INCOME DATA:
Revenues................................. $17,531 $42,041 $57,701 $25,090 $34,165
Income from operations................... 2,239 13,288 19,096 7,550 10,793
Net income............................... $ 1,659 $ 8,936 $12,714 $ 5,027 $ 7,248
======= ======= ======= ======= =======
Basic net income per share............... $ 0.04 $ 0.22 $ 0.31 $ 0.12 $ 0.18
Diluted net income per share............. $ 0.04 $ 0.22 $ 0.30 $ 0.12 $ 0.17
Shares used in computing basic net income
per share(1)........................... 39,600 40,998 41,244 41,237 41,256
Shares used in computing diluted net
income per share(1).................... 41,207 41,451 42,110 41,767 42,665

JUNE 30, 1998
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ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $20,482 $ 76,909
Working capital............................................. 30,679 87,106
Total assets................................................ 49,183 105,610
Stockholders' equity........................................ 36,852 93,279

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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 3,841,870 shares of
Common Stock in the offerings at an assumed initial public offering price of
$16.00 per share (assuming no exercise of the Underwriters' over-allotment
options and after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company). See "Capitalization"
and "Use of Proceeds".

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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 has experienced significant fluctuations in quarterly operating
results based on a number of factors, many of which are outside the Company's
control. Such factors have included the demand for the Company's products and
services; the size and timing of specific orders by the Company's customers; the
level of product and price competition encountered by the Company; the length of
the sales cycle of the Company's products; the Company's ability to develop,
introduce and market new products and technologies on a timely basis; the
introduction of products and technologies by the Company's competitors; the
market acceptance of such new products and technologies; changes in pricing
policies by the Company or its competitors; the mix of products and services
sold by the Company; the timing of product shipments and product installations
by the Company; the capital spending patterns of the Company's customers; the
mix of domestic and international sales; and changes in the timing and level of
operating expenses. The Company's operating results may fluctuate in the future
due to a number of factors, including, but not limited to, those listed above as
well as satisfaction of contractual customer acceptance criteria; the amount and
timing of recognition of revenues; 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 offered by the Company
or its competitors; competition by existing and emerging competitors; the
Company's timing of and investments in research and development activities; the
Company's ability to implement its sales and marketing strategy; changes in the
cost or availability of materials needed to produce the Company's products; the
Company's ability to attract and retain experienced personnel; actual or
anticipated changes in government laws and regulations related to the
telecommunications market or judicial or administrative actions with respect to
such laws or regulations; the nature and pace of enforcement of the
Telecommunications Act of 1996 (the "Telecommunications Act"); the progress and
timing of the privatization of telecommunications markets and the worldwide
deregulation of the international telecommunications industry; the Company's
ability to control costs; software defects and other product quality problems
with the Company's products; intellectual property disputes; changes in the
Company's strategy; the extent of consolidation within the telecommunications
industry; expansion of the Company's international operations; currency exchange
rate fluctuations; and changes in general worldwide economic conditions.
Furthermore, a large portion of the Company's operating expenses, including
rent, salaries and capital lease expenses, 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. If individual, large sales represent a greater percentage of
total revenues, as the Company anticipates may happen, the deferral or loss of
one or more significant sales could materially adversely affect

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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 the organizations that are likely to be prospective customers of
the Company's products. Expenditures by these organizations 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 from Spectra 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. There can be no assurance that the capital appropriation practices of
the Company's customers will not change in the future.

As a result of all of the foregoing, the Company believes that future
revenues, expenses and operating results are likely to vary significantly from
quarter to quarter, and period-to-period comparisons of historical operating
results are not necessarily meaningful and should not be relied upon as any
indication of future performance. Moreover, although the Company's revenues have
increased in recent periods, there can be no assurance that the Company's
revenues will grow in future periods, that they will grow at past rates or that
the Company will remain profitable on a quarterly or annual basis in the future.
In addition, it is likely that in some future quarters the Company's operating
results will be below the expectations of public market analysts or investors.
In such event, or in the event that adverse conditions prevail, or are perceived
to prevail, with respect to the Company's business or generally, 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. Intense competition,
regulatory and legal uncertainty, rapid technological change and short product
life cycles characterize the telecommunications industry. In addition, 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

Growth in the markets for the Company's products has been driven in part by
privatization and deregulation of certain telecommunications markets worldwide.
Privatization and deregulation have been, and can be expected to continue to be,
slow and complicated processes. 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, resolution of questions concerning which parties will
finance such changes, and other regulatory, economic and political factors. For
example, in the U.S. certain litigation is pending which challenges the validity
of the Telecommunications Act and the local telephone competition rules adopted
by the U.S. Federal Communications Commission ("FCC") to implement the
Telecommunications Act. Such litigation may delay implementation of the
Telecommunications Act, which could have a material adverse effect on the demand
for the

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Company's products. Any invalidation, repeal or modification of the requirements
imposed by the Telecommunications Act or the FCC 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

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 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 and the six months
ended June 30, 1998 and are expected to continue to account for a substantial
majority of the Company's revenues for the foreseeable future. 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. 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 products or taking any other steps to reduce the risk
associated with any slowdown in demand for GeoProbe and Spectra.

The Company's products are designed primarily as management solutions for
SS7 signaling networks. Inet's future operating results are dependent in
significant part on the continued viability and expansion of SS7 signaling
networks. There can be no assurance that the market for SS7 management solutions
and related applications will continue to grow or remain viable. 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 relatively new, intensely competitive, both in the U.S. and internationally,
and subject to rapid technological
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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 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. 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 $12.2 million in 1994 to $57.7 million in
1997 and to $34.2 million in the six months ended June 30, 1998, and the number
of its employees has increased from 88 at December 31, 1994 to 230 at December
31, 1997 and to 310 at June 30, 1998. 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 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, particularly the Company's
three founders, Samuel S. Simonian, Elie S. Akilian and Mark A. Weinzierl, none
of whom is bound by an employment agreement. The Company's

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11

success also depends upon its ability to continue to attract, motivate and
retain other highly qualified management, technical, and sales and marketing
personnel, particularly personnel with SS7 knowledge and experience. The process
of locating such personnel with the combination of skills and attributes
necessary to implement the Company's strategy is lengthy. There can be no
assurance that the Company will be able to retain its key personnel or
successfully attract, assimilate or retain other sufficiently qualified key
personnel in the future. 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".

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 32.3%,
49.4%, 52.6% and 49.5% of the Company's total revenues in 1995, 1996, 1997 and
the six months ended June 30, 1998, respectively, and international revenues are
expected to continue to account for a significant percentage of total revenues
for the foreseeable future. Inet believes that continued growth and
profitability will require expansion of its sales in international markets.
Consequently, the risks associated with international operations could have a
material adverse effect on the Company's business, financial condition and
results of operations.

RISKS INHERENT IN INTERNATIONAL OPERATIONS. There are 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 exchange rate
fluctuations; seasonal reductions in business activity particular to certain
markets; loss of revenues, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks; the
overlap of different tax structures; 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. Traditionally, international operations are
characterized by higher operating expenses, largely resulting from the
establishment of international offices, the hiring of additional personnel, the
localization and marketing of products for particular international markets, and
the development
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12

of relationships with international service providers. 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.

During the last six months of 1997 and continuing into 1998, the
Asia/Pacific region has experienced unstable local economies and significant
devaluations in local currencies. These instabilities may continue or worsen,
which could have a material adverse effect on the Company's financial condition
and results of operations as approximately 17% of the Company's sales in 1997
were derived from customers located in this region.

FOREIGN TAX CONSIDERATIONS. The Company or its subsidiaries generally will
be subject to various taxes in foreign countries where the Company operates. The
Company's ability to claim a foreign tax credit against its U.S. federal income
taxes is subject to a number of limitations, which could result in an effective
tax rate on the Company's earnings higher than which may have been experienced
without international operations.

TECHNOLOGY EXPORT CONSIDERATIONS. The Company relies heavily on equipment
incorporating technology that is developed primarily, or in some cases
exclusively, in the U.S. The Company's current international expansion plans are
dependent upon using this U.S.-developed technology in foreign countries. Export
of technology from the U.S. or import into a foreign country may be prohibited
or may be subject to duties or other charges of possibly punitive scale, delays
from customs brokers or government agencies, and regulatory or similar issues.
Problems with technology export could have a material adverse effect on the
Company's business, financial condition and results of operations.

CURRENCY EXCHANGE RATE FLUCTUATIONS. Through June 30, 1998, 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 an increasing 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

Certain components used in the Company's GeoProbe and Spectra products are
available from only a single supplier or a limited number of sources. 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
10
13

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. There can be no assurance that deliveries of key components and
parts will occur in a timely manner in the future. The inability to obtain
sufficient key components as required or 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.

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. Shortages of raw materials or production
capacity constraints experienced by the Company's subcontractors could
negatively affect the Company's ability to meet its production obligations and
result in increased prices for affected parts. 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. 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. 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
complement or 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.
Future acquisitions and joint ventures, whether or not consummated, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

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14

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 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. 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.
While the Company has on occasion released products containing defects or
errors, to date the Company's business, financial condition and results of
operations have 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

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15

product liability suits to date, the sale and support of the Company's products
entails the risk of such claims. The Company's defense against such suits in the
future, regardless of their merit, could result in substantial 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. Any successful product liability claim brought against the Company
could materially adversely affect the Company's business, financial condition
and results of operations, particularly given that the Company's products are
frequently used by customers in business critical applications. See "-- Year
2000 Compliance" and "Business -- Products -- Products Under Development" and
"-- Research and Development".

CONTROL BY PRINCIPAL STOCKHOLDERS

Upon completion of the offerings, Messrs. Simonian, Akilian and Weinzierl
will beneficially own 28.0%, 28.2% and 28.1% of the outstanding shares of Common
Stock (27.5%, 27.7% and 27.5%, 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, 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".

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 potential customers may also defer 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 purchases, thereby causing an increase in short-term
demand and a consequent decrease in long-term demand for 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.

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. See "-- Product
Liability".

For internal software application requirements, the Company utilizes
off-the-shelf and custom software developed internally and by third parties. The
Company has reviewed its internal management information and other systems in
order to identify those products, services or systems that are not Year 2000
compatible. The total cost of these Year 2000 compliance activities is not
anticipated to be material to the Company's business, financial condition or
results of operations.

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 will be 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 to be 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 additional shares 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;

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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 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 44,722,450 shares
of Common Stock (45,584,950 shares if the Underwriters' over-allotment options
are exercised in full), assuming no exercise of options after June 30, 1998. 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 38,972,450 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, 37,871,500 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 1,191,950 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 June 30, 1998, there were
outstanding options to purchase an aggregate of 1,991,000 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, 1,097,000
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 894,000 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

The initial public offering price will be substantially higher than the
book value per share of the outstanding Common Stock. As a result, purchasers of
Common Stock in the offerings will incur immediate, substantial dilution. 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".

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USE OF PROCEEDS

Based on an assumed initial public offering price of $16.00 per share, the
Company will receive approximately $56.4 million from the sale of shares of
Common Stock to be sold by the Company pursuant to the offerings (approximately
$69.3 million if the Underwriters' over-allotment options are exercised in full)
after deducting the estimated 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.

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DILUTION

The net tangible book value of the Company at June 30, 1998 was $36.9
million, or $0.90 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 3,841,870 shares
of Common Stock in the offerings at an assumed initial public offering price of
$16.00 per share (assuming no exercise of the Underwriters' over-allotment
options and after deducting the estimated underwriting discount and estimated
offering expenses payable by the Company), the Company's pro forma net tangible
book value at June 30, 1998 would have been $93.3 million, or $2.09 per share of
Common Stock. This represents an immediate increase in net tangible book value
of $1.19 per share to the Company's existing stockholders and an immediate
dilution in net tangible book value of $13.91 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:

Assumed initial public offering price per share............. $16.00
Net tangible book value per share as of June 30, 1998..... $ 0.90
Increase per share attributable to new investors.......... 1.19
------
Pro forma net tangible book value per share after the
offerings................................................. 2.09
------
Dilution per share to new investors in the offerings........ $13.91
======

The following table sets forth, as of June 30, 1998, 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 at an assumed initial public offering price of
$16.00 (assuming no exercise of the Underwriters' over-allotment options and
before deducting the estimated underwriting discount and estimated offering
expenses):

SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------

Existing stockholders(1)... 40,880,580 91.4% $ 37,000 0.1% *(2)
New investors(1)........... 3,841,870 8.6 61,469,920 99.9 $16.00
---------- ----- ----------- -----
Total............ 44,722,450 100.0% $61,506,920 100.0%
========== ===== =========== =====

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

(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 38,972,450
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 June 30, 1998. As of June 30, 1998, there were outstanding stock options to
purchase a total of 1,991,000 shares of Common Stock, with exercise prices
ranging from $0.60 to $4.20 per share and with a weighted-average exercise price
of $1.66 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.

17
20

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1998, and such capitalization as adjusted to reflect the sale by the Company
of 3,841,870 shares of Common Stock in the offerings at an assumed initial
public offering price of $16.00 per share. See "Use of Proceeds".

JUNE 30, 1998
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)

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; 40,919,422 shares issued; and 44,722,450
shares issued, as adjusted(1).......................... 41 45
Additional paid-in capital................................ 648 56,854
Treasury stock, at cost (38,842 shares)................... (217) --
Retained earnings......................................... 36,380 36,380
------- -------
Total stockholders' equity............................. 36,852 93,279
------- -------
Total capitalization................................... $36,852 $93,279
======= =======

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

(1) Excludes 1,991,000 shares of Common Stock issuable upon exercise of options
outstanding as of June 30, 1998, with exercise prices ranging from $0.60 to
$4.20 per share and with a weighted-average exercise price of $1.66 per
share. See "Management -- 1998 Stock Option/ Stock Issuance Plan" and Note 6
of Notes to Consolidated Financial Statements.

18
21

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, 1995,
1996 and 1997 and the balance sheet data at December 31, 1996 and 1997 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, 1993 and 1994 and the balance sheet data at December 31, 1993, 1994 and 1995
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 six months ended June 30, 1997 and 1998 and
the balance sheet data as of June 30, 1998 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.

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENTS OF INCOME DATA:
Revenues.................................... $12,036 $12,247 $17,531 $42,041 $57,701 $25,090 $34,165
Cost of revenues............................ 3,172 2,358 4,305 11,138 12,579 5,196 7,693
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 8,864 9,889 13,226 30,903 45,122 19,894 26,472
Operating expenses:
Sales and marketing....................... 446 1,588 2,699 5,566 7,069 4,015 3,563
General and administrative................ 3,452 3,899 4,323 7,530 14,181 6,045 9,084
Research and development.................. 1,418 2,697 3,965 4,519 4,776 2,284 3,032
------- ------- ------- ------- ------- ------- -------
Total operating expenses............ 5,316 8,184 10,987 17,615 26,026 12,344 15,679
------- ------- ------- ------- ------- ------- -------
Income from operations...................... 3,548 1,705 2,239 13,288 19,096 7,550 10,793
Other income (expense):
Interest income........................... 46 24 75 20 147 49 322
Interest expense.......................... (15) (10) (6) (42) (123) (44) --
Other..................................... (14) (17) (5) (6) (8) 2 --
------- ------- ------- ------- ------- ------- -------
Income before provision for income taxes.... 3,565 1,702 2,303 13,260 19,112 7,557 11,115
Provision for income taxes.................. 1,235 468 644 4,324 6,398 2,530 3,867
------- ------- ------- ------- ------- ------- -------
Net income.................................. $ 2,330 $ 1,234 $ 1,659 $ 8,936 $12,714 $ 5,027 $ 7,248
======= ======= ======= ======= ======= ======= =======
Basic net income per share.................. $ 0.06 $ 0.03 $ 0.04 $ 0.22 $ 0.31 $ 0.12 $ 0.18
Diluted net income per share................ $ 0.06 $ 0.03 $ 0.04 $ 0.22 $ 0.30 $ 0.12 $ 0.17
Shares used in computing basic net income
per share(1).............................. 39,600 39,600 39,600 40,998 41,244 41,237 41,256
Shares used in computing diluted net income
per share(1).............................. 39,600 39,600 41,207 41,451 42,110 41,767 42,665

DECEMBER 31,
--------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------ ------ ------- ------- ------- --------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 243 $ 166 $ 181 $ 742 $ 3,386 $20,482
Working capital........................................ 3,746 4,569 6,130 15,101 24,290 30,679
Total assets........................................... 5,472 7,551 18,641 27,105 38,308 49,183
Stockholders' equity................................... 4,737 5,971 7,629 16,614 29,386 36,852

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

(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.

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22

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. Revenues attributable to Spectra represented a
majority of total revenues in 1997. Revenues attributable to GeoProbe
represented a majority of total revenues in the six months ended June 30, 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.

Revenues from GeoProbe sales are recognized when the system has been
delivered to the customer and installed at the customer's premises. Unbilled
receivables represent GeoProbe revenues recognized but not billable pursuant to
the individual contract until formal customer acceptance. Formal customer
acceptance generally has been received within 60 days of installation. Revenues
from sales of Spectra and other products are recognized upon shipment.

During the last three years, a substantial and increasing 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 product development facility in the Republic of Armenia, and expects to
establish additional international sales and other offices in the future.
Through June 30, 1998, 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
an increasing 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

20
23

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:

SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----

PERCENTAGE OF TOTAL REVENUES:
Revenues............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................... 24.6 26.5 21.8 20.7 22.5
----- ----- ----- ----- -----
Gross profit...................................... 75.4 73.5 78.2 79.3 77.5
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing............................... 15.4 13.2 12.2 16.0 10.4
General and administrative........................ 24.6 17.9 24.6 24.1 26.6
Research and development.......................... 22.6 10.8 8.3 9.1 8.9
----- ----- ----- ----- -----
Total operating expenses.................. 62.6 41.9 45.1 49.2 45.9
----- ----- ----- ----- -----
Income from operations.............................. 12.8 31.6 33.1 30.1 31.6
Other income (expense).............................. 0.3 (0.1) 0.0 0.0 0.9
----- ----- ----- ----- -----
Income before provision for income taxes............ 13.1 31.5 33.1 30.1 32.5
Provision for income taxes.......................... 3.6 10.2 11.1 10.1 11.3
----- ----- ----- ----- -----
Net income.......................................... 9.5% 21.3% 22.0% 20.0% 21.2%
===== ===== ===== ===== =====

SIX MONTHS ENDED JUNE 30, 1997 AND 1998

REVENUES

The Company's revenues increased 36.2% from $25.1 million in the six months
ended June 30, 1997 to $34.2 million in the six months ended June 30, 1998,
primarily due to increased sales of GeoProbe. International revenues increased
in absolute dollars from $13.8 million in the six months ended June 30, 1997 to
$16.9 million in the six months ended June 30, 1998, but decreased from 55.0% of
total revenues in the 1997 period to 49.5% of total revenues in the 1998 period.

COST OF REVENUES

Cost of revenues consists primarily of hardware expenses related to the
manufacturing of GeoProbe and Spectra. Cost of revenues increased 48.1% from
$5.2 million in the six months ended June 30, 1997 to $7.7 million in the six
months ended June 30, 1998. Cost of revenues represented 20.7% and 22.5% of
total revenues in the six months ended June 30, 1997 and 1998, respectively. The
increase in cost of revenues in absolute dollars primarily resulted from
increased costs directly associated with an increase in the number of GeoProbe
and Spectra units sold. The Company believes that for at least the remainder of
1998, cost of revenues should not vary significantly as a percentage of total
revenues from the level experienced in the six months ended June 30, 1998.

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 decreased 11.3% from $4.0 million in the six months ended June 30,
1997 to $3.6 million in the six months ended June 30, 1998. The decrease in

21
24

absolute dollars was primarily related to reduced trade show activities and
reduced commissions paid to distributors. Sales and marketing expenses as a
percentage of total revenues were 16.0% and 10.4% in the six months ended June
30, 1997 and 1998, respectively. The decrease as a percentage of total revenues
during the 1998 period was primarily due to relatively higher growth in total
revenues in combination with decreased trade show activities and reduced
commissions paid to distributors. The Company believes that sales and marketing
expenses will increase, both in absolute dollars and, for at least the remainder
of 1998, as a percentage of total revenues from the levels experienced in the
six months ended June 30, 1998.

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 50.3% from $6.0 million in the six months ended June 30, 1997 to $9.1
million in the six months ended June 30, 1998. The increase in absolute dollars
was primarily related to increased staffing and related costs associated with
the growth of the Company's business during the 1998 period, as well as
increased depreciation expense associated with a new management information
system. General and administrative expenses as a percentage of total revenues
were 24.1% and 26.6% in the six months ended June 30, 1997 and 1998,
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 have
historically consisted primarily of salaries and other compensation expenses
associated with the Company's research and development activities. Such expenses
increased 32.7% from $2.3 million in the six months ended June 30, 1997 to $3.0
million in the six months ended June 30, 1998, representing 9.1% and 8.9% of
total revenues, respectively. The increase in absolute dollars was primarily due
to increased staffing and related personnel costs 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.

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 $7,000 in the six months ended June
30, 1997 to $322,000 in the six months ended June 30, 1998. The increase
resulted from increased interest earned on higher balances of cash and cash
equivalents resulting from increased cash flow from operations and decreased
interest expense due to the repayment of substantially all of the Company's
indebtedness in November 1997.

PROVISION FOR INCOME TAXES

The Company recorded income tax expense of $2.5 million and $3.9 million in
the six months ended June 30, 1997 and 1998, respectively. The Company's
effective income tax rates were 33.5% and 34.8% in the six months ended June 30,
1997 and 1998, respectively. The increase in the

22
25

Company's effective tax rate is due to growth in the Company's net income and a
higher percentage of revenues from domestic sources in the six months ended June
30, 1998.

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

REVENUES

Total revenues increased 139.8% from $17.5 million in 1995 to $42.0 million
in 1996, and increased an additional 37.2% from 1996 to $57.7 million in 1997.
The increase from 1995 to 1996 was primarily due to revenues attributable to
GeoProbe, which were first recognized in 1996. The increase from 1996 to 1997
was primarily due to increased unit sales of both GeoProbe and Spectra. Revenues
from other sources collectively accounted for less than 5% of total revenues in
1996 and 1997. International revenues represented 32.3%, 49.4% and 52.6% of
total revenues in 1995, 1996 and 1997, respectively.

COST OF REVENUES

Cost of revenues increased 158.7% from $4.3 million in 1995 to $11.1
million in 1996, and increased an additional 12.9% from 1996 to $12.6 million in
1997. Cost of revenues represented 24.6%, 26.5% and 21.8% of total revenues in
1995, 1996 and 1997, respectively. The increase both in absolute dollars and as
a percentage of total revenues during 1996 primarily resulted from additional
start-up manufacturing, materials and integration expenses associated with the
initial release of GeoProbe. The decrease as a percentage of total revenues
during 1997 primarily resulted from the absence of such start-up expenses as
well as a decrease in the cost of semiconductor memory chips. There can be no
assurance that additional expenses associated with the initial release of other
new products will not be incurred in the future. 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 EXPENSES. Sales and marketing expenses increased 106.2%
from $2.7 million in 1995 to $5.6 million in 1996, and increased an additional
27.0% from 1996 to $7.1 million in 1997. The increase in absolute dollars in
1996 was primarily related to increased commissions paid to distributors,
increased staffing as the Company established new domestic sales offices and
increased marketing and promotional activities. The increase in absolute dollars
in 1997 was primarily related to increased staffing as the Company established
new domestic sales offices and increased marketing and promotional activities,
partly offset by reduced commissions paid to distributors. Such expenses as a
percentage of total revenues were 15.4%, 13.2% and 12.2% in 1995, 1996 and 1997,
respectively. The decreases as a percentage of total revenues during 1996 and
1997 were primarily due to relatively higher growth in total revenues.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 74.2% from $4.3 million in 1995 to $7.5 million in 1996, and increased
an additional 88.3% to $14.2 million in 1997. The increases in absolute dollars
were primarily related to increased staffing and related costs associated with
the growth of the Company's business and, to a lesser extent in 1997, the
establishment of bad debt reserves. Such expenses as a percentage of total
revenues were 24.6%, 17.9% and 24.6% in 1995, 1996 and 1997, respectively. The
decrease as a percentage of total revenues during 1996 was 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. General and
administrative expenses increased as a percentage of total revenues during 1997
primarily due to increased staffing and related costs incurred in anticipation
of future growth and because the Company had not previously established bad debt
reserves.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 14.0% from $4.0 million in 1995 to $4.5 million in 1996, and increased
an additional 5.7% to $4.8 million in 1997. The increases in absolute dollars
were primarily due to costs associated with increased staffing dedicated to
research and development activities. Such expenses represented 22.6%,
23
26

10.8% and 8.3% of total revenues during 1995, 1996 and 1997, respectively. The
decreases as a percentage of total revenues in 1996 and 1997 were primarily
attributable to increased revenues relative to research and development
expenditures.

OTHER INCOME (EXPENSE)

Other income (expense) was $64,000, ($28,000) and $16,000 in 1995, 1996 and
1997, respectively. The decrease in 1996 resulted from increased interest
expense attributable to additional indebtedness incurred to finance the growth
of the Company's business and decreased interest earned on reduced balances of
cash and cash equivalents. The increase in 1997 resulted from increased interest
earned on higher balances of cash and cash equivalents resulting from increased
cash flow from operations, partially offset by increased interest expense
attributable to additional indebtedness.

PROVISION FOR INCOME TAXES

The Company recorded income tax expense of $644,000, $4.3 million and $6.4
million in 1995, 1996 and 1997, respectively. The Company's effective income tax
rates were 28.0%, 32.6% and 33.5% in 1995, 1996 and 1997, respectively. The
effective income tax rate was higher in 1996 and 1997 than in 1995 primarily due
to higher levels of income.

SELECTED QUARTERLY FINANCIAL RESULTS

The following tables set forth unaudited consolidated statements of income
data for the ten quarters ended June 30, 1998, 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 thereto. The operating results
for any quarter are not necessarily indicative of results for any future period.

QUARTER ENDED
---------------------------------------------------------------------------------------------------
1996 1997 1998
-------------------------------------- -------------------------------------- -----------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues.................... $15,824 $6,349 $ 4,764 $15,104 $11,608 $13,482 $12,136 $20,475 $15,512 $18,653
Cost of revenues............ 5,556 1,306 1,289 2,987 2,580 2,616 3,345 4,039 3,645 4,048
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 10,268 5,043 3,475 12,117 9,028 10,866 8,791 16,436 11,867 14,605
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........ 640 989 1,183 2,754 2,109 1,906 1,718 1,336 1,544 2,019
General and
administrative........... 1,866 1,654 1,632 2,377 2,951 3,094 3,480 4,655 4,718 4,366
Research and development... 1,202 1,115 1,141 1,062 1,155 1,129 1,293 1,199 1,156 1,876
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 3,708 3,758 3,956 6,193 6,215 6,129 6,491 7,190 7,418 8,261
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................. 6,560 1,285 (481) 5,924 2,813 4,737 2,300 9,246 4,449 6,344
Interest income............. 6 6 6 2 31 18 43 55 125 197
Interest expense............ (4) (12) (20) (6) (18) (26) (68) (12) -- --
Other income (expense)...... -- (3) -- (3) 3 (1) -- (9) -- --
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes...................... 6,562 1,276 (495) 5,917 2,829 4,728 2,275 9,280 4,574 6,541
Provision (benefit) for
income taxes............... 2,140 416 (162) 1,930 947 1,583 762 3,106 1,537 2,330
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $ 4,422 $ 860 $ (333) $ 3,987 $ 1,882 $3,145 $ 1,513 $ 6,174 $ 3,037 $ 4,211
======= ======= ======== ======= ======= ======= ======= ======= ======= =======
Basic net income per
share...................... $ 0.11 $ 0.02 $ (0.01) $ 0.10 $ 0.05 $ 0.08 $ 0.04 $ 0.15 $ 0.07 $ 0.10
Diluted net income per
share...................... $ 0.11 $ 0.02 $ (0.01) $ 0.10 $ 0.05 $ 0.08 $ 0.04 $ 0.15 $ 0.07 $ 0.10
Shares used in computing
basic net income per
share(1)................... 40,391 41,200 41,200 41,200 41,224 41,250 41,250 41,250 41,250 41,263
Shares used in computing
diluted net income per
share(1)................... 41,197 41,200 41,200 41,746 41,756 41,778 42,415 42,491 42,664 42,665

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

(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.

24
27

PERCENTAGE OF TOTAL
REVENUES:
Revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............ 35.1 20.6 27.1 19.8 22.2 19.4 27.6 19.7 23.5 21.7
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............... 64.9 79.4 72.9 80.2 77.8 80.6 72.4 80.3 76.5 78.3
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing........ 4.0 15.6 24.8 18.2 18.2 14.1 14.1 6.5 9.9 10.8
General and
administrative........... 11.8 26.0 34.2 15.8 25.4 23.0 28.6 22.7 30.4 23.4
Research and development... 7.6 17.6 24.0 7.0 10.0 8.4 10.7 5.9 7.5 10.1
Total operating
expenses............ 23.4 59.2 83.0 41.0 53.6 45.5 53.4 35.1 47.8 44.3
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations................. 41.5 20.2 (10.1) 39.2 24.2 35.1 19.0 45.2 28.7 34.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Interest income............. 0.0 0.1 0.1 0.0 0.3 0.2 0.4 0.2 0.8 1.1
Interest expense............ (0.0) (0.2) (0.4) (0.0) (0.1) (0.2) (0.6) (0.1) (0.0) 0.0
Other income (expense)...... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision for income
taxes...................... 41.5 20.1 (10.4) 39.2 24.4 35.1 18.8 45.3 29.5 35.1
Provision (benefit) for
income taxes............... 13.6 6.6 (3.4) 12.8 8.2 11.8 6.3 15.1 9.9 12.5
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)........... 27.9% 13.5% (7.0)% 26.4% 16.2% 23.3% 12.5% 30.2% 19.6% 22.6%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====

The Company's operating results historically have been influenced by
certain seasonal fluctuations, with revenues from Spectra 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. Notwithstanding this historical seasonality, the levels of revenues
and net income achieved during the quarter ended March 31, 1996 were
disproportionately high relative to the levels of revenues and net income
achieved during any other quarter of 1996 primarily due to the initial release
of GeoProbe.

Except for the quarter ended March 31, 1996, cost of revenues fluctuated
between 19.4% and 27.6% of total revenues during the ten quarters ended June 30,
1998. Such costs were 35.1% of total revenues in the quarter ended March 31,
1996 primarily due to additional start-up manufacturing, materials and
integration expenses associated with the initial release of GeoProbe.

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.

General and administrative expenses increased in absolute dollars during
each quarter from the quarter ended September 30, 1996 through the quarter ended
March 31, 1998. General and administrative expenses fluctuated between 11.8% and
34.2% of total revenues during the ten quarters ended June 30, 1998. 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 in absolute dollars remained relatively
flat during the nine quarters preceding the quarter ended June 30, 1998, during
which quarter research and development spending increased. However, such
expenses fluctuated between 5.9% and 24.0% of total revenues during those
periods primarily due to variability in total revenues. The Company expects that
research and development expenses in future periods will increase as a
percentage of total revenues as these investments are crucial to the Company's
ability to evolve its technologies and expand its product offerings to meet its
customers' needs.

Other than during the quarter ended September 30, 1996, income from
operations fluctuated between 19.0% and 45.2% of total revenues during the ten
quarters ended June 30, 1998. During the quarter ended September 30, 1996, loss
from operations represented 10.1% of total revenues

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28

primarily due to lower revenues. A large portion of the Company's operating
expenses, including rent, salaries and capital lease expenses, 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 $30.7 million at June
30, 1998, compared with $24.3 million at December 31, 1997. At June 30, 1998,
the Company had $20.5 million in cash and cash equivalents, an increase of $17.1
million from $3.4 million in cash and cash equivalents at December 31, 1997.

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
June 30, 1998, no amounts were outstanding under the credit facility, and the
amount available to the Company, after considering outstanding letters of
credit, was $9.4 million.

Cash provided by operating activities was $759,000, $1.8 million and $7.7
million in 1995, 1996 and 1997, respectively, and $1.0 million and $19.2 million
in the six months ended June 30, 1997 and 1998, respectively. Operating cash
flows have increased primarily due to increased levels of income from
operations, offset in 1996 by an increase in trade accounts receivable and a
decrease in deferred revenue, and offset in 1997 by increases in trade accounts
and unbilled receivables and a decrease in accounts payable. Operating cash
flows during the six months ended June 30, 1998 increased primarily due to
increased levels of income from operations, an increase in deferred revenue and
a decrease in trade accounts and unbilled receivables. Cash used in investing
activities was primarily related to purchases of property and equipment, and
aggregated $1.0 million, $2.1 million and $3.8 million in 1995, 1996 and 1997,
respectively, and aggregated $1.5 million and $2.2 million in the six months
ended June 30, 1997 and 1998, respectively. Financing activities related
primarily to proceeds of borrowings and repayment of borrowings and provided
cash of $300,000 and $837,000 in 1995 and 1996, respectively, used cash of $1.3
million in 1997 and provided cash of $1.0 million in the six months ended June
30, 1997. At June 30, 1998, 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

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29

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

The products currently offered by the Company have been designed to be Year
2000 compliant, and its current contracts with customers frequently require that
the Company warrant Year 2000 compliance. The Company has in the past sold
versions of Spectra that are not Year 2000 compliant, and the Company has
developed and is offering to customers an upgrade to bring such older 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.

For internal software application requirements, the Company utilizes
off-the-shelf and custom software developed internally and by third parties. The
Company has reviewed its internal management information and other systems in
order to identify those products, services or systems that are not Year 2000
compliant. The total cost of these Year 2000 compliance activities is not
anticipated to be material to the Company's business, financial condition or
results of operations. See "Risk Factors -- Year 2000 Compliance".

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BUSINESS

OVERVIEW

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

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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-related data services,
has resulted in corresponding demand for telecommunications infrastructure and
advanced networking technologies, including network management 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 were 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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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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33

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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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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35

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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- 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 1997 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 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 ISDN,
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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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 billing and usage measurement, customer quality assurance,
LNP and traffic engineering.

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 (in beta testing)' 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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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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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:

- ------------------------------------------------------------------------------------
APPLICATION FUNCTIONALITY
- ------------------------------------------------------------------------------------
Surveillance Alarms
Statistics
- ------------------------------------------------------------------------------------
Billing Call billing
Usage measurement
- ------------------------------------------------------------------------------------
Fraud Management Feed to real-time fraud
detection systems
- ------------------------------------------------------------------------------------
Marketing Customer quality assurance
Local Number Portability
Traffic engineering
- ------------------------------------------------------------------------------------
Service Quality Assurance Performance monitoring
(in beta testing)
- ------------------------------------------------------------------------------------

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 prices generally have ranged from $350,000 to $8.6 million, and in 1997
averaged approximately $1.4 million. GeoProbe system add-ons are priced
according to similar metrics. Since 1995, the Company has sold GeoProbe systems
to over 30 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, prices for a Spectra unit generally have ranged from $30,000 to
$120,000. Since the first Spectra sale in 1990, over 2,000 Spectras have been
sold to over 300 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

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cellular packet data link to LANs, intranets and other networks, including the
Internet. Spider comes 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 Service Quality
Assurance application that will enable carriers to offer improved customizable
services to corporate clients; a high speed link interface module for GeoProbe;
and an ISDN interface which should be available to address the needs of its
current customers to interface with ISPs, in late 1998. Among the enhancements
being developed for Spectra are an API to provide access to the new testing
automation tools on the market today and a Japanese interface.

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 June 30, 1998, the Company had sold versions of its products to over
300 customers in over 40 countries. In 1997, British Telecom accounted for
approximately 14% of the Company's revenues. No customer accounted for 10% or
more of the Company's revenues in 1996. 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 list of customers in various market segments which have
purchased in excess of $250,000 worth of the Company's products since 1996.

LONG DISTANCE CARRIERS (IXCS) WIRELESS CARRIERS PTTS EQUIPMENT MANUFACTURERS
- ------------------------------- --------------------- ---------------- -----------------------

AT&T 3608 Communications British Telecom Ascend
MCI Airtouch Cable & Wireless Bellcore
Sprint AT&T Wireless KPN Telecom Cisco
Worldcom Bell Atlantic Mobile Latvia PTT DSC
Bell South Mobility o.tel.o Ericsson
LOCAL EXCHANGE CARRIERS Cellular One-Maryland communications Motorola
Entel-Chile Portugal Telecom Nortel
Brooks Fiber LA Cellular SPT Telecom PT NEC Nusantara
Cincinnati Bell Startel Telecom Italia Communication
Frontier Telebahia Telia
Intermedia Western Wireless Telstra
Communications
LDI

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 six sales offices in the U.S. and a sales
support facility outside London, England. The Company plans to open a sales
office in Germany in 1998.

The GeoProbe sales cycle (excluding the cycle for subsequent applications
and enhancements, which varies widely) ranges from six to 24 months between
initial customer contact and commitment to purchase. A GeoProbe system requires
a relatively large investment and is subject to the attendant delays frequently
associated with customers' internal procedures to approve large capital
expenditures and lengthy decision-making processes. The sales cycle for GeoProbe
can also be expected to be subject to a number of significant risks, including
carriers' budgetary constraints and technology assessments and other internal
acceptance review over which the Company has little or no control. The sales
cycle for Spectra is typically 90 days, consisting mostly of a technical
evaluation process. However, the sales cycle for occasional, large Spectra sales
can range up to six months. See "Risk Factors -- Lengthy Sales Cycle".

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 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.

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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.

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 $4.0 million, $4.5 million, $4.8 million
and $3.0 million in 1995, 1996, 1997 and the six months ended June 30, 1998,
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. In 1997, the Company opened a development facility in the
Republic of Armenia, and at June 30, 1998 employed 12 individuals at such
facility. 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 hardware to a number of Dallas, Texas-area
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, a few key components are currently
available from only a single supplier or a limited number of sources. The
Company attempts to minimize the need for these components. If any such
components should become unavailable, Inet believes that it could design similar
functionality into the product using other components. See "Risk
Factors -- Dependence on Sole and Limited Source Suppliers; Dependence on
Subcontractors and Licensed Technology".

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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

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 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.

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EMPLOYEES

As of June 30, 1998, the Company had 310 employees, of whom 167 were
engaged in product development, 33 were engaged in sales and marketing, 54 were
engaged in customer support services, 21 were engaged in manufacturing and 35
were engaged in administrative and other business support functions. The Company
believes it has experienced good employee relations to date.

FACILITIES

The Company is headquartered in Plano, Texas, where it currently leases
67,000 square feet of office space, of which 50,000 square feet are occupied.
The Company also leases sales offices in Georgia, New Jersey, Maryland, Illinois
and California. Additionally, the Company leases three international offices,
two outside of London, England which provide product and sales support to many
of the Company's customers located in Europe, and another in the Republic of
Armenia which serves as a research and development facility. The Company
currently plans to open a sales office in Germany in 1998. 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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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information concerning the directors and
executive officers of the Company.

NAME AGE POSITION(S)
---- --- -----------

Samuel S. Simonian.......... 43 President, Chief Executive Officer and Director
Elie S. Akilian............. 42 Executive Vice President and Director
Mark A. Weinzierl........... 34 Executive Vice President, Secretary and Director
William H. Mina............. 53 Senior Vice President, Chief Financial Officer and Director
Robert G. Mechaley, Jr...... 47 Director Nominee

SAMUEL S. SIMONIAN co-founded and has served as President and director of
Inet since 1989, and as its Chief Executive Officer since March 1994. 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. Currently, Mr. Simonian also serves as Inet's chief
technical officer. Mr. Simonian is the nephew of William H. Mina's spouse.

ELIE S. AKILIAN co-founded Inet in 1989 and has served as Executive Vice
President and director of the Company since March 1989. 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. Currently, Mr. Akilian oversees
Inet's sales and marketing organization.

MARK A. WEINZIERL co-founded Inet in 1989 and has served as Executive Vice
President, Secretary and director of the Company 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. Currently, Mr. Weinzierl oversees
Inet's support services and manufacturing organizations.

WILLIAM H. MINA has served as Senior Vice President and Chief Financial
Officer of the Company since February 1997 and as a director of the Company
since June 1996. 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.

ROBERT G. MECHALEY, JR. has consented to become a director of the Company
upon consummation of the offerings. Mr. Mechaley has served as a Director and
President and Chief Executive Officer of Wildfire Communications, Inc. since
August 1996. Prior to that time, Mr. Mechaley served as Senior Vice President
with AT&T Wireless Services from June 1993 to July 1996.

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 Mr. Mechaley and one additional non-employee 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
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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 1997, 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.

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

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salary and bonus exceeded $100,000 for services rendered in all capacities to
the Company and its subsidiaries during 1997 (collectively, the "Named
Officers").

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- -------------
NAME AND OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION(S) SALARY BONUS COMPENSATION(1) (# OF SHARES) COMPENSATION
--------------------- -------- -------- --------------- ------------- ------------

Samuel S. Simonian......... $201,400 $355,253 $16,500 -- $ 216(2)
President and Chief
Executive Officer
Elie S. Akilian............ 201,400 328,573(3) 16,500 -- 216(2)
Executive Vice President
Mark A. Weinzierl.......... 201,400 323,573(3) 16,500 -- 216(2)
Executive Vice President
and Secretary
William H. Mina(4)......... 155,833 107,500(5) 16,500 110,000 16,379(6)
Senior Vice President and
Chief Financial Officer

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

(1) Represents a retainer and fees received for services rendered as a director
of the Company.

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

(3) Includes $3,323 earned during 1996 but paid in 1997.

(4) Mr. Mina commenced employment with the Company in February 1997. Prior to
that time, Mr. Mina had served on the Company's Board of Directors.

(5) Includes $57,500, the fair market value as determined by the Board of
Directors on the date of issuance of 50,000 shares of Common Stock issued to
Mr. Mina as a bonus in connection with his commencement of employment with
the Company.

(6) Consists of contributions to Mr. Mina'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 1997. No stock appreciation rights
were granted to these individuals during such year.

INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -------------------------
NAME GRANTED(1) IN 1997 PER SHARE DATE 5% 10%
---- ---------- ---------- -------------- ---------- ---------- -----------

Samuel S. Simonian....... -- -- -- -- -- --
Elie S. Akilian.......... -- -- -- -- -- --
Mark A. Weinzierl........ -- -- -- -- -- --
William H. Mina.......... 110,000(1) 29% $ 1.15 2/28/07 $79,555 $201,608

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

(1) The options were granted on March 1, 1997 and will become fully vested and
exercisable upon the consummation of the offerings.

(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.

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YEAR-END OPTION VALUES

No options were exercised by the Named Officers during 1997. The following
table provides certain information concerning option holdings at December 31,
1997 with respect to each of the Named Officers.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1997 AT DECEMBER 31, 1997
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------

Samuel S. Simonian.................... -- -- -- --
Elie S. Akilian....................... -- -- -- --
Mark A. Weinzierl..................... -- -- -- --
William H. Mina....................... -- 110,000(1) -- $485,870(2)

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

(1) The options will become fully exercisable upon the consummation of the
offerings.

(2) Value is determined by subtracting the exercise price from the fair market
value of the Common Stock at December 31, 1997 ($5.57 per share), as
determined by independent appraisal, multiplied by the number of shares
underlying the options.

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 will be incorporated into
the 1998 Plan upon the date of the offerings, 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

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shares of Common Stock at an exercise price equal to 100% of the fair market
value of those shares on the grant date.

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 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.

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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 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 1999 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
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.

Individuals who are eligible employees on the start date of any offering
period may 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%)
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of the lower of (i) the fair market value of the Common Stock on the
participant's entry date into the 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
2008, 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 and Chief Financial Officer, 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 1997 fiscal year, Wildfire
Communications, Inc. ("Wildfire") has purchased approximately $87,600 of the
Company's products. Robert G. Mechaley, a nominee to become a director of the
Company, is the President and Chief Executive Officer and a director of
Wildfire.

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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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1998, 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, directors and director-nominees
as a group, and (iv) each of the other Selling Stockholders.

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

Samuel S. Simonian(3)........... 13,037,000(4) 31.9% 500,000 12,537,000(4) 28.0%
Elie S. Akilian(3).............. 13,134,000(5) 32.1 500,000 12,634,000(5) 28.2
Mark A. Weinzierl(3)............ 13,057,500 31.9 500,000 12,557,500 28.1
William H. Mina................. 193,000(6) * 50,000 143,000(6) *
Robert G. Mechaley, Jr.......... 0 -- 0 0 *
All executive officers,
directors and
director-nominees as a group
(five persons)................ 39,421,500(7) 96.2 1,550,000 37,871,500(7) 84.5
Other Selling Stockholders:
Brandenburg Life Foundation... 15,000 * 1,000 14,000 *
Pierce Brockman............... 280,000 * 120,000 160,000 *
Chad Harper................... 40,000 * 20,000 20,000 *
Roy Henke..................... 40,000 * 25,000 15,000 *
Steve Holcomb................. 40,000 * 29,000 11,000 *
Mike Reiman................... 280,000 * 120,000 160,000 *
Gary Ruwaldt.................. 131,580 * 13,130 118,450 *
George Zahar.................. 400,000 * 30,000 370,000 *

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

* 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 June 30, 1998 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 264,000 shares held by such stockholder's minor children.

(5) Includes 176,000 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.

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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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 June 30, 1998, there were outstanding 40,880,580 shares of Common
Stock and options to purchase 1,991,000 shares of Common Stock. Upon completion
of the offerings, 44,722,450 shares of Common Stock (45,584,950 shares if the
Underwriters' over-allotment options are exercised in full) will be outstanding,
assuming no exercise of options after June 30, 1998.

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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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 or 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 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. The
Bylaws may be amended by either (a) a majority of the Board of Directors or (b)
the holders of a majority of the Company's voting stock, provided that certain
amendments approved by stockholders require the approval of at least 66 2/3% of
the Company's combined voting power.

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 44,722,450 shares of Common Stock (45,584,950 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 Director 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

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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.

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, President or Chief Executive Officer.

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 more than 60 days nor less than 10
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 involves 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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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
44,722,450 shares of Common Stock (45,584,950 shares if the Underwriters'
over-allotment options are exercised in full), assuming no exercise of options
after June 30, 1998. 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 38,972,450 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, 37,871,500 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 1,191,950 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 June 30, 1998, there were outstanding options to purchase an
aggregate of 1,991,000 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, 1,097,000 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 894,000 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 456,000 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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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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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. In addition, the following
discussion assumes that the investment in the Common Stock will be characterized
for U.S. federal income tax purposes in a manner consistent with such
investment. While counsel believes that such characterization should be given
such investment, there can be no assurance that the U.S. Internal Revenue
Service ("IRS") will not assert that a different characterization should apply.

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. Under the Final
Regulations (defined below) effective for payments made after December 31, 1999,
Non-U.S. Holders will be required to satisfy certain applicable certification

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requirements to claim treaty benefits. Other recently adopted Treasury
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 is an entity should be treated as paid to the entity or those
holding an interest in that entity.

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 under the provisions of a specific treaty or
agreement with the 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.

On October 6, 1997, the U.S. Department of the Treasury issued final
Treasury Regulations (the "Final Regulations") regarding the withholding and
information reporting rules. The Final Regulations are generally effective for
payments made after December 31, 1999, subject to certain transition rules. The
Final Regulations generally do not alter the substantive withholding and
information reporting requirements, but rather unify current certification
procedures and forms and clarify reliance standards. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE EFFECT TO THEM, IF ANY,
OF THE FINAL REGULATIONS.

57
60

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.

EXPERTS

The Consolidated Financial Statements of the Company at December 31, 1995,
1996 and 1997, and for each of the three years in the period ended December 31,
1997, 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.

58
61

INET TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1997
and June 30, 1998 (Unaudited)............................. F-3
Consolidated Statements of Income for the Years ended
December 31, 1995, 1996, and 1997 and the Six Months ended
June 30, 1997 and 1998 (Unaudited)........................ F-4
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1995, 1996 and 1997 and the Six
Months ended June 30, 1998 (Unaudited).................... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1995, 1996, and 1997 and the Six Months ended
June 30, 1997 and 1998 (Unaudited)........................ F-6
Notes to Consolidated Financial Statements.................. F-7

F-1
62

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, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the three years then ended. 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, 1996 and 1997, and the consolidated results
of its operations and its cash flows for the three years then ended in
conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP
------------------------------------

Dallas, Texas
February 17, 1998
except for Note 1,
as to which the date is
July 23, 1998

F-2
63

INET TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

DECEMBER 31,
------------------- JUNE 30,
1996 1997 1998
-------- -------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

Current assets:
Cash and cash equivalents................................ $ 742 $ 3,386 $20,482
Trade accounts receivable, net of allowance for doubtful
accounts of $50,000 and $500,000 at December 31, 1996
and 1997, respectively, and $663,000 at June 30,
1998.................................................. 13,236 15,832 11,438
Unbilled receivables..................................... 3,413 5,355 2,208
Inventories.............................................. 6,513 6,963 7,279
Other current assets..................................... 304 1,565 1,508
------- ------- -------
Total current assets............................. 24,208 33,101 42,915
Property and equipment, net................................ 2,893 5,162 6,194
Other assets............................................... 4 45 74
------- ------- -------
Total assets..................................... $27,105 $38,308 $49,183
======= ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable......................................... $ 3,434 $ 1,329 $ 1,814
Accrued compensation and benefits........................ 1,076 2,237 2,042
Foreign sales commissions payable........................ 881 256 425
Deferred revenue......................................... 2,339 3,271 6,512
Deferred income taxes.................................... 773 759 118
Other accrued liabilities................................ 604 959 1,325
------- ------- -------
Total current liabilities........................ 9,107 8,811 12,236
Deferred tax liabilities................................... 34 111 95
Note payable............................................... 1,350 -- --
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 -- 40,850,422 and 40,900,422 at December
31, 1996 and 1997, respectively, and 40,919,422 at
June 30, 1998....................................... 41 41 41
Additional paid-in capital............................... 372 430 648
Retained earnings........................................ 16,418 29,132 36,380
Treasury stock, 38,842 common shares at December 31, 1996
and 1997 and June 30, 1998, at cost................... (217) (217) (217)
------- ------- -------
Total stockholders' equity....................... 16,614 29,386 36,852
------- ------- -------
Total liabilities and stockholders' equity....... $27,105 $38,308 $49,183
======= ======= =======

See accompanying notes.

F-3
64

INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net revenues............................. $17,531 $42,041 $57,701 $25,090 $34,165
Cost of revenues......................... 4,305 11,138 12,579 5,196 7,693
------- ------- ------- ------- -------
Gross profit................... 13,226 30,903 45,122 19,894 26,472
Operating expenses:
Sales and marketing expenses........... 2,699 5,566 7,069 4,015 3,563
General and administrative expenses.... 4,323 7,530 14,181 6,045 9,084
Research and development expenses...... 3,965 4,519 4,776 2,284 3,032
------- ------- ------- ------- -------
10,987 17,615 26,026 12,344 15,679
------- ------- ------- ------- -------
Income from operations......... 2,239 13,288 19,096 7,550 10,793
Other income (expense):
Interest income........................ 75 20 147 49 322
Interest expense....................... (6) (42) (123) (44) --
Other.................................. (5) (6) (8) 2 --
------- ------- ------- ------- -------
Other income (expense), net.............. 64 (28) 16 7 322
------- ------- ------- ------- -------
Income before provision for
income taxes................. 2,303 13,260 19,112 7,557 11,115
Provision for income taxes............... 644 4,324 6,398 2,530 3,867
------- ------- ------- ------- -------
Net income..................... $ 1,659 $ 8,936 $12,714 $ 5,027 $ 7,248
======= ======= ======= ======= =======
Basic net income per common share........ $ 0.04 $ 0.22 $ 0.31 $ 0.12 $ 0.18
======= ======= ======= ======= =======
Diluted net income per common share...... $ 0.04 $ 0.22 $ 0.30 $ 0.12 $ 0.17
======= ======= ======= ======= =======

See accompanying notes.

F-4
65

INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------- PAID-IN RETAINED --------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
---------- ------ ---------- -------- ------ ------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)

Balance at December 31,
1994...................... 39,250,422 $39 $109 $ 5,823 -- $ -- $ 5,971
Net income................ -- -- -- 1,659 -- -- 1,659
---------- --- ---- ------- ------ ----- -------
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................ -- -- -- 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................ -- -- -- 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
(unaudited)............ 19,000 -- 106 -- -- -- 106
Net income (unaudited).... -- -- -- 7,248 -- -- 7,248
Stock option compensation
expense (unaudited).... -- -- 112 -- -- -- 112
---------- --- ---- ------- ------ ----- -------
Balance at June 30, 1998
(unaudited)............... 40,919,422 $41 $648 $36,380 38,842 $(217) $36,852
========== === ==== ======= ====== ===== =======

See accompanying notes.

F-5
66

INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 1,659 $ 8,936 $12,714 $ 5,027 $ 7,248
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 602 1,038 1,521 632 1,139
Deferred income taxes.................. 12 857 63 -- (848)
Stock option compensation expense...... -- -- -- -- 112
Tax benefit of employee stock
options............................. -- 261 -- -- --
Change in assets and liabilities:
(Increase) decrease in trade
accounts receivable............... (2,388) (5,891) (2,596) 1,952 4,394
(Increase) decrease in unbilled
receivables....................... -- (3,413) (1,942) (511) 3,147
(Increase) decrease in
inventories....................... (7,988) 2,222 (450) (792) (316)
(Increase) decrease in other
assets............................ (234) 176 (1,303) (3,953) 219
Increase (decrease) in accounts
payable........................... 633 2,057 (2,105) (1,331) 485
Increase (decrease) in accrued
compensation and benefits......... 274 633 1,161 345 (195)
Increase (decrease) in foreign sales
commissions payable............... 125 733 (624) (698) 169
Increase (decrease) in deferred
revenue........................... 7,861 (5,809) 932 258 3,241
Increase in accrued liabilities..... 203 43 355 55 366
------- ------- ------- ------- -------
Net cash provided by operating
activities............................. 759 1,843 7,726 984 19,161
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (1,044) (2,119) (3,790) (1,496) (2,171)
------- ------- ------- ------- -------
Net cash used in investing activities.... (1,044) (2,119) (3,790) (1,496) (2,171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of stock option exercises....... -- 4 -- -- --
Treasury stock purchase.................. -- (217) -- -- --
Issuance of common stock................. -- -- 58 58 106
Payments of note payable................. (400) (3,400) (7,068) (2,950) --
Proceeds from note payable............... 700 4,450 5,718 3,900 --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities............................. 300 837 (1,292) 1,008 106
------- ------- ------- ------- -------
Net increase in cash and cash
equivalents............................ 15 561 2,644 496 17,096
Cash and cash equivalents at beginning of
period................................. 166 181 742 742 3,386
------- ------- ------- ------- -------
Cash and cash equivalents at end of
period................................. $ 181 $ 742 $ 3,386 $ 1,238 $20,482
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid............................ $ 6 $ 42 $ 123 $ 44 $ --
======= ======= ======= ======= =======
Income taxes paid........................ $ 409 $ 3,511 $ 6,390 $ 5,480 $ 3,925
======= ======= ======= ======= =======

See accompanying notes.

F-6
67

INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 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 to be paid as a stock dividend on July 23, 1998, to shareholders of
record 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. In connection with
these actions the treasury shares held at June 30, 1998 will be retired.

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
June 30, 1998 and for the six months ended June 30, 1997 and 1998 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 six months ended June 30, 1998 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.

F-7
68
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):

DECEMBER 31
--------------- JUNE 30
1996 1997 1998
------ ------ -------

Raw materials............................................ $3,603 $3,401 $2,969
Work-in-process.......................................... 2,077 1,940 2,355
Finished goods........................................... 833 1,622 1,955
------ ------ ------
$6,513 $6,963 $7,279
====== ====== ======

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:

Computers and other equipment....................... 3-5 Years
Software............................................ 3 Years
Office furniture and fixtures....................... 7 Years
Leasehold improvements.............................. Term of lease

DEFERRED REVENUE

Deferred revenue primarily represents amounts billed to customers under
terms specified in contracts in which completion of contractual terms or
delivery of the product has not occurred and revenue is not yet recognized.

RESEARCH AND DEVELOPMENT EXPENDITURES

REVENUE RECOGNITION

Revenue is generally recognized when the Company has completed
substantially all manufacturing and/or software development to customer
specifications, factory testing has been completed, and the product has been
shipped. For systems where installation and system integration are the
responsibility of the Company, revenue is recognized when the system has been
delivered to and installed at the customer's premises. Unbilled receivables
represent revenue recognized but not billable pursuant to the individual
contract until formal customer acceptance. Formal customer acceptance generally
has been received within 60 days of installation.

F-8
69
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective January 1, 1998, the Company adopted the provisions of Statement
of Position (SOP) 97-2, Software Revenue Recognition, which did not require a
significant change to the Company's 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
concentration 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.

EARNINGS PER SHARE

In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128, Earnings per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130

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.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131

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

F-9
70
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reports issued to shareholders. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and will be
adopted by the Company in connection with its 1998 annual financial statements.
The adoption of Statement 131 will have no impact on the Company's consolidated
results of operations, financial condition, or cash flows.

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.

2. PROPERTY AND EQUIPMENT

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

DECEMBER 31,
--------------- JUNE 30,
1996 1997 1998
------ ------ --------

Computer and other equipment............................ $4,019 $5,664 $ 7,052
Software................................................ 624 2,049 2,683
Office furniture, fixtures, and leasehold
improvements.......................................... 641 1,311 1,460
------ ------ -------
5,284 9,024 11,195
Less accumulated depreciation and amortization.......... 2,391 3,862 5,001
------ ------ -------
$2,893 $5,162 $ 6,194
====== ====== =======

3. NOTE PAYABLE

The Company has had available a line of credit facility with a bank
providing for borrowings of up to $10,000,000. This line of credit facility was
renewed effective June 15, 1998, and extended through June 15, 2000. In
connection with the renewal and extension, the per annum useage fee on unused
portions of the line was reduced from 1/4% to 1/8%. At December 31, 1997,
$369,646 was used to support letters of credit under this line. Borrowings under
this facility bear interest payable quarterly at LIBOR plus 1.5% (7.47% at
December 31, 1997) and are collateralized by the Company's accounts receivable,
inventories, and property and equipment.

An additional $563,172 of letters of credit were outstanding at another
bank at December 31, 1997, which are collateralized by an equal amount of the
Company's cash balances.

4. INCOME TAXES

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

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -----------------
1995 1996 1997 1997 1998
----- ------- ------- ------- -------

Current federal provision................ $556 $3,222 $5,706 $2,256 $4,431
Current state provision.................. 75 245 616 244 285
Deferred federal expense (benefit)....... 13 857 (82) (32) (698)
Current foreign provision................ -- -- 13 5 --
Deferred state expense................... -- -- 145 57 (151)
---- ------ ------ ------ ------
Total income tax provision..... $644 $4,324 $6,398 $2,530 $3,867
==== ====== ====== ====== ======

F-10
71
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- -----------------
1995 1996 1997 1997 1998
----- ------ ------ ------- -------

Provision computed at federal statutory
rate................................. $ 783 $4,508 $6,689 $2,646 $3,890
Utilization of research and development
tax credits.......................... (186) (63) (305) (121) (46)
Foreign Sales Corporation income
exemption............................ (43) (287) (500) (198) (329)
State income taxes, net of federal tax
effect............................... 50 162 481 190 282
Other.................................. 40 4 33 13 70
----- ------ ------ ------ ------
$ 644 $4,324 $6,398 $2,530 $3,867
===== ====== ====== ====== ======

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

DECEMBER 31,
--------------- JUNE 30,
1996 1997 1998
----- ------- --------

Deferred tax liabilities:
Deferred revenue....................................... $(869) $(1,524) $ (951)
Depreciation........................................... (34) (62) (46)
Other, net............................................. (49) (49) (49)
----- ------- ------
Total deferred tax liabilities................. (952) (1,635) (1,046)
Deferred tax assets:
Reserves and other accrued expenses not currently
deductible for tax purposes......................... 145 765 1,024
----- ------- ------
Total deferred tax assets...................... 145 765 1,024
----- ------- ------
Deferred income tax liabilities, net of deferred income
tax assets............................................. $(807) $ (870) $ (22)
===== ======= ======

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 $470,517, $586,588, and $867,893 in 1995, 1996, and
1997, respectively.

At December 31, 1997, future minimum lease payments under noncancelable
operating leases are as follows (in thousands):

1998........................................................ $ 772
1999........................................................ 575
2000........................................................ 4
------
$1,351
======

F-11
72
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. STOCK OPTIONS

The Company has had an Employee Stock Option Plan (the "1995 Plan" or the
"Predecessor Plan" -- see below ) which provides for incentive options and
nonqualified options that may be granted to key employees, officers, directors,
and consultants of the Company. At December 31, 1997, the Company had reserved
6,000,000 shares of its common stock for issuance in connection with the 1995
Plan, which is administered by the Stock Option Committee of the Company's Board
of Directors (the "Committee"). Options have been granted generally at prices
not less than the fair value of the Company's common stock as determined by the
Committee at the dates of grant based on fair market valuation studies performed
by a nationally recognized independent investment banking firm. 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 will result in a total of $692,000
compensation expense which will be recognized ratably over the vesting period of
three years beginning in the first quarter.

Stock option transactions for the years ended December 31, 1995, 1996, and
1997 and the six months ended June 30, 1998, are summarized as follows:

YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------------------------------- JUNE 30,
1995 1996 1997 1998
--------------------- ---------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ----------- -------- ---------- -------- ---------- --------

Outstanding at beginning
of period:.............. 1,620,000 $0.003 2,914,000 $ 0.27 1,220,000 $ 0.64 1,531,750 $0.80
Granted................... 1,435,000 0.60 145,000 0.96 381,750 1.31 506,000 4.20
Exercised................. -- -- (1,600,000) 0.003 -- -- -- --
Forfeited................. (141,000) 0.52 (239,000) 0.60 (70,000) 0.86 (46,750) 1.10
---------- ----------- ---------- ----------
Outstanding at end of
period.................. 2,914,000 0.27 1,220,000 0.64 1,531,750 0.80 1,991,000 1.66
========== =========== ========== ==========
Exercisable at end of
period.................. 1,600,000 0.003 -- -- -- -- -- --
========== =========== ========== ==========
Weighted-average fair
value of options granted
during the period....... $ 1.43 $ 1.93 $ 2.59 $ 21.22
========== =========== ========== ==========

At December 31, 1997, 4,468,250 shares were available for future grants to
employees under the 1995 Plan.

Information related to options outstanding at December 31, 1997, is
summarized below:

OPTIONS OUTSTANDING
------------------------------------
WEIGHTED AVERAGE
OUTSTANDING AT REMAINING
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE
--------------- ----------------- ----------------

$0.60............................. 1,088,000 7.5
1.15............................. 423,750 9.0
4.20............................. 20,000 9.5

F-12
73
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 1995, 1996 and
1997, respectively: risk-free interest rates of 7.79%, 6.33%, and 6.29%; 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.

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):

YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------ ------ -------

Pro forma net income.................................. $1,613 $8,863 $12,609
Pro forma net income per common share................. $ 0.04 $ 0.22 $ 0.31
Pro forma net income per common share -- assuming
dilution............................................ $ 0.04 $ 0.21 $ 0.30

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 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.

F-13
74
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. OPERATIONS

The Company operates in a single industry segment and markets its products
through its sales personnel and certain foreign distributors. The distribution
of the Company's revenues as a percent of total net revenues is as follows:

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------

United States........................... 67.7% 50.6% 47.4% 45.0% 50.5%
Export:
Asia-Pacific Region................... 16.4 15.7 17.4 18.2 9.1
Europe................................ 10.0 29.5 31.0 33.6 34.9
Other................................. 5.9 4.2 4.2 3.2 5.5
----- ----- ----- ----- -----
Total export sales............ 32.3 49.4 52.6 55.0 49.5
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====

In 1995 and 1997, the Company had one customer each year which accounted
for approximately 10% and 14%, respectively, of net revenues.

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

F-14
75
INET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $233,242, $700,291, and $1,040,164 in 1995,
1996, and 1997, 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):

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------

Numerator:
Net income for basic and
diluted earnings per
share...................... $ 1,659 $ 8,936 $ 12,714 $ 5,027 $ 7,248
=========== =========== =========== =========== ===========
Denominator:
Denominator for basic
earnings per share --
weighted average shares.... 39,600,000 40,997,800 41,243,610 41,237,290 41,256,300
Effect of dilutive
securities:
Employee stock options..... 1,607,410 453,550 866,330 529,550 1,408,320
----------- ----------- ----------- ----------- -----------
Dilutive potential common
shares..................... 1,607,410 453,550 866,330 529,550 1,408,320
----------- ----------- ----------- ----------- -----------
Denominator for diluted
earnings per share --
adjusted weighted-average
shares and assumed
conversion................. 41,207,410 41,451,350 42,109,940 41,766,840 42,664,620
=========== =========== =========== =========== ===========
Net income per common share.... $ 0.04 $ 0.22 $ 0.31 $ 0.12 $ 0.18
=========== =========== =========== =========== ===========
Net income per common
share -- assuming dilution... $ 0.04 $ 0.22 $ 0.30 $ 0.12 $ 0.17
=========== =========== =========== =========== ===========

For additional disclosures regarding the employee stock options, see Note
6.

F-15
76

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:

NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------

Goldman, Sachs & Co. .......................................
Dain Rauscher Wessels.......................................
Hambrecht & Quist LLC.......................................

---------
Total............................................. 4,600,000
=========

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 $ per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ 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 representatives of
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 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

U-1
77

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 to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, are 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 Common Stock than they are required to purchase from the
Company 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 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.
U-2
78

Application will be made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "INTI", subject to official notice
of issuance.

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

U-3
79

DESCRIPTION OF ARTWORK ON INSIDE BACK COVER

[Picture of an individual dressed in a business suit looking through a
free-standing, binocular viewer. In the upper left corner is the Company's
logo.]

Text:

Text at Upper Right Corner, Flush Right: "Inet's hardware and software solutions
help local, long distance and wireless telecommunications carriers worldwide
develop, deploy and optimize their intelligent networks and advanced services.
These solutions can

improve efficiency, increase profitability, manage fraud, test services and
evaluate network elements in the growing telecommunications market. Inet's
products help carriers and manufacturers see how operational changes impact
their customers. So they can manage their networks and their business better."

Text superimposed over middle of picture: "An eye for surveillance, a mind for
business"

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

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

PAGE
----

Prospectus Summary......................... 3
Risk Factors............................... 5
Use of Proceeds............................ 16
Dividend Policy............................ 16
Dilution................................... 17
Capitalization............................. 18
Selected Consolidated Financial Data....... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 20
Business................................... 28
Management................................. 43
Certain Transactions....................... 49
Principal and Selling Stockholders......... 50
Description of Capital Stock............... 51
Shares Eligible for Future Sale............ 54
Certain U.S. Federal Income Tax
Considerations for Non-U.S. Holders of
Common Stock............................. 56
Legal Matters.............................. 58
Experts.................................... 58
Additional Information..................... 58
Index to Consolidated Financial
Statements............................... F-1
Underwriting............................... U-1

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

UNTIL , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), 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

------------------------------------------------------
------------------------------------------------------
81

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meaning assigned to them in the Prospectus which forms
a part of this Registration Statement.

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.

SEC registration fee........................................ $ 33,162
NASD fee.................................................... 11,742
Nasdaq National Market listing fee.......................... 17,500
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 190,000
Blue sky fees and expenses.................................. 10,000
Transfer agent fees......................................... 15,000
Miscellaneous............................................... 12,596
--------
Total............................................. $740,000
========

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

* To be included by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Subsection (a) of Section 145 ("Section 145") of the DGCL empowers a
corporation to indemnify any person who was or is a party or is threatened,
pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.

Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
such action, suit or proceeding referred

II-1
82

to in subsections (a) and (b) of Section 145 or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith; that the indemnification provided for by Section 145 shall not be
deemed exclusive of any other rights which the indemnified party may be
entitled; that indemnification provided by Section 145 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.

Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of the director (i) for any breach of the
director's duty of loyalty to the corporation 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, or (iv) for any
transaction from which the director derived an improper personal benefit.

Article VI of the registrant's Charter provides that, to the fullest extent
permitted by the DGCL as the same exists or as it may hereafter be amended, no
director of the registrant shall be personally liable to the registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.

Section 11.1 of the registrant's Bylaws further provides that the
registrant shall, to the maximum extent and in the manner permitted by the DGCL,
indemnify each of its directors and officers against expenses (including
attorneys' fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was an agent of the registrant.

Prior to consummation of the offerings, the registrant 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.

Prior to consummation of the offerings, the registrant intends to obtain
officers' and directors' liability insurance.

Reference is made to Section 9 of the Underwriting Agreements filed as
Exhibits 1.1 and 1.2 hereto, indemnifying the officers and directors of the
registrant against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since July 1, 1995, the registrant has issued and sold or otherwise
transferred the below listed unregistered securities. These issuances were
deemed exempt from registration under the Securities Act in reliance on Rule 701
promulgated under the Securities Act or Section 4(2) of the Securities Act.

1. In March 1996, the registrant issued and sold 1,600,000 shares (net of
repurchases) of its Common Stock to employees for an aggregate purchase
price of $4,000 pursuant to exercises of options granted by the
registrant.

2. In February 1997, the registrant issued 50,000 shares of its Common
Stock to William H. Mina as a bonus in connection with the commencement
of his employment with the Company.

II-2
83

3. The Company has from time to time granted stock options to employees.
The following table sets forth certain information regarding such
grants:

NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------

July 1, 1995 through June 30, 1996.................... 50,000 $0.60
July 1, 1996 through June 30, 1997.................... 456,750 1.15
July 1, 1997 through the date hereof.................. 526,000 4.20

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2 Bylaws.
4.1* Specimen Common Stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation and Bylaws of the registrant defining the
rights of holders of Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Lease dated as of May 1, 1996 by and among Pitman Partners,
Ltd., Rosewood Property Company and the registrant.
10.2 Loan Agreement dated as of June 26, 1997 by and between
NationsBank of Texas, N.A. and the registrant.
10.3 Inet Technologies, Inc. 1998 Stock Option/Stock Issuance
Plan.
10.4 Form of Indemnification Agreement between the registrant and
each of its directors and executive officers.
10.5 Form of Registration Rights Agreement, dated as of July 17,
1998 by and among the registrant, Samuel S. Simonian, Elie
S. Akilian and Mark A. Weinzierl.
10.6 Renewal, Extension and First Amendment to Loan Agreement
entered into to be effective as of June 15, 1998 between the
Company and NationsBank, N.A.
10.7 Fourth Amendment to Office lease dated as of July 15, 1998
by and among Pitman Partners, Ltd., Rosewood Property
Company and the registrant.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in the
opinion filed as Exhibit 5.1).
24.1 Power of attorney pursuant to which amendments to this
registration statement may be filed (included on the
signature page in Part II hereof).
27.1 Financial data schedule for the period ended June 30, 1998.
27.2 Financial data schedule for the period ended June 30, 1997.
27.3 Financial data schedule for the period ended December 31,
1997.
27.4 Financial data schedule for the period ended December 31,
1996.
27.5 Financial data schedule for the period ended December 31,
1995.
99.1 Consent of Robert G. Mechaley, Jr.

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

* To be included by amendment.
II-3
84

(b) Financial Statement Schedules:

The following financial statement schedule of the Company is included in
Part II of this registration statement:

PAGE
----

Report of Independent Auditors on Financial Statement
Schedule.................................................. S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Consolidated Financial Statements or the Notes thereto.

ITEM 17. UNDERTAKINGS.

The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the DGCL, the Certificate of Incorporation or the Bylaws
of the registrant, the Underwriting Agreement, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

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85

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Plano,
State of Texas, on this 24th day of July, 1998.

INET TECHNOLOGIES, INC.

By: /s/ SAMUEL S. SIMONIAN
------------------------------------
Samuel S. Simonian
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Samuel S. Simonian and William H. Mina
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the
same offering covered by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

NAME TITLE DATE
---- ----- ----

/s/ SAMUEL S. SIMONIAN President, Chief Executive Officer July 24, 1998
- ----------------------------------------------------- and Director (principal
Samuel S. Simonian executive officer)

/s/ ELIE S. AKILIAN Executive Vice President and July 24, 1998
- ----------------------------------------------------- Director
Elie S. Akilian

/s/ MARK A. WEINZIERL Executive Vice President and July 24, 1998
- ----------------------------------------------------- Director
Mark A. Weinzierl

/s/ WILLIAM H. MINA Senior Vice President, Chief July 24, 1998
- ----------------------------------------------------- Financial Officer and Director
William H. Mina (principal financial and
accounting officer)

II-5
86

REPORT OF ERNST & YOUNG LLP, 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, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997, and have
issued our report thereon dated February 17, 1998, except for Note 1, as to
which the date is July 23, 1998, (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP
------------------------------------

Dallas, Texas
February 17, 1998
except for Note 1,
as to which the
date is July 23, 1998

S-1
87

INET TECHNOLOGIES, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS)

ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) YEAR
----------- ---------- ---------- ------------- ----------

Year ended December 31, 1995:
Deducted from asset accounts --
Allowance for doubtful accounts............ $50 $ 58 $63 $ 45
=== ==== === ====
Year ended December 31, 1996:
Deducted from asset accounts --
Allowance for doubtful accounts............ $45 $ 12 $ 7 $ 50
=== ==== === ====
Year ended December 31, 1997:
Deducted from asset accounts --
Allowance for doubtful accounts............ $50 $452 $ 2 $500
=== ==== === ====

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

(1) Activity includes uncollectible accounts written off, net of recoveries.

S-2
88

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2 Bylaws.
4.1* Specimen Common Stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation and Bylaws of the registrant defining the
rights of holders of Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Lease dated as of May 1, 1996 by and among Pitman Partners,
Ltd., Rosewood Property Company and the registrant.
10.2 Loan Agreement dated as of June 26, 1997 by and between
NationsBank of Texas, N.A. and the registrant.
10.3 Inet Technologies, Inc. 1998 Stock Option/Stock Issuance
Plan.
10.4 Form of Indemnification Agreement between the registrant and
each of its directors and executive officers.
10.5 Form of Registration Rights Agreement, dated as of July 17,
1998 by and among the registrant, Samuel S. Simonian, Elie
S. Akilian and Mark A. Weinzierl.
10.6 Renewal, Extension and First Amendment to Loan Agreement
entered into to be effective as of June 15, 1998 between the
Company and NationsBank, N.A.
10.7 Fourth Amendment to office lease dated as of July 15, 1998
by and among Pitman Partners, Ltd., Rosewood Property
Company and the registrant.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in the
opinion filed as Exhibit 5.1).
24.1 Power of attorney pursuant to which amendments to this
registration statement may be filed (included on the
signature page in Part II hereof).
27.1 Financial data schedule for the period ended June 30, 1998.
27.2 Financial data schedule for the period ended June 30, 1997.
27.3 Financial data schedule for the period ended December 31,
1997.
27.4 Financial data schedule for the period ended December 31,
1996.
27.5 Financial data schedule for the period ended December 31,
1995.
99.1 Consent of Robert G. Mechaley, Jr.

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

* To be included by amendment.