This discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes included in this Form 10-K. Statements contained in this discussion that are not historical facts are forward-looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance. A forward-looking statement may contain words such as "plans," "hopes," "believes," "estimates," "will," "continue to," "expect to," "anticipate that," "to be," or "can affect." Forward-looking statements are based upon management expectations, forecasts and assumptions that involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Many factors may cause actual results to vary including, but not limited to, the factors identified in this discussion. The Company expressly disclaims any obligation or undertaking to revise or publicly release any updates or revisions to any forward-looking statement contained in this discussion except as required by law. Investors should carefully review the risk factors described in this document along with other documents the Company files from time to time with the Securities and Exchange Commission (SEC).

Critical Accounting Policy Judgments and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates and assumptions, which we evaluate on an on-going basis, include, but are not limited to: assumptions related to contracts that have multiple elements, the allowances for sales returns and potentially uncollectible accounts receivable, the valuation of inventory, warranty costs, the valuation allowance on deferred tax assets, certain reserves and accruals, estimated lives of depreciable assets, and assumptions related to stock-based compensation. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed the foregoing disclosure. Changes in estimates used in these and other items could have a material effect on our financial statements.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements:

Revenue Recognition: We recognize product revenue when all four of the following criteria are met:

1) we have a contract with our customer,
2) the product has been shipped as required by the contract and risk of loss has passed to the customer,
3) the price is fixed or determinable, and
4) collection of payment is reasonably assured.

If the customer has a right of acceptance and we have not yet obtained acceptance, revenue is deferred until the terms of acceptance are satisfied. When product revenue is deferred, we also defer the associated cost of goods until the revenue is recognized. We recognize service revenue upon completion of the service or, for ongoing services such as maintenance, ratably over the period of the contract. For sales arrangements that involve multiple elements to be delivered at different times, such as a sale of equipment together with post-contract support services, we assign revenue to each element based on its fair value and recognize revenue for each element as the criteria for recognition are met. Fair value for each element is determined by vendor-specific objective evidence, if available, such as the sales price charged when the same element is sold separately, or otherwise by the residual method, whereby the value of delivered elements is determined by subtracting the fair value of the undelivered elements from the total value of the arrangement. If vendor-specific objective evidence of fair value of one or more undelivered elements does not exist, revenue on the entire arrangement is deferred and is recognized only upon delivery of those elements or when fair value has been established.

For a contract related to funded research and development activities, we recognize revenue and related costs in accordance the provisions of American Institute of Certified Public Accountants Statement of Position No. 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". We account for this contract using the completed contract method because we have determined that reasonable estimates of gross profit and percentage of completion are not available. All revenues and related costs are deferred until the contract is completed. Because the completed contract method precludes recognition of performance under the contract as the work progresses, it does not reflect current financial performance when the contract extends beyond one accounting period, and it therefore may result in uneven recognition of revenue, related cost of revenues and gross margin.

Allowance for Sales Returns: A reserve for sales returns is established primarily for our reseller and distributor customers, based on actual historical product returns. If the actual future returns differ from historical levels, our revenue could be adversely affected.

Allowance for Doubtful Accounts: The allowance for doubtful accounts receivable is based on our assessment of the collectability of specific customer accounts and the aging of accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than our historical experience, we may have to increase our allowance for doubtful accounts receivable, and our operating expenses could be adversely affected. Credit losses have historically been within our expectations and the allowances for doubtful accounts receivable that were established.

Inventory and Contract Manufacturer Liabilities: Under our agreement with our primary contract manufacturer, we maintain a level of control over parts procurement, design, documentation, and selection of approved suppliers. We are generally liable for any termination or cancellation of product orders, as well as excess and obsolete material, which can result, for example, from an engineering change, product obsolescence, or inaccurate component forecasting. Under the agreement, the contract manufacturer is to procure raw materials and begin manufacturing of products in accordance with our forecasts. If certain purchased raw materials are held for greater than 90 days or certain work-in-process items are held for greater than 60 days, we must make deposits on the aging inventory, although the contract manufacturer must make efforts to minimize our liability for the aging inventory, including returning materials to suppliers, canceling orders with suppliers, or using materials to manufacture product for its other customers. If raw material or in-process inventories are still unused and have been held for more than nine months, we must take ownership and pay for the aged inventory, unless there is future forecasted demand for such inventory, in which case we must pay a management fee for such inventory and if the forecasted demand does not materialize we must then take ownership and pay for such inventory. This activity may increase our owned inventories.

At March 27, 2009, our contract manufacturer held approximately $11.9 million of inventory related to our products. Our deposit relating to this inventory was $8.1 million at March 27, 2009 and reserves relating to this deposit were $2.7 million. Both the deposit and the related reserves are included in prepaid expenses and other assets on the consolidated balance sheets. Additional deposits may be required under the terms of the agreement.

We value inventory at the lower of cost (first-in, first-out) or market. If we believe that demand no longer allows us to sell our inventory above cost, or at all, we establish reserves to write down inventory to market value or write off excess or obsolete inventory. We use estimates to allocate manufacturing overhead to inventory which is expensed when the inventory is sold to the end customer.

Long-lived Assets: We evaluate the carrying value of long-lived assets, including goodwill and other intangibles, at least annually and whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. At a minimum, we evaluate the carrying value of goodwill for impairment by applying a fair value-based test. We recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset including disposition are less than the carrying value of the asset. An impairment is measured as the amount by which the carrying value exceeds the fair value. We amortize intangible assets that have finite useful lives greater than a year, consisting primarily of purchased technology and rights to use technologies, trademark, customer list, and patents, over their estimated useful lives.

During the second quarter of fiscal 2009, we concluded the carrying value of the net assets of the Company exceeded the Company's fair value, based on quoted market prices of the Company's common stock. As such, we determined that an impairment analysis of long-lived assets should be performed prior to an impairment analysis of goodwill. We first performed an analysis in accordance with Statement of Financial Accounting Standards (SFAS) 144, Accounting for the Impairment or Disposal of Long-lived Assets, to determine the impairment of long-lived assets, if any, as there was an indication that the carrying amount of certain long-lived assets might not be recoverable. As a result of this impairment analysis, we recorded an impairment charge of $16.5 million, which is included in the captions "Impairment of long-lived assets" in the accompanying consolidated statements of operations. Of the total long-lived asset impairment recorded in the second quarter of fiscal 2009, $12.5 million related to assets recorded in connection with the purchase of Quintum, $3.7 million related to a license and development agreement and $258,000 related to property and equipment.

We then performed an additional analysis, as required by SFAS 142, Goodwill and Other Intangible Assets, which indicated that a goodwill impairment loss was probable because the fair value of the Company including goodwill was less than the carrying value of the Company after the adjustments made for the impairment of long-lived assets. As a result, in the second quarter of fiscal 2009 we recognized a goodwill impairment loss in the amount of $27.4 million which was the excess of the carrying value of goodwill over its implied fair value.

In the fourth quarter of fiscal 2009 we recorded an additional impairment charge of $320,000 relating to license fees paid by Quintum for a new product initiative that we decided not to pursue as part of the integration of Quintum and NET operations.

Warranty Accruals: We provide a warranty for hardware product and software generally for twelve months. A portion of our products are warranted for two years. The software warranty entitles the customer to bug fixes but not software upgrades during the warranty period. We accrue warranty expense based on historical expense trends calculated as a percentage of new product sales. Actual expenses are charged against the accrual in the period they are incurred. On a quarterly basis, the warranty accrual is analyzed for adequacy based on actual trends and subsequent adjustments are made to the liability balance. If actual return rates or repair and replacement costs differ significantly from our estimates, adjustments to recognize additional cost of sales may be required. Historically, actual warranty costs have been consistent with our estimates.

Vacated Facilities: In the fourth quarter of fiscal 2007, we recorded a charge of $10.1 million of which $4.6 million related to estimated future net costs of our former manufacturing facility. In determining the amount of this charge, we made certain estimates, including future sublease rents to be received, future rent increases to be paid to our current landlord, allocation of original construction costs, and future operating costs. We executed a sublease for a portion of the facility early in the second quarter of fiscal 2008, on financial terms consistent with the estimates. In fiscal 2009, we recorded additional restructuring cost of $1.1 million due to a change in our estimate of the cost to vacate our former manufacturing facility. We will adjust the liability over the remaining term of the lease for future changes in terms, estimates used, or actual costs incurred and sublease revenues received.

Stock-based Compensation: Effective with our first quarter of fiscal 2007, we account for stock-based awards to employees using the fair value recognition provisions of Statements of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment (SFAS 123R), requiring recognition of the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of the award rather than apply intrinsic value measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and its related interpretations.

We have elected the modified prospective transition method as permitted by SFAS 123R and therefore have not restated the financial results for prior periods. Under this transition method, stock-based compensation expense for years beginning with fiscal 2007 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested, as of the beginning of fiscal 2007, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, as adjusted for estimated forfeitures. We recognize compensation expense for all share-based payment awards granted subsequent to fiscal 2006 on a straight-line basis over the respective requisite service period of the awards. Compensation expense for share-based payment awards granted on or prior to March 31, 2006 but not vested as of March 31, 2006, is recognized on an accelerated basis.

Deferred Taxes: We determine our income taxes in each of the jurisdictions in which we operate which involves estimating our actual current tax expense together with assessing temporary differences resulting from recognition of items for income tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from taxable income during the carryback period or in the future, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Our most significant deferred tax assets are net operating losses, for which we provide a valuation allowance based on our estimation of the likelihood of recovery. During fiscal 2008, we determined that it was more likely than not we will realize a portion of our foreign net operating loss carryforwards and removed the associated valuation allowance. All other deferred tax assets carry a full valuation allowance. Current federal and state tax laws include provisions that could limit the annual use of our domestic net operating loss carryforwards in the event of certain defined changes in stock ownership. Acquisitions or other events involving issuances of common and preferred stock could result in such a change. Accordingly, the annual use of our net operating loss carryforwards may be limited by these provisions, and this limitation may result in the loss of carryforward benefits to the extent the above-limit portion expires before it can be used.

Effective the beginning of fiscal 2008, we adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We record interest and penalties related to income tax matters in income tax expense.

Tax years from 1999 in the U.S. and 2003 in our primary foreign jurisdictions remain open for examination. Although the timing of resolution and closure of audits is highly uncertain, we do not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next twelve months.

Results of Operations

The following table sets forth selected data derived from our consolidated statements of operations expressed as a percentage of revenue for the periods presented:

                                                           Year Ended
                                                March        March        March
Percent of revenue                            27, 2009      28, 2008     30, 2007
Product                                          77.8 %       88.3  %      86.6  %
Service                                          22.2         11.7         13.4
Total revenue                                   100.0        100.0        100.0

Product gross margin                             39.9         56.1         60.4
Service gross margin                              1.2          9.2          9.1
Total gross margin (1)                           16.0         50.7         53.5

Sales and marketing                              32.2         17.4         22.2
Research and development                         33.2         20.9         25.5
General and administrative                       19.9          9.8         15.6
Impairment of goodwill and long-lived assets     52.0            -            -
Restructure and other costs                       3.6          0.1         12.1
Total operating expenses                        140.9         48.2         75.4
Income (loss) from operations                  (124.9 )        2.5        (21.9 )

Interest income                                   5.6          4.4          4.3
Interest expense                                 (5.9 )       (2.5 )       (2.2 )
Other income (expense), net                      44.0          0.3         (0.1 )
Income (loss) before taxes                      (81.2 )        4.7        (19.9 )
Income tax provision (benefit)                    0.1         (1.5 )       (0.6 )

Total gross margin includes effect of impairment of long-lived assets of $10.1 million in fiscal 2009.

Overview and Highlights

·

Revenue was down substantially, on reduced product sales, leading us to seek cost reductions throughout the organization, but we have substantially maintained our investments in sales and marketing and in research and development as we shift our product focus to the emerging unified communications and secure voice markets. Product revenue fell during the year due to reduced orders from government customers, offset somewhat by increased revenue from commercial customers, principally as a result of the acquisition of Quintum, completed in December 2007. Throughout fiscal 2009, we engaged in a range of cost-savings initiatives, including a significant overall reduction in staff from the end of the prior fiscal year. As we strive to make inroads into new markets, particularly the emerging markets for unified communications and secure voice networking, we have maintained significant spending on sales and marketing and on research and development in order to build our future market position.

·

We recorded a non-cash impairment charge of $44.3 million for goodwill and long-lived assets. During the second quarter of fiscal 2009, we conducted impairment tests in accordance with SFAS 142 and SFAS 144 and determined there was significant impairment to goodwill and long-lived assets. Accordingly, we recorded impairment charges totaling $43.9 million in large part relating to assets recorded in connection with the acquisition of Quintum in December 2007. In the fourth quarter of 2009 we recorded an additional impairment charge of $320,000 relating to license fees paid by Quintum for a new product initiative that we decided not to pursue as part of the integration. Of the total impairment charges incurred in fiscal 2009, $10.1 million was charged to cost of product revenue, and $34.2 million was charged to operating expense.

·

Total revenue for fiscal 2009 was 43.4% lower than in fiscal 2008. The decrease in total revenue from the prior year was due to lower product revenue, particularly from government customers, due partly to delays in program spending, the delay in passing the Federal budget, and fewer new programs using our Promina and VoIP equipment.

·

Sales of voice-over-IP (VoIP) platforms contributed significantly to product revenue. In 2009 sales of VoIP platforms were down from the prior year but contributed 43.3% of product revenue. The VX Series and Quintum Series product lines provide enterprise customers with voice interoperability solutions for unified communications and SIP trunking services. In addition, the VX Series provides IP-based solutions to government agencies for secure voice communications and the Quintum Series provides traditional VoIP switching gateway solutions.

·

We retired $73.0 million of convertible debt. In fiscal 2009, we used $41.2 million of cash to repurchase a portion of our 3¾% convertible senior notes at a discount and $640,000 of cash to repurchase a portion of our 7¼% redeemable convertible subordinated debentures at a discount. We recorded a net gain of $28.9 million on these repurchases. We also used $1.3 million to repurchase shares of our common stock, mostly through open-market purchases under an announced buy-back program (a small portion of the repurchases were made in the form of employee surrenders of restricted stock awards in satisfaction of tax withholdings due upon vesting of the awards.)

·

Our sales to the government sector continue to account for a majority of our revenue yet such sales have declined substantially. We expect our mix of product sales and our sector mix to fluctuate quarter to quarter, as our customers continue to move to IP-based communications. Spending by government customers is dependent on the size of budget allocations, the timely passage of the annual federal budget and the timing of specific programs. The following table shows product revenue from our Promina product and total revenue from our government customers:

 (in thousands)             Year Ended                         Year Ended
                      March         March        FY09 vs          March        FY08 vs
                     27, 2009     28, 2008        FY08          30, 2007         FY07
Revenue from
government
customers           $ 47,906     $ 101,577       (52.8 )%      $   76,571         32.7 %
% of total revenue      72.8 %        87.5 %                         91.1 %

Promina product
revenue             $ 21,731     $  54,297       (60.0 )%      $   51,522          5.4 %
% of product
revenue                 42.4 %        52.9 %                         70.8 %




Revenue

(in thousands)      Year Ended                        Year Ended
                 March       March      FY09 vs         March        FY08 vs
               27, 2009    28, 2008       FY08         30, 2007       FY07
Product         $ 51,202   $ 102,608     (50.1 )%     $    72,813     40.9  %
Service           14,586      13,536       7.8             11,281     20.0
Total revenue   $ 65,788   $ 116,144     (43.4 %)     $    84,094     38.1  %

Total revenue for fiscal 2009 was significantly lower than in fiscal 2008 due principally to reduced orders from government customers. The reduction was due to delays in government program spending, the delay in passing the Federal budget, and fewer new programs using our legacy Promina equipment.

The reduction in revenue from government customers was offset somewhat by increased revenue from commercial customers, principally as a result of the acquisition of Quintum.

Total revenue in fiscal 2008 was higher than in fiscal 2007 due in large part to an increase in our domestic and international government business. Revenue from government customers in fiscal 2008 increased 32.7% compared to fiscal 2007 despite our having increased the tiered discounts we provide to the government under our contract with the General Services Administration (GSA) by an additional four percentage points off of our list prices, beginning midway through our fiscal year. Revenue from our commercial customers in fiscal 2008 increased $7.1 million, or more than 95%, as compared to fiscal 2007, including $4.9 million of revenue from Quintum products following the acquisition of Quintum in December 2007. The rest of the increase in fiscal 2008 compared to fiscal 2007 resulted from a $2.5 million increase in revenue from sales in Europe, driven in large part by upgrades and expansions of existing Promina networks.

Product revenue was lower in fiscal 2009 primarily due to the shortfall in government customer orders. Fiscal 2009 product revenue was lower than in fiscal 2008 for all product lines other than Quintum products, though there was no significant prior year comparative data for Quintum as the acquisition occurred late in the third quarter of fiscal 2008.

Product revenue increased in fiscal 2008 compared to fiscal 2007 primarily due to increased demand by government customers for tactical and mobile applications and increased sales to commercial customers of VoIP products and upgrades and expansions of legacy equipment. Product revenue from sales of our VX Series products increased $15.5 million in fiscal 2008. Fiscal 2007 included $2.7 million of previously deferred revenue from our contract with NATO, on which we achieved final acceptance late in fiscal 2007. ITT Corporation (formerly EDO Corporation), a government systems integrator, accounted for $21.3 million, or 18.4% of total revenue in fiscal 2008, purchasing products in both our Promina and VX Series. Revenue from ITT Corporation was $18.2 million, or 21.6% of total revenue, in fiscal 2007.

We expect our mix of product sales and our sector mix to fluctuate quarter to quarter, as our customers continue to move to IP-based communications. Spending by government customers is dependent on the size of budget allocations and, particularly in our fiscal third quarter, the timely passage of the annual federal budget. Sales to our government customers also fluctuate, based upon the timing of specific government programs.

Service revenue increased in fiscal 2009, due mostly to an increase in service to government customers.

Service revenue increased by $2.3 million in fiscal 2008 from fiscal 2007, primarily as a result of our expanded relationship with CACI, which began in the fourth quarter of fiscal 2007. Through a contractual arrangement, CACI has had certain rights to provide maintenance and other services to our Federal Government customers. Under the expanded arrangement, both NET and CACI sell services for NET's product lines, and each company is responsible for various aspects of service delivery. Revenue from maintenance and training services is shared between the companies, with the percentage determined based upon revenue levels.

Significant fluctuations in our service revenue can occur as a result of factors affecting the timing of the recognition of revenue, including customer deployment schedules and contractual acceptance provisions.

Gross Margin

                                     Year Ended
                          March         March         March
                        27, 2009      28, 2008      30, 2007
Product gross margin        39.9 %        56.1 %        60.4 %
. . .